Global Cooperation

How political polarisation is crippling Western democracies

Mohamed A. El-Erian
Chairman, President Barack Obama’s Global Development Council
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Since my teenage years, I have been fascinated by the permutations and machinations of national politics. Today, I find myself focusing on broader political trends that also help to explain global economic issues.

One such trend is the political fragmentation and polarization evident in Western democracies. Fringe movements, some operating within established political structures, and others seeking to create new ones, are placing pressure on traditional parties, making it difficult for them to mobilize their supporters, and, in some cases, causing them real damage. Desperate not to appear weak, long-established parties have become wary of cooperating across the aisle.

The resulting refusal to work together on the major issues of the day has had a dramatic impact on economic policies. Once formulated through negotiations conducted at the political center, where Western democracies have long been anchored, policymaking is increasingly shaped by stubborn forces on the extreme left and right.

This approach has, it must be said, yielded the occasional breakthrough – sometimes good, sometimes bad. But the overall result has been policy paralysis, with even the most basic elements of economic governance (such as actively passing a budget in the United States) suffering as a result. Needless to say, the greater the governance and policy challenges at home, the more difficult regional and global cooperation becomes.

The Tea Party in the US is a case in point. After its success on the national stage in the 2010 midterm congressional election, many Republican lawmakers became so concerned about securing their party’s “base” for future re-election bids that they no longer felt comfortable pursuing the type of bipartisan cooperation that underpin effective economic policymaking.

But the Tea Party’s impact did not end there. By contributing to a shutdown of federal-government operations and repeatedly raising the threat of a technical default, it risked undermining an already-fragile US economic recovery. While the movement has evolved and no longer threatens to hold the economy hostage, it continues to contribute to overall policy paralysis.

Europe now seems to be headed down a similar path, as non-traditional parties – many of them driven by single issues – become increasingly influential. Movements like France’s anti-immigration National Front are making leading mainstream parties more likely to pander to extremists in order to preserve their support.

Of course, their fear is not irrational, as Pasok, a long-established left-wing party in Greece, found out when the far-left, anti-austerity Syriza Party surged to victory in January. But that does not change the fact that parties’ need to address their electoral fears is causing serious damage to national policymaking.

Indeed, most established parties are so busy playing defense that they have little inclination to engage in the type of forward-looking strategic thinking that is needed to re-energize exhausted growth models, anchor financial stability, and ensure that technological innovation enables broad-based prosperity. As a result, Western economies are running chronically below their potential – and risk undermining their future potential.

That is why future generations will likely remember this as a time of lost economic opportunities. Instead of bowing to polarization and paralysis, policymakers should be promoting growth- and productivity-enhancing infrastructure investments, funded at exceptionally low interest rates, scaling up labor-market reforms, and working to address the growing income and wealth inequality that is increasingly limiting access to economic opportunity.

Likewise, policymakers should be revamping incoherent and inconsistent tax structures that are riddled with unfair exemptions. And they should be pursuing immigration reform to overhaul a system that penalizes talent, encourages malfeasance, and, as illustrated by the thousands of migrants who have drowned in the Mediterranean Sea in recent years while trying to reach Europe, often leads to human tragedy.

Despite widespread dissatisfaction with political institutions in many Western countries – the US Congress, for example, has very low approval ratings – it is difficult to see what will break the current logjam. Within established parties, forces promoting rejuvenation are weak and uneven. Add to that an increasingly polarized and quasi-tribal news media, which can amplify divisions in society, and the scope for collaborative transformation is extremely limited.

For their part, many of the fringe parties, despite their rising popularity, are struggling to achieve power, a challenge illustrated in the recent British election. And those that succeed, such as Syriza, quickly become frustrated by the largely immovable systems in which they must operate – a situation that their lack of governing experience makes all the more difficult.

Over time, Western political systems will evolve to meet the needs of their economies. But, in the interim, the vast majority of companies and households will have to cope with systems that do relatively less to help them reach their potential, placing them at a disadvantage vis-à-vis competitors operating in more supportive systems.

To some extent, technological innovation will pick up the slack, as it empowers individuals and companies to live more self-directed lives, creating pockets of excellence and wellbeing. But, while this is good news for some, it is inadequate to arrest the rising inequality of income, wealth, and opportunity – or to unleash the inclusive prosperity that Western economies can and should be generating.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of President Barack Obama’s Global Development Council. 

Image: A man looks a screen outside a United Overseas Bank (UOB) branch. REUTERS/Vivek Prakash.

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