The Costs of Destroying Social Cohesion

During my week in small, wealthy, verdant Norway, I thought extensively about how societies create and sustain social cohesion.

As I was considering this process, U.S. Ambassador to the United Nations Nikki Haley publicized the administration’s rejection of a May report of the UN Human Rights Council documenting the immense scope of inequality and poverty in the United States.

The report, based on an intensive visit to the U.S. by U.N. Special Rapporteur on Extreme Poverty and Human Rights Philip Alston (who met with government representatives at every level as well as civil society organizations and poor people themselves) points out that inequality and poverty have long been higher in the U.S. than in other western countries.

As Alston, a scholar of international law and human rights, underscores, the United States clearly has the resources to ameliorate these problems, but simply lacks the political will.

What is distinctive, though, is the extent to which the current administration has embarked on a path deliberately designed to exacerbate inequalities of wealth, power and opportunity.

While handing out enormous tax breaks to the wealthy, the administration has embarked on reductions in benefits for the poor; a rollback of environmental, health and safety protections that are vital to the quality of life of the poor and the middle class; and an ongoing effort to narrow access to health care.

The report of the Human Rights Council, which also identifies serious problems of a high rate of infant mortality, broad discrimination and racism, systematic disenfranchisement and criminalization of poverty, should be a great embarrassment for the United States.

But rather than acknowledging flaws in outcomes and policy and identifying means by which the U.S. might achieve better results, the administration withdrew from the U.N.’s Human Rights Council (though the motive likely was broader than this report), scolded the U.N. for focusing on the United States rather than any of a number of developing countries with high rates of poverty, and attacked the Human Rights Council as a “cesspool of bias.”

Noting the contrasts involved in a country of such vast wealth and innovation, the U.N. Rapporteur writes that these attributes “stand in shocking contrast with the conditions in which vast numbers of its citizens live. About 40 million live in poverty, 18.5 million in extreme poverty, and 5.3 million live in Third World conditions of absolute poverty. It has the highest youth poverty rate in the Organization for Economic Cooperation and Development (OECD), and the highest infant mortality rates among comparable OECD States. Its citizens live shorter and sicker lives compared to those living in all other rich democracies.”

The U.N. report underscores that the dominant political narrative guiding attitudes toward social welfare policy begins from the (false) premise that past policies were a wasteful failure. In fact the evidence clearly shows that the War on Poverty initiated fifty years ago was highly successful in reducing poverty in the ensuing decades.

Also essential to this narrative is the notion that the poor themselves are unworthy: recipients largely consist of people dedicated to “cheating” the system, and the poor themselves are responsible for their situations because of laziness and bad decision making. Both elements are undoubtedly heavily tinged with racism, especially since prevailing conceptions of who receives social welfare assistance do not correspond to the actual racial makeup of recipients.

The report observes that “it is striking how much weight is given to caricatured narratives about the purported innate differences between rich and poor that are consistently peddled by some politicians and media. The rich are industrious, entrepreneurial, patriotic and the drivers of economic success. The poor are wasters, losers and scammers.”

In scrutinizing these narratives, the U.N. Rapporteur made the effort to gather real evidence those currently in charge of policy willfully refuse to see: “The Special Rapporteur wonders how many of those politicians have ever visited poor areas, let alone spoken to those who dwell there. There are anecdotes aplenty, but little evidence.”

In contrast with this divisive narrative and the socially destructive policies that follow, social democratic societies like Norway and Sweden engaged in sustained policy efforts to cultivate a broad sense of societal inclusion starting from the Great Depression. Norwegians pay much higher taxes than Americans. They like paying taxes no more than Americans do, but the willingness to pay is sustained by the services that Norwegians receive in return (including health care benefits, university education, modern and efficient public transportation, etc.) – and by the trust between citizens cultivated by inclusive policies.

Conservatives will respond that Norway is a “socialist” society whose relevance is to be dismissed. That’s completely wrong.

Norwegians are capitalist entrepreneurs par excellence, where technological strides in sectors such as aquaculture (primarily salmon farming, a booming and rapidly growing industry) are possible because of policy consistency that encourages long-term investment and innovation.

