The Dangers of Western Complacency

Russia’s invasion of Ukraine has revived the Western alliance. After years of drift and self-doubt, the West has been reminded of its historic and institutional uniqueness by seeing the contrast between the atavistic revanchism of Vladimir Putin and the heroism of Ukraine’s defenders. Once again, our collective purpose looms large in minds of Western policymakers and citizens, shaken by images of Russian atrocities. It is the responsibility of the collective West to defend the institutions and ideas underpinning our societies against threats coming from the world’s autocrats.

However, there is a wrinkle in this story of Western renewal. Our ability to succeed, by projecting hard and soft power and by improving our resilience against autocratic aggression, requires economic resources. Yet, America is a low-growth region, and Europe even more so. Between 2000 and 2019, annual economic growth in the European Union averaged a miserable 1.4 percent. In Italy, real per capita incomes are lower today than they were in the mid-2000s. Public debt has soared, hovering at just below 100 percent of GDP in both Europe and the United States compared to 45 percent in China and less than 20 percent in Russia.

This problem is not a new one. Western economies have been on a path of relative—and in some cases absolute—economic decline for decades. Despite its successive enlargements, the relative weight of the European Union in the global economy has fallen from a peak of around 25 percent of the world’s real economic output in the early 1990s to less than 15 percent at the present time. The US share of the global real output has followed a downward path from a peak in the late 1990s. By 2050, some forecasts suggest, China will command roughly the same share of the world output as the EU and the US combined.

On metrics of entrepreneurial churn and dynamism, Europe in particular is slipping behind. In 2021, the EU was home to merely 40 “unicorns”—private companies worth more than $1 billion—valued jointly at $78 billion. In comparison, the joint valuation of the 19 unicorns hailing just from South Korea, Singapore, and Indonesia was $76 billion. And whereas six unicorns grew in Indonesia, none of them did in Italy, the EU’s third largest economy.

Economic dynamism matters. Effective, combat-ready militaries are expensive and hard to sustain in democratic societies that are not at war. The vows of European leaders to increase defense spending above a fixed fraction of GDP—say two percent—are less meaningful if Europe’s real economic output continues to be stagnant or shrinks. The Biden administration’s proposed Pentagon budget—set at $773 billion, or just below four percent of US GDP—seems enormous but may still be inadequate relative to the security challenges America is likely to face in the coming years.

If it is going to succeed in its competition with Russia and China, the West urgently needs a strategy to restore its own economic dynamism and raise the long-term path of its productivity and economic growth. That strategy starts at home. After all, that is precisely what has made the West a success to begin with. The Industrial Revolution and the hockey stick-like explosion in economic output which started first in England and northwestern Europe, and later spread to America and other Western offshoots, resulted from a specific mix of institutions, ideas, and culture that favored experimentation, innovation, and entrepreneurship.

Since at least the 1970s, however, the same economies have experienced a slowdown in productivity rates, translated into lower income growth. At least some of the reasons for this sclerosis have to do with the growth of regulatory burden across Western economies, entrenchment of interest groups preventing entry into certain industries, and the proliferation of new barriers to economic mobility.

Europeans already recognized the problem in 2000, when the Lisbon Strategy sought to turn the European Union by 2010 into “the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.” Alas, by 2010, per capita incomes in the EU, expressed in purchasing power parity terms, lagged a good third behind those in the United States.

Similarly, the bloc’s spending on R&D barely budged. Today, there is still an annual 110-billion euro shortfall to reach the Lisbon Strategy target for R&D spending. Higher education is a mess, too. Since the UK left the EU, there is no university from the EU in rankings of the top-25 universities in the world. Among the top 50 universities in the world, there are seven times as many universities in Asia than in the EU. Big economies like Germany are struggling to attract computer and AI engineers. In the early 1990s, the European Commission successfully wrestled member states—including large ones such as Italy or France—into an economic opening up, privatization, and end to wasteful forms of state aid to domestic companies. Since then, progress has stalled and to this day the EU lacks a functioning internal market in services.

Memory-holed by European institutions, the Lisbon Strategy itself was superseded in the 2010s by a less ambitious competitiveness agenda: Europe 2020. Today, the bloc finds itself without any explicit pro-growth agenda at all, having subsumed all questions of economic dynamism to its decarbonization and greening agenda. Although tackling climate change is a worthy goal, simply wishing that a reducing fossil fuel consumption will automatically create new economic opportunities and additional employment and raise productivity rates does not make it so.

Structural barriers to economic growth vary from country to country. In the United Kingdom, outside of the EU, drastic land use restrictions limit the growth of cities and the entry of new firms onto the market, and effectively price low-income populations out of areas of economic opportunity. In the United States, as the Biden administration is learning the hard way, it is extremely costly to build (or repair) American infrastructure. In per mile terms, it is five times as expensive to extend an existing subway line in New York City than it is in Paris. The reasons are manifold, but they include the National Environmental Protection Act, which has dramatically increased the number of veto points in a position to stop new infrastructure projects, with few gains in environmental quality.

