As we have all learned from the graveyard of failed forecasts, economics is an unerringly inaccurate, as well as a dismal, science. It is inextricably bound to the whims of irrational human behaviour.
All too frequently, it follows that economies develop haphazardly and tend to reflect a nation’s collective ability to innovate and provide conditions in which the experience and aspiration of its people can flourish.
One of capitalism’s enormous strengths is its accommodation of human nature by the creation of broadly stable environments that liberate and incentivise people to pursue new ideas whilst casting aside defunct thinking.
Capitalism works because it adapts and adjusts through crisis. The real problem is that we in the West are now subverting its natural processes of correction by clinging to outdated, discredited ideas and institutions.
The US is currently stuck in political deadlock, seemingly too caught up in partisan wrangling over its budget deficit to provide the global leadership we have expected from it over the past century.
On the other side of the Atlantic, Europe has proved incapable of finding a credible solution to its own single currency crisis, and historically low interest rates in the UK reflect an economy still firmly on a life support machine.
Across the Western world, continued political compromise and a desperate hope that ‘something will turn up’ are favoured over taking the immediate pain of radical restructuring. As a result, the challenges we face appear simply too great to articulate for contemporary politicians at the mercy of short electoral cycles and restricted by conventional thinking.
But while we appear to have avoided financial disaster turning into economic catastrophe, there will be also long-term costs to be borne, largely by future generations.
The West’s financial woes have led to a comparative loss of global credibility. Undoubtedly developed nations will find it increasingly difficult to maintain their role as directors of the world economy, as the composition and governance of international institutions no longer reflect reality. The G20, the ‘permanent five’ of the UN Security Council and the IMF may soon seem quaintly dated.
But my greatest concern is that the West will no longer seem the place where the world’s brightest and best see their future.
When societies cling to conventional ideas that disproportionately benefit established generations, inevitably the number of losers begins to increase over time. The largest contingent of these must surely be amongst our young. As we are already witnessing across the European continent, youth unemployment is regarded as a price worth paying if it avoids unstitching the patchwork of entitlements and way of life that the post-war generations of citizens have taken for granted.
As power shifts eastwards, the Asian economic powerhouses will not be immune from their own demographic problems. Nevertheless, unlike the West, they have an enormous advantage in being able to construct from scratch a welfare state fit for the 21st century without the need to battle against a morass of vested interest.
If it comes to pass that Asia becomes the region that most welcomes fresh thinking, the contrast will be stark with a Western world that complacently harks back to historical dominance and fudges the important economic and political choices we now face.
Naturally the magnitude of the West’s difficulties is intimidating, and it would be naïve for me to imply we face easy answers. After all, a crucial part of our future involves unravelling the past. Nevertheless, for a capitalist system to be successful and enjoy popular electoral support, it must ensure that it creates societies that liberate and incentivise people to pursue new ideas and cast aside defunct ones.
Alongside the tackling of our structural problems, we must begin to articulate and embrace a fresh and positive vision of the future. This will involve a painful acceptance of marked, rapid decline in relative Western influence.
Unless we face up to the challenge, we risk undermining the very compact upon which our capitalist economies are based.
Correct as of May 2017.
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