Similarly, Norway’s policy makers recognize that all policies affect market incentives. Innovations to reduce CO2 emissions in Norway have been hard fought, requiring a series of measures designed to alter market calculations, such as reductions in taxes, road tolls and parking fees for electric vehicles. These incentives rather than some inherent “green gene” account for a recent explosion of electric vehicle sales in Norway.

The current U.S. administration, in contrast, views the inequalities documented by the U.N. NOT as a series of policy problems requiring attention, but as an opportunity that can be exploited to deepen societal divisions for political gain. The administration, in other words, is invested in destroying rather than building social cohesion.

Social cohesion is under stress in Norway over contentious issues such as immigration and taxation. But past policy has mobilized a constituency dedicated to preserving that cohesion and the societal benefits it brings, so efforts to deepen societal divisions will meet with significant resistance.

Put differently, high levels of trust between citizens and a strong sense of social cohesion tend to reinforce themselves. Once destroyed, citizen trust of governing institutions and trust between citizens are extremely difficult to rebuild.

The U.S. is not Norway, nor can it be. But there is an important lesson here: policies that generate social cohesion have dramatically positive effects not only socially, but for longer-term economic innovation and growth.

Intergenerational economic mobility in the U.S. is among the very lowest of the world’s rich countries.

BarChart.jpg
The degree to which income of one generation determines the income of the next (0 = income completely independent of prior generation; 1.0 = income completely determined by prior generation)                                                                                         Source: the Norwegian American; https://www.norwegianamerican.com/opinion/opportunity-of-social-mobility-great-in-scandinavia/

The best predictor of where children will end up in the future is the zip code into which they were born.

Talent, entrepreneurship and innovation are lost.

As the U.N. report notes, “The United States already leads the developed world in income and wealth inequality, and it is now moving full steam ahead to make itself even more unequal. But this is a race that no one else would want to win, since almost all other nations, and all the major international institutions, such as OECD, the World Bank and IMF, have recognized that extreme inequalities are economically inefficient and socially damaging.”

An administration truly dedicated to the welfare of the country would receive the U.N. report as a call to action. Instead, the reaction of defensiveness, spite and lashing out only further erodes the sinking international reputation of the U.S.

On top of this, the destruction of social cohesion wrought by the administration will yield long-term economic costs.

The Virtue of Political Accountability

I am in Oslo this week, investigating sustainability issues and government accountability in Norway. While there is no easy comparison between a country of 5.3 million people with low levels of poverty and income inequality and the United States, the contrast in degrees of political accountability could not be starker.

For all its tradition of social democracy through much of the 20th century, Norway is now governed by a right-wing coalition that includes a libertarian/nationalist/populist party advocating strict controls on immigration and asylum-seekers. This includes a Progress Party proposal to essentially criminalize asylum seekers by detaining in secure facilities those arriving without documentation as well as those whose asylum applications are rejected.

Three months ago, Norway’s Justice Minister, Progress Party member Sylvi Listhaug, posted on Facebook comments accusing the opposition Labour Party (Norway’s single largest party) of weakness in combatting terrorism.

Specially, Listhaug wrote that Labour put “terrorist’s rights” above national security.

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The Stortinget, Noway’s parliament building

Context makes the remarks particularly offensive, painful and highly inappropriate. Seven years ago, on July 22, 2011, a terrorist attack by a Progress Party supporter targeted a Labour Party youth summer camp in the worst mass shooting in Norway’s post-World War II history. The perpetrator set off a car bomb in central Oslo, killing 8, and then boarded a ferry to the island of Utoya. Impersonating a police officer checking on security in the wake of the car bombing, he spent 90 minutes executing 69 young people for their political affiliation.

What was the political reaction to the March 2018 remarks of Norway’s right-wing Justice Minister?

The opposition parties unified in condemnation of the minister’s comments, vowing to issue a vote of no confidence in the government if Listhaug did not resign.

Although Listhaug resorted to the empty “free speech” defense that has become so tiresome as justification for outrageously uncivil and destructive comments in American politics, she ultimately did resign. Listhaug was free to speak her mind. But she was held accountable for her verbal recklessness.

