The London skyline. "Post-2008, finance needed to be put under much tighter control." ©Chris Radburn/PA Wire/PA Images

Confessions of a half-repentant liberal

Without openness the west cannot thrive, but without equality it cannot survive
May 17, 2017

It has become fashionable to express regrets for being a liberal, especially if the adjective “metropolitan” or the noun “elite” are added. Or to anguish about, as those terrible twins Theresa May and David Goodhart have put it, being disconnected from “somewhere” by being a citizen of nowhere. It is time for this nonsense to stop. Liberals do have reason to apologise, but not for that. Instead they should bow their heads in shame for having betrayed their own principles.

The reason why so many voters are rebelling against mainstream parties in the western liberal democracies is that those democracies have become, over the past two decades, both less democratic and less liberal. This wasn’t deliberate: it happened largely by neglect, by taking for granted the basic principles that have made the west so prosperous, stable and secure.

We need focus on only one episode in our recent history, both because it had a wide impact and because it was devastating: the 2008 crash. Perhaps because governments and central banks worked so successfully to prevent the worst financial crisis in 80 years from causing a new Great Depression, its significance often seems to be downplayed.

This is a mistake, potentially of historic proportions. There are plenty of other, deep-seated stresses and strains in western societies, caused by ageing populations, job-disrupting technological innovation or the impact of China’s entry into world markets; but all of these could have been adjusted to or dealt with if 2008 had not happened.

Without the Lehman shock, Donald Trump would not be in the White House, Britain would not have voted for Brexit, and the far right would not be so evident in current European politics. The euro, as it approached its third decade in existence, would have been muddling its way towards stability. Immigration would have caused grumbles, as it always has, but would not have become such a hot political issue.

The 2008 crash should be studied by future historians not just as a financial episode, nor even just for its economic ramifications, but as a political event, one that illuminated a dangerous trend in many liberal democracies. This trend was the subversion of public policy and democracy by the overweening power of the financial sector and of the extraordinarily wealthy individuals connected to it.

Wall Street, the City and the banking powerhouses of France and Germany gained an influence over politics and policy that both contributed to the meltdown and shaped the response to it over the ensuing decade. “Light-touch regulation,” decisions to allow derivative securities markets to remain unmonitored, let alone regulated, blind eyes turned to the aggressive lending in Spain, Greece and other eurozone countries, all can be traced back to the influence of these institutions.

"If you want to find something to blame, then ultra-free capital movements are the place to look—not free trade or immigration"
But wasn’t that liberalism, just with the prefix “neo” attached? No, it was folly, partly blinded by ignorance, partly by complacency. The essence of liberalism, as spelled out by its patron saint Adam Smith, has been that markets are essential, but that they need rules if they are to work benignly, along with governments to enforce those rules.

Democracy, like the market, has one crucial flaw. The competition to gain influence, win elections and steer policy can end up concentrating power. Just as markets create monopolies that need antitrust laws to tame or break them up, so democracy creates the oligarchies, interest groups and wealthy individuals that political parties come to depend on.

The essence of democracy is plurality, reinforced by a political and legal principle: equality of voice and political rights. But if billionaires, hedge funds and mega-banks—or indeed trade unions—gain a disproportionately loud political voice, that sense of equality risks being destroyed.

When Candidate Trump claimed he would “drain the swamp,” this is what he meant—and he was right. This is also why working-class voters in the English north and midlands who complained of being “left behind” and didn’t bother to vote in the 2005 or 2010 general elections, returned with decisive effect in the Brexit referendum.

But it isn’t “globalism” that explains why average British households saw real incomes decline over the course of a decade. It isn’t Chinese competition, fair or otherwise, that explains why more than seven million men of prime working age have disappeared from America’s workforce over the past 10 years.

If you really want to find something global to blame, then ultra-free capital movements are the place to look. Gigantic speculative markets based ultimately on public subsidy in the form of too-big-to-fail rescues and deposit insurance need cracking down on—not free trade or immigration.

Post-2008, finance needed to be put under much tighter control, especially the vast, obscure world known as shadow banking. But it hasn’t been. We can blame all sorts of people for that. The basic reason, however, is that supposed liberals lost sight of what liberalism is all about. That has always been the pursuit, though sadly not always simultaneously, of two values: openness and equality.

Openness has been crucial because the receptiveness to new ideas, new elites and new opportunities is what has driven social, economic and political progress, while maintaining accountability.

Equality has been crucial to make the bracing winds of change acceptable, and to avoid social conflict. Often, however, long periods of inequality have produced political jolts that lead to a resetting of the rules of the game—which is what is needed now.

In a phrase often attributed to Thomas Jefferson, “the price of liberty is eternal vigilance.” What liberals need to do to keep the formula working is to work on equality, to make sure that political power does not become overly concentrated and that the mass of citizens feel a strong, and real, sense of participation in what is happening. This is not about redistribution of income: it is about equality of voice and of opportunity.

The task for liberals everywhere is to rebuild that sense of equality while maintaining openness. For without openness, the west cannot thrive; but without equality, it cannot last.