Shiny Happy People: The Future of Europe?

One of the most brilliantly provocative pieces that our CSO has recently come across is Financial Times doyen Simon Kuper’s Smile if you’re European (3rd May 2013). Kuper convincingly posits that while the banner headlines concerning Europe pertain almost invariably these days to crisis and decline, the continent’s ‘terrible time’ is not necessarily one that looks so bad ‘compared with probably every other continent and any time in history’. The co-author of the wonderful Soccernomics cogently points to Europe’s exceptional paucity of large-scale violence, high life expectancies, relative lack of corruption perception and economic equity as reasons why life even in dynamic emerging markets will take a long time to catch up to what is considered ordinariness in the Old Continent.

Yet as convincing as Kuper’s analysis seems, after some reflection we at Mediolana believe that he has neglected to give weight to several factors which may point to a less benign future for the land mass that did so much to define much of the nineteenth and twentieth centuries:

1. Geography. Kuper is writing from Turin, home of Juventus and Fiat, and one of the most affluent and well-run cities not just in northern Italy but the entire world. A perspective from several other football-mad European metropolises – Madrid and Lisbon, let alone Athens – is pronouncedly different; in an uncomfortable number of countries, the European dream of tidy prosperity has already been annihilated.

2. Change. As those familiar with Asian and African history will no doubt be especially aware, great societies can and do go into astonishing decline which may not be arrested within any reassuring timescale. The dispassionate observer can see traces of this in countries such as Spain, which lost 2.7 million mobile telephone subscribers in 2012 and whose digital telecoms base continues to shrink. At the same time, the last few decades has seen the near-monopoly which the developed world held on the Wonders of Modern Life – such as metro systems, higher education and world-class ice-cream and coffee – eroded.

3. Generation. As someone born in 1969, Kuper would have had access to a normal jobs market upon graduation from university in the early 1990s. To anyone facing relevant unemployment rates of c.50%+ in countries as diverse and Portugal and Bosnia, the future prospects of Europe minus the chance for reasonable remuneration and capital accumulation will look decidedly different.

Why is Liberal Britain Dying?

Regular readers of this blog will by now be well aware that if Mediolana CSO Asad Yawar is reading anything, there’s a decent chance that it’s a copy of the Financial Times; a recent piece by political columnist Janan Ganesh demonstrated once again the power of the beige-papered publication of record to inspire. In Strange death of a more liberal Britain (25th March 2013), Ganesh notes that as well as economic growth, ‘the looseness and openness that has historically accounted for much of the UK’s success – and appeal to outsiders – is also in danger of being misplaced’. Citing (i) the recent mooting of a restrictive press law; (ii) the ever-tougher and now cross-party rhetoric on immigration; and (iii) the repeated ‘wounds’ received by the City of London from Westminster and Brussels, Ganesh laments the loss of tolerance for ‘tolerating real messiness in economic and public life’.

There is little doubt that in many basic ways the United Kingdom (as at least partially opposed to London) has become (and will probably continue to become) a much less ‘liberal’ place than it previously has been. But why is this? After some contemplation, we feel that this trend can be largely explained by the loss of the ‘three cogencies’ of liberalism in the local (and to some degree, global) context:

1. Economic Cogency. With the ongoing and epoch-defining financial collapse which began to make itself felt in 2007, (extreme) economic liberalism has begun to resemble communism: a nice theory that doesn’t necessarily work very well. Rapid-fire financialisation, self-regulation and endless credit were once synonymous with Progress. Now it has become abundantly clear that implementation of these previously unquestionable tenets of (post-)modern growth can in fact destroy economic value far faster than they create it, it is scarcely surprising that to many observers, economic liberalism has lost its appeal.

2. Social Cogency. The cold, hard statistics consistently show that non-UK nationals are a much lighter burden on the state than UK nationals; that they are more entrepreneurial and very significant sources of inward investment; and that if your economy is not attractive to immigrants, you are probably in big, big trouble. But none of this matters if large sections of the media and public taken as a whole prefer to ignore these ‘dry facts’. In a country of increasing economic insecurity and an ever-diminishing global status, the truth is often simply unpalatable for much of the population.