Accountability is vital for democracy; without it, trust in governing institutions, trust between citizens and the willingness to treat political opponents as loyal fellow citizens evaporates.

Politics in Norway may in recent years have become highly contentious, but a sense of competition between competing policy agendas nonetheless endures.

Perhaps so for Norway, but no longer for the United States.

In U.S. politics, spokespersons for the current administration now say virtually anything, no matter how scurrilous, about anyone – from the Prime Minister of a friendly country to a former U.S. President or Vice President, to elected members of the opposition party, to the policies and role of the Democratic Party, with increasing abandon and zero accountability.

Over time, the ultimate casualty may be democracy itself.

“Disruption” Imperils the U.S. at Home and Abroad

Many of us have watched in horror during the past week as the current U.S. administration has attempted to bully our allies on trade. The drama culminated in the U.S. executive repudiating the G7 communiqué issued on June 9 with a contrived attack on the Canadian Prime Minister.

The confrontation and bravado is for domestic political show. The approach makes no sense as foreign economic policy, only as domestic political mobilization. For the first time in memory, the United States has a “President of his base” rather than a President of the United States.

The disruption to valued domestic institutions and critical international relationships appears to be considerably effective with “the base.” As numerous media accounts suggest, supporters of the administration approve of disruption because the current occupant of the White House “is not a normal politician” and “says what he believes.” The substance of behavior, no matter how offensive, misguided and destructive, does not matter.

While supporters of the administration in the farming sector express reservations about the aggressive use of tariffs, recent accounts of voters in politically decisive districts reveal that some advocates of disruption believe the tariffs and threats of more to come are “necessary” to protect America.

But protect the United States from what, exactly?

Let’s start with the U.S. trade deficit. It is, in fact, enormous, typically running in the range of $50 billion per month. Ironically, though, trade deficits have fallen in recent months, largely due to an acceleration of U.S. exports in a growing global economy.

Global economic growth –- best nurtured through stability rather than disruption — is one of the surest ways to trim the trade deficit.

Trade deficits with individual countries – bilateral deficits – do not tell us a great deal, and a bilateral deficit with a country is certainly not a “loss.”

The U.S. ran a $318 million trade deficit with Bolivia in 2016. Are we “losing” to Bolivia, a country with a GDP per capita of $3100, about 1/19th that of the U.S.? U.S. producers import from Bolivia precious metals, gems and mineral ores, obviously inputs to higher value added production that enriches U.S. companies that import these goods.

Overall, the U.S. consistently runs a trade deficit precisely because the dollar is the world’s reserve currency. The dollar is the most widely used currency for transactions around the globe, and it is the currency most widely held in reserves of central banks around the world, comprising something like 63% of all global reserves.

This means demand for the dollar remains high, bolstering its “price” – i.e., the value of the dollar. Put differently, the value of the dollar is higher than it would be were the dollar not the global reserve currency. The consequence is that U.S. goods are more costly on global markets than they would otherwise be; the flip side of this is that imported goods are cheaper in the U.S. than they would be were the dollar not the principal global reserve currency.

Americans maintain a higher standard of living because of the global role of the dollar.

Were the dollar to decline as a global reserve currency, its value would fall relative to other major currencies. The U.S. trade deficit would as a consequence diminish.

Would we be better off?

Well, to begin with, with less demand for dollars, the U.S. would have to pay higher rates of interest to induce investors to purchase U.S. government debt. With the rising deficits ahead due to the slashing of corporate taxes in December 2017, a considerably larger share of U.S. spending would have to be directed toward paying interest on our debt.

Additionally, our standard of living would be lower due to the higher cost of imported goods.

Perhaps, then, it does not make much sense to focus so exclusively on the size of the trade deficit?

What about our G-7 allies? Supporters of the current administration point to high EU tariffs on U.S. products; the 10% tariff on U.S. autos gets a lot of attention, since the U.S. imposes a tariff of only 2.5% on auto imports from Europe. There are Canadian tariffs on U.S. milk, without which Canadian dairy farmers would be swept aside by a river of U.S. milk.