Add to this overly restrictive immigration policies that stop talent from coming to America and Europe. The West, after all, is still the best place to live. Yet, under rules prevailing in the United States and elsewhere, there is no automatic prospect for foreign graduates of elite universities to be able to stay and build their lives in the country, creating a perverse situation in which the West actively trains the elites of countries that we are competing against.

There is an international dimension to the problem, too. The West that matters is not a geographic entity. Rather, it is a set of ideas and institutions—a combination of democracy, effective checks and balances, protections of human rights, and a market economy with stable property rights and social safety nets. It is, to use terms coined by economists Daron Acemoglu and James Robinson, a collection of societies—from Canada through much of Europe to Pacific economies like Taiwan or Japan—governed by inclusive political and economic institutions.

In our competition with autocratic regimes, it should be a priority that such inclusive institutions extend beyond the historic strongholds of America and Europe. Not only should we be reforming multilateral trade rules to make sure our domestic institutions—or rules of the game—are protected, but we should be working hard to bring new allies and partners closer together through new trade pacts. Yet, such efforts are conspicuously absent in current thinking about trade in Brussels and Washington which is dominated by the narcissism of small differences.

Under the banners of “technological sovereignty” and “economic autonomy,” the EU is pursuing policies to decouple itself from the world economy—including from friendly allied economies. The EU’s new digital regulations damage the continent’s economic relation to America. The bloc’s carbon border adjustment mechanism (CBAM) will hurt trade with allies such as Turkey, Ukraine, and the United States. New trade agreements, such as the completed deal with Mercosur—an important partner region in the new geopolitics of trade—have been kicked into the long grass because of opposition from Paris and Vienna.

Likewise, the Biden administration’s agenda of a “middle-class foreign policy” remains disappointingly parochial. Under Trump, the United States withdrew from international trade negotiations with allies and partner countries, and it has not yet returned. Understandably, both the Trump and the Biden administrations have wanted to stand up to China and can find new partners in that quest both in Europe and in the Indo-Pacific. But that is no excuse for hitting your partners with new tariffs or for abandoning promising trade talks with allies. Nor is it an excuse for the country’s negligent approach to the World Trade Organisation, which does need reform but will continue to play an important role.

The neglect of economic partnerships that could deepen and widen the West undercuts the rising imperative of “decoupling”—be it to address our dependence on Russian energy or from technological and other vulnerabilities related to our reliance on Chinese manufacturing. Decoupling does carry economic costs. If Western economic nationalism becomes the relevant alternative to the status quo, our incomes, economic power, and eventually our technological and military edge are bound to suffer.

Russia’s war against Ukraine has awakened the West from its torpor but is not a reason for self-congratulation. The challenge is to use political leadership to harness the momentum and translate it into overdue change in our domestic and international policies that can help us succeed in the long game: defeating our autocratic adversaries through the forces of economic openness, embrace of technological change, and competition of ideas. We are not there yet.


This is a companion discussion topic for the original entry at https://quillette.com/2022/04/26/the-danger-of-western-complacency/
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Oh please…you might be better off spending your time and effort on the wokesters who run the ‘agencies’ in Europe US et al that are drowning their societies in self loathing…no society that despises itself will flourish.

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Good essay. I’ve ben considering this problem for some time- ever since Eric Weinstein first introduced us all to the idea that new substantial innovations began to tail off in the West in the 1970s. This is not to say that innovation died a death- far from it- but most of the innovation we have seen since the 1970s capitalises upon technologies which were developed previously, and represent an outgrowth of existing technologies, rather than entirely new roots.

I believe I have the answer to our quandary- why did innovation tail off in the 1970s? In the sixties, those who were high in trait openness to new experience were all drawn into culture rather than the sciences- best epitomised by the way that the release of the Pentagon Papers later followed by the Watergate scandal, took what was essentially a trade for talented high school-leavers and turned it into a high status job, overwhelmingly undertaken by kids born into the top 10% of the socio-economic spectrum.

We see it in all manner of occupations. New police officers are increasingly graduates. The professional management class used to be roughly evenly split between graduates and talented individuals who has worked their way up from the shop floor. Now the PMC is almost entirely composed of graduates, with the predictable development that workers are often treated like interchangeable and replaceable serfs. At the same time, STEM and particularly software engineering roles are increasingly filled by inward bound migration. Before tech, it even used to be true to say that going to university was one guaranteed way to actually reduce your chances of becoming a successful inventor- so plentiful was the supply of tinkerers fooling around in their garages, a sufficient number of whom had those eureka moments.

Even our kids toys are hardly conducive to innovation. Forty years ago the average boy would have been fooling around with a Meccano set- some of the parts, particularly engines, actually sell for upwards of $40K online. Similarly, Raspberry