3. Intellectual Cogency. With Francis Fukuyama’s End of History thesis broadly accepted at face value, liberal theoreticians and practitioners alike have been busy fulfilling his ‘prophecies’ with unerring accuracy. Ever-expanding albeit rather selective social freedoms – to marry someone regardless of their gender, to purchase alcohol in a bar 24-7, to never stop shopping – have not papered over the crisis of meaning (and since 2007, sustenance) that has become all-too-apparent since the end of the Cold War. If liberalism can no longer say anything profound about the world or remedy any of its most pressing problems, we should not be surprised at its atrophying – however regrettable this may be.

Should Capitalism Come With An Instruction Manual?

Over a lengthy (and almost indescribably relaxed) breakfast this weekend, our CSO’s attention was diverted from his habitual rummaging through the FT Weekend magazine by a piece in the main section of the Financial Times. Voice of indignation is household name (Tobias Buck, 9th/10th March 2013) charted the rise of one Ada Colau Ballano (‘Ada Colau’), a 1992 graduate of Barcelona University’s Faculty of Philosophy who recently hit the headlines for her actions as a social activist during a briefing session on Spain’s mortgage crisis in the Cortes Generales: turning to the member of the Spanish banking association with whom she was co-briefing the parliamentarians, she labelled him a criminal worthy of treatment as such – and she has never looked back, with regular appearances in the Spanish media as a spokeswoman for the Plataforma de Afectados por la Hipoteca (‘Platform of Mortgage Victims’).

Colau’s group has collected 1.4m signatures in favour of proposed legislative changes to, amongst other things, make evictions of non-paying mortgagors much harder, and preventing banks demanding payment in full of mortgages on repossessed properties. In an era when suicides of soon-to-be evicted homeowners are an all-too-real occurrence, this would appear to be the type of step which should be contemplated; any system which evinces a lack of flexibility in the face of genuine human suffering is treading on thin ice.

Yet while compassion must ultimately reign supreme, we at Mediolana wonder whether these kinds of solutions are the correct long-term approach, because on some level they themselves enshrine a fundamental injustice: that of the debtor failing to make good on their promise to pay back money that is not theirs. Both the educational system and wider society must in the future take much more profound steps to ensure that mortgage-dominated financial crises of the type that threaten to decimate Spain are rendered much more unlikely to happen:

1. Capitalism: No One-Way Street. During the boom years to 2007 – and not just in the eurozone periphery – the idea that capitalism was perpetual no-risk feast, with everyone guaranteed a slice of Shangri-La, was perpetuated by policymakers, financial institutions and media organs – and gleefully swallowed up by the general public at large. That successful capitalism required hard work, delayed gratification, transparent (and accurate!) accounting and cutting one’s cloth accordingly (including not purchasing a house if the means to do so were not realistically sustainable) – all these and many more principles were pooh-poohed with a combination of bogus mathematical models and naive arrogance that merely fuelled the inevitable bust.

2. Capitalism: The Sum of Its Parts. Economic systems are not just abstract entities: they are constituted of people and organisations. And as much as those across the political spectrum may prefer to ignore this, the moral quality of these entities matters enormously. As the example of Silvio Berlusconi has copiously illustrated, if your country’s leader’s personal morals can be encapsulated in the phrase ‘bunga bunga’, they will probably have no compunction swindling you of your pension. On a more prosaic level, the honest negotiation and enforcement of contracts, business dealings and the like cannot proceed in a sustainable manner where the sole motivation for economic actors is that of personal enrichment.

3. Capitalism: Not the Same as Anarchy. The approach of Ms. Colau and her pressure group – while doubtless well-intentioned – in many ways betrays the impoverished understanding of capitalism that has characterised Spain in recent decades. At things stand, the Platform of Mortgage Victims are beggars pleading for clemency at the door of the Spanish government – whereas if they took a more consistent ‘zero bailouts’ moral and legal position, they would have a possibly irresistible case. In the absence of state aid for banks and population alike, the financial institutions would cease to exist – and with no counterparty to enforce the mortgage contract, eviction of indebted mortgagors would become a pretty slim possibility.