Nonetheless, Canada imports a much larger share of its total dairy product consumption than does the U.S. (which restricts imports), and the U.S. runs a large overall surplus in dairy trade with Canada.

Canada is also, by far, the leading market for U.S. exports; last year U.S. businesses sold $341 billion of goods and services to Canada.

Canada is also the second-largest source of foreign direct investment in the U.S.

At least three additional points are worth noting in response to claims that tariffs are necessary to protect the country. First, according to World Bank calculations based on U.N. Conference on Trade and Development data, the average level of tariffs between the U.S. and our European allies on traded goods is less than 2% on each side, among the lowest in the world among major economies (with the exception of Canada, which has an average applied tariff rate of about 0.8%).

Collectively, the G-7 countries purchase approximately 1/3 of all U.S. goods and services.

Second, while there are some goods for which European tariffs on U.S. goods are higher than U.S. tariffs on European goods, there are also many products for which the reverse is true.

Finally, while the U.S. runs a large trade deficit with its European Union partners, those partners in turn send a vast flow of investment into the U.S. EU investments in the U.S. total more than $2.7 trillion; U.S. firms hold about $2.3 trillion in investments in the EU. EU investment in the U.S. is eight times the size of EU investments in China and India combined.

The six countries of the G-7 just shunned by the current occupant of the White House account for a larger share of foreign direct investment in the U.S. than the rest of the world combined. Furthermore, these investments contribute enormously to U.S. exports.

Perhaps a policy of disrupting this relationship is not in the interest of the U.S.?

If the administration were genuinely interested in lowering trade barriers rather than engaging in a brawl over trade, diplomacy and steady negotiation would make sense. This could include resuming talks on a Transatlantic Trade and Investment Partnership, a focus of negotiations from 2013 to 2016.

As conveyed by the U.S. Trade Representative during the negotiations, “The Transatlantic Trade and Investment Partnership (T-TIP) is an ambitious, comprehensive, and high-standard trade and investment agreement being negotiated between the United States and the European Union (EU). T-TIP will help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services.”

But the current administration abandoned TTIP upon entering office.

Careful diplomacy is inconsistent with a policy of bluster and “disruption” designed to appeal to the 40% or so who think the current administration is doing a superb job of putting “America first.”

Support for disruption is especially frightening because disruption drains policy of content. For supporters, it doesn’t matter what the current administration does, only that it is done loudly, that it trample on existing norms and structures, and that it be done in the name of “America first.”

But make no mistake, there are costs. Last week I wrote about the cost to domestic institutions, rule of law and democracy.

There are also costs of disruption to politically and economically important international relationships that can prove especially valuable for coordinating responses to international turmoil or crises.

Disrupting these relationships may just hasten the decline of American economic dominance and the role of the dollar — reducing the trade deficit, and our standard of living – after all.

 

Perspectives on American Democracy: Why We Should Worry

This past week the U.S. found itself isolated and received a stinging rebuke from our closest economic allies for unilaterally imposing tariffs on the insultingly flimsy grounds that the measure was necessary for U.S. national security.

The collective perspective of these otherwise friendly countries is a useful mirror that should (but likely will not) stir introspection regarding U.S. trade policies.

We can take a similar approach to assessing the state of democracy in the U.S. What do objective indicators, as well as views from the media in allied countries, tell us about our democratic trajectory?

Let’s start with objective indicators.

Freedom House is a highly respected and independent organization that works to promote democracy and to defend human rights, and which has been in existence for more than 75 years. Freedom House produces an annual report on Freedom in the World.

The 2018 report, assessing freedom for 195 countries on a carefully-crafted 100-point scale measuring the status of political rights and civil liberties in the previous year, downgrades the score for the U.S. from 89 in 2016 to 86 in 2017. The score was 92 as recently as 2014, and the 3-point decline from 2016 to 2017 is alarmingly steep.

FitW9_820px_United_States_Trajectory-cropped.pngAs the report indicates, “The past year brought further, faster erosion of America’s own democratic standards than at any other time in memory, damaging its international credibility as a champion of good governance and human rights.”

With any further slippage in 2018, the US will be as close in its freedom score to the highest ranking “partly free” country, Albania, as to the highest ranking “free” countries, Finland, Norway and Sweden.

To put this in perspective, while remaining in the “free” category, the U.S. now ranks markedly lower than countries at a similarly high level of economic development and comes closest in overall score to poorer former communist regimes that are now inside the European Union (though ranking lower than some of these countries, such as the Czech Republic and Slovakia).

COUNTRY/COUNTRIES

Freedom Score

Finland, Norway, Sweden

100

Canada

99

Australia

98

Germany, UK, Spain, Estonia

94

Czech Republic, Slovenia

93

France

90

Italy, Slovakia

89

Croatia, US

86

Poland

85

Romania

84

The largest decline in the score for democracy in the U.S. was in the realm of political rights, which includes ratings for the electoral process, the functioning of government, and political pluralism and participation. There were downgrades in the first two of these categories. Lower scores in the “functioning of government” category followed from these questions: Are safeguards against official corruption strong and effective? Does the government operate with openness and transparency? 

The report asserts of the U.S.: “in 2017 its core institutions were attacked by an administration that rejects established norms of ethical conduct across many fields of activity.”

The assessment continues: “The president’s behavior stems in part from a frustration with the country’s democratic checks and balances, including the independent courts, a coequal legislative branch, the free press, and an active civil society. These institutions remained fairly resilient in 2017, but the administration’s statements and actions could ultimately leave them weakened, with serious consequences for the health of U.S. democracy and America’s role in the world.”

Moving outside the U.S. to perspectives from friendly foreign territories, the Economist Intelligence Unit in its annual ranking of countries on democratic values recorded its second consecutive year of the United States falling below the threshold for a fully democratic society.

Scoring 7.98 out of 10, the United States ranks 21st globally – below 20 “fully democratic” societies — and is now categorized as a “flawed democracy.”

In the fall of 2015, German President Johannes Gauck, expressing admiration for American democracy on a visit to the Liberty Bell and Independence Hall in Philadelphia coinciding with 25 years of German unification, labelled these “holy sites of democracy.”

Two years later, the prominent journalist Jakob Augstein asked in the German news weekly Der Spiegel, “When will (American democracy) reach the point of no return?” (Wann ist der Punkt ohne Wiederkehr erreicht?)

Just yesterday, the British newspaper The Guardian featured an account of the erosion of democratic norms in the U.S.

The article focuses on the onslaught of attacks on institutions and rule of law. The piece quotes an American legal scholar, Eric Posner, who warns: “when you look at other countries that have slid into authoritarianism, what has happened is that the leaders of those countries have proceeded incrementally   . . . And you could slide into an authoritarian regime without a real crisis ever taking place, and I think that’s what people should be focusing on.”

Posner’s assessment echoes that of American political scientists Steven Levitsky and Daniel Ziblatt, who in their recent book, How Democracies Die, establish that while democracies have in the past fallen to violent overthrow, democracies also have and can be undermined by elected leaders. The current incumbent of the White House has launched a dangerous assault on the “referees” of democracy, resembling actions of past authoritarians that have at first imperceptibly and then more visibly undermined other democratic regimes.

Those in the “America First” camp may wish to dismiss – and may even disdain – views of foreigners and foreign press, no matter how favorably inclined toward the U.S. these sources may be more generally.

But just as dismissing allied views of U.S. trade policy without deep introspection is a mistake, disregarding the growing swell of indicators and voices warning of democratic erosion misses the point. These observations tell us that American democracy has eroded.

Objective indicators show us that attitudes toward governing institutions already became negative in the U.S. prior to this administration, with citizens considering government overbearing, wasteful, intrusive and ineffective. This leaves the American electorate and political system vulnerable to a campaign portraying government as actively working to undermine policies of an elected government, as I wrote about last week: https://mitchellpsmith.com/2018/05/27/progressives-the-right-and-the-dangerous-purge-of-the-deep-state/

This move is the stuff of authoritarianism.

A process of democratic erosion is underway in the United States. How far will it go, and when do we reach a point where the damage is irreversible?

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