Immigration Policy in the UK: Biting the Hand that Feeds Us?

Since the 1990s, there has been a notable increase in the popular stigmatisation of immigrants to the United Kingdom, with substantial sections of the mass media turning terms such as ‘asylum seeker’ – the usage of which was previously the prerogative of the courts or human rights NGOs – into insults to be hurled across a playground. However, perhaps the acme of this trend was not reached until very recently, when the UK government – which seemingly overnight became aware once again of its obligations under the Treaty on the Functioning of the European Union (‘TEFU’) – seriously considered launching an advertising campaign in the EU’s two newest (2007) members, Bulgaria and Romania, attempting to dissuade prospective (and, from no later than 1st January 2014, entirely legal) economic migrants from attempting to seek their fortunes on this shores.

The presumptions behind this line of thinking appeared to be numerous, but two in particular stood out: ‘lazy’ immigrants are a drain on the United Kingdom’s benefits system; and they will ‘flood’ into the country (immigrants never settle somewhere – they always flood it). However, unlike the policy wonks who clearly never meet an immigrant knowingly, we at Mediolana had another – and dare we say, more empirically-sound – perspective:

1. Adding Up. The Financial Times recently reproduced official government statistics showing that a mere 7% of foreign nationals resident in the United Kingdom claim working-age benefits – as opposed to 17% of British nationals. The idea that immigrants as a group move to the UK for the purposes of exploiting an ever-more parsimonious system of state aid (financial institutions excluded, natch) is simply untenable.

2. Entrepreneurial Zeal. The above-mentioned figures do not encapsulate the tiny percentage of immigrants who fill (often, though certainly not always) unproductive positions in the state bureaucracy – jobs coveted for, amongst other things, their short hours and minimal risk. Conversely, one cannot walk down a high street in reasonably-sized British town without coming across an entrepreneur – whether it be a restauranteur, shopkeeper or pizza delivery person – willing to work insane hours just to make something more of their lives.

3. Geography Lesson. Are people more likely to move to countries with which they have strong linguistic and cultural links, and where there are already substantial communities of compatriots present? Will people move to the other side of the continent to find work when they have a booming megalopolis next door?

The Moral Question of Democracy: Really Intelligent Governance for the Twenty-First Century

As regular readers of this blog will have no hesitation in attesting to, in the eyes of our CSO the Financial Times is fast-becoming not merely the United Kingdom’s newspaper of record, but increasingly the only such periodical which does not function as an emetic. Gillian Tett – one of the FT’s most thought-provoking and consistently interesting columnists – provided further justification for this viewpoint in her most recent article, Chinese Lessons for America (5th/6th January 2013).

Citing the Nicolas Berggruen and Nathan Gardels instant classic Intelligent Governance for the 21st Century: A Middle Way Between West and East (Polity Press, 2012), Tett notes that there is now a significant mass of disenchantment with the established political order in Western democracies, and not merely at the grassroots level; Berggruen and Gardels’ prescription – that countries such as the United States adopt a more meritocratic, technocratic and managerial approach to governance, albeit one tempered by a measure of direct, highly participatory democracy, is  certainly worthy of consideration.

Yet are the problems that are now all too evident in what was, up until recently, unquestioningly classified as the developed world, really remediable by tinkering with (or even overhauling) the political structures of individual countries? While genuine improvements to a given constitutional order may be more or less welcomed, we feel that the real issue – that those in charge of liberal democracies have not read their Fukuyama – is being ignored. In his seminal The End of History and the Last Man (1992), Francis Fukuyama is at pains to point out that liberal democracy, while an evolutionary ideological end-point, is not self-sustaining via liberal principles alone. The most perfect constitution imaginable will mean nothing in a polity populated by utility-maximising ‘barbarians’ (or ‘adult beasts’, to adduce Fukuyama) incapable of anything other than endless curation of already-created culture (and perhaps not even this).

In short, the moral question of democracy – the force that compels a judge to refuse a bribe, the inner voice that dissuades a politician from exploiting his intern, the bureaucratic decision to construct a metro line instead of yet another road to be clogged by cars – has yet to be fully answered. The devotion or otherwise of resources towards resolving this problem may yet determine the very future of governance itself.

Show No Morsi: The Financial Times and Life Beyond Tahrir Square

As we have noted before on this blog, the Financial Times appears to have comprehensively displaced The Times as the United Kingdom’s newspaper of record, with its unrivalled quality of precise reporting and stimulating comment proving that there is still space in today’s market for news in paper format. Yet a recent editorial – Morsi’s Mistake, from November 24th-25th’s FT Weekend – illustrated the broader problem of cultural presumptions that even the very best struggle to transcend. The editorial – correctly and rather uncontroversially – noted the disproportionate nature of the measures taken by the current President of Egypt, a bespectacled former assistant professor at California State University, to exempt his actions from judicial review via a decree issued on 22nd November 2012, a roundly-condemned legal stratagem that appears to have backfired spectacularly.

However, the FT then posited a bizarre corollary, namely that Mohamed Morsi’s government constitues ‘the test for whether democratic Islam has a future’. After some serious consideration of this ultimately broad claim, we would postulate the following:

1.  The FJP ≠ Democratic Islam. Morsi’s Freedom and Justice Party (‘FJP’) is but one of a great many political parties in OIC member states which claim or are claimed to represent a synthesis between Islam and democracy; moreover, it is a very new organisation, having only been legalised since 6th June 2011, and it is unclear how it will be perceived in a year or two’s time. To equate the FJP to the entire experience of democracy in the Islamic world is fundamentally mistaken.

2. Egypt ≠ the Centre of the Universe. With the historic events in Tahrir Square during Q1 2011 still fresh in the memory, it has become fashionable to regard Egypt as a pivotal country in the region and even the world at large. However, despite its large size and population, proximity to geopolitically prominent countries such as Israel and Saudi Arabia, and close ties to the United States, Egypt is not a particularly important country in every context, not least that of Islam and democracy. States such as Indonesia, Turkey and Senegal have had far longer and qualitatively richer experiences in this domain and tell us much more about the interactions, overlaps and tensions between Islamic religious beliefs and democratic institutions than Egypt, although this may change in the future.

3. Democracy ≠ Institutions. Democracy cannot be reduced to formal institutions: the value people attribute to democracy is not always matched by their corresponding legislatures, judiciaries and executives. As we noted in our 1st February 2011 piece Reform in the Middle East: should we be surprised?, the gargantuan Gallup survey Who Speaks for Islam? What a Billion Muslims Really Think found that the desire for democracy amongst lay populations in predominantly Muslim countries is high; within this context, the Arab Spring should not be viewed as a surprise.

Risk-Free Society: Why Struggling Companies Resist Change

Regular readers of this blog will by now be well aware of our fascination with at least some of the work of the impossibly-named Tyler Brûlé, still Editor-in-Chief at the self-styled briefing on global affairs, business, culture and design that is Monocle magazine and with an increasingly intriguing residency at the Financial Times. A recent column of his in the latter publication (Differentiate – or die, published in the print edition of 18th/19th August 2012) laments the lack of differentiation in industries which are under very significant structural commercial pressures such as magazine publishing and air travel. Brûlé avers that ‘any company…with a strong point of view, solid product, good customer service and great branding’ should have more than a fair shot at attaining high levels of business success; to adduce the legendary Swedish academics Jonas Ridderstråle and Kjell A. Nordström, in the domain of commerce, sameness sucks.

Given this, one would think that there would be every incentive for relatively or absolutely unsuccessful companies to change, yet the reality is, for the most part, one of continued inertia. Why is this? We at Mediolana have had more than a few ideas on this subject, but here are three of the most compelling:

1. Risk. As some of the more lucid accounts of recent and ongoing financial crises have illustrated, risk-taking is rarely valued in most organisations when the going gets tough. Individual actors and groups within companies may run their corporations into the ground with risky and even unethical behaviour in an apparently economic benign climate, but few seem to bother with higher-level thinking when the commercial outlook begins to dim; survival rather than innovation is the name of the game, with top talent often pioneering the rush to the exits.

2. Social Distance. In far too many companies – particularly, though certainly not exclusively, those run along Anglo-American lines – the division between management and factory floor has become a dichotomy of phenomenal rigidity, with much of the human capital in organisations being effectively destroyed by the ghastly inequities that exist within them. With CEOs in the United States creaming off millions of dollars for every US$10,000.00 allocated to ‘ordinary’ workers, the reign of the omniscient company boss is turning into an era of micro-level idolatry – but these gods may not hold all the answers to our corporate imprecations.

3. Difficulty. Many consumers will know from experience the difference between, say, travelling by an airline from the Gulf (Emirates Airlines) or ASEAN (Singapore Airlines, Malaysia Airlines) and a national or regional carrier from the USA or Africa. Suppliers of aviation services probably have an even better idea. But to replicate (let alone implement from first principles) the attributes that Brûlé cites as being central to business success is actually extremely difficult for most companies to do in practice. As is increasingly apparent, most countries excel at some things and not at others, particularly at specific points in time. China PR is not the world’s greatest democracy; Mexico will win no prizes for guaranteeing the basic security of its citizens. Yet on many levels these are regarded as great countries which can and perhaps are supplanting their developed world competitors. What chance have mere companies got of possessing optimal product, branding and customer service at the same time, let alone those facing more testing conditions than their industry average?

 

Post-Liberalism: An Ideology About Nothing?

Regular readers of this blog we doubtless be aware that Mediolana’s CSO is rarely seen without a copy (though not necessarily one he has read cover-to-cover) of the Financial Times, indubitably a publication of choice in these extraordinary times where even the most sacred political and economic orthodoxies are being questioned. And it was with some anticipation that he began to read a piece by David Goodhart – a figure who is no less than the head honcho at think-tank Demos, headquartered in the (formerly) dilapidated London neighbourhood of Southwark – which promised to set out nothing less that a new conceptualisation of politics.

Welcome to the post-liberal majority (11th May 2012) posits that the ‘new’ ideology of ‘post-liberalism’ has as its central goal the addressing of ‘the silences, excesses and unintended consequences of economic and social liberalism’, including ‘unchecked’ immigration. It would combine social conservatism – based around the trinity of ‘flag, faith and family’ – with an economic policy that is vagueness itself but can be read as being slightly more to the ideological left than the status quo, the ultimate mission being to ‘reform capitalism’, which is thought of as inherently ‘bad’.

Following some considered reflection, our CSO made the following observations:

1. Lack of Anything Much. It is articles such as this which make we at Mediolana seriously concerned for the future of the United Kingdom. The paucity of vision, contextual knowledge of the British experience or insights from other countries left us pensively staring at the remains of our cappuccino.

2. Education, Education, Education. Perhaps ingeniously, no mention was made of the elephant in the room: the circa 300% increase in university tuition fees, a move which at a stroke virtually guarantees social ghettoisation for future generations in the UK; slashed expenditure on educational capital was also glossed over. Instead, ‘discipline and character’ were extolled – as if these qualities were ever somehow expendable.

3. Ever Played Sim City? There was no discussion whatsoever of what can be done to stem Britain’s economic decline, much less a realisation that successful countries create goods and services that are in global demand. If Goodhart’s thesis is at all representative, there appear to be no plans at all to confront this issue – and enable the UK to pay its own way without having to resort to the doomed fiscal magic of schemes such as ‘indefinite’ bonds.

The Real CEO Fallacy: Viability

There are many reasons to purchase a copy of the weekend edition of London’s Financial Times, but Simon Kuper‘s sublime column in the FT’s Weekend Magazine is indubitably one of the best. A recent article – the provocatively titled Why CEOs shouldn’t run the world (21st April 2012) – sees Kuper skilfully subvert the achingly fashionable notions that business constitutes ‘the real world’; that businesses are good metaphors for national governments; and that politicians should be guided by, or preferably be, figures from the domain of commerce.

Kuper makes a number of highly astute points, including the wonderful illustration of how the contemporary trend of idolising businessmen is merely the latest manifestation of the historical fetishisation of different occupational classes (clergymen, military personnel) in the context of statecraft. But we at Mediolana feel that his brilliant argument may have one fundamental weakness: the idea that ‘a CEO typically only has one target: to make a profit. A president has many targets.’

Once in the not so distant past this may have been a reasonably accurate assessment of the function of the CEO, and in a sense it still is: company heads are to some degree defined by the red ink (or absence thereof) on the balance sheet. However – and perhaps ironically at least partly as a result of the ever-intensifying cult of the business executive – the role of top-tier staff at corporations is increasingly disconnected from their actual performance. One cannot explain the financial collapse of 2007 to date through the prism of the rationally assessed CEO. Too many company leaders, particularly though by no means exclusively in the banking sector, have led their corporations (and, via the now ubiquitous bailouts, countries) off the cliff of fiscal abyss, let they have remained in handsomely-remunerated positions of command.

Additionally, the demands of the media and the burgeoning ethical demands on economic entities in an era where CEOs are becoming synonymous with their efforts (or lack of them) in the field of CSR – corporate social responsibility – mean that, conversely, the post of CEO is in danger of becoming politicised at least as much as political leadership is becoming corporatised.

In fact, we would contend that at the highest levels, the worlds of business and politics are intertwining, with each borrowing elements from the other. Both CEOs and heads of state alike enjoy the ability to deploy armies of functionaries which they only have the faintest perceived financial responsibility towards; both benefit from extraordinary privileges, not least easy debt and the ability to default without almost any personal financial consequences, that are solely the province of government and large corporations. The real CEO fallacy might not be that they are paradigms for political leaders, but that, in many cases, both are viable models at all.

I Want My EAC: Frontier Capitalism in the East African Community

As seasoned readers of this blog will undoubtedly be aware, we at Mediolana firmly believe that in an era when vast swathes of the developed world are, at least from an economic perspective, having great difficulty finding a reason to get out of bed in the morning, the time has arguably never been more apposite for companies and individuals located in Western Europe and North America to ask themselves where exactly their core markets are. The BRICI countries in particular seem to offer incredible opportunities for manufacturers and service providers at every level; reading the China Daily, one would think that there is an inexhaustible supply of previously unheard of cities with populations of over five million people, while the fact that Indonesia has the fourth largest population of any nation on the face of the Earth still causes Mediolana’s CSO to stop typing and look around every time he recollects this.

Yet for the even more adventurous and daring entrepreneur, there are yet more lucrative opportunities than the aforementioned engines of growth. We are thinking in particular of Sub-Saharan Africa, a region which is internationally more famous for famine than finery; in particular, the region of East Africa, which was the subject of an excellent recent (November 2011) supplement published in the Financial Times. Perhaps largely because almost no one from the developed world conceptualises the states of the East African Community or EAC (Tanzania, Kenya, Burundi, Uganda and Rwanda) as anything other than economically insignificant, they ignore the fact that there is a phenomenal consumer boom underway in this region. Consider the following:

• The Sub-Saharan Africa GDP growth rate in 2011 was 5.2%, with all EAC countries bar Burundi (4.2%) exceeding this rate;
• A global consumer culture applies to this part of Africa, too: Tanzania opened its first formal retail outlet in 1999, and shopping malls – like in China and India – are mushrooming region-wide;
• The Rwanda Development Board‘s One Stop Centre enables registration of a new corporation in just 24 hours.

Of course, it is not easy for most East Africans to do business in this part of Africa, let alone outsiders: transport, logistics, entrenched and relatively widespread corruption and other infrastructural issues are only just beginning to be addressed, while purchasing power for most people in this region is still quite limited. That said, relatively low competition and inchoate formal markets signifies that there is almost everything to play for in one of the world’s most underrated economic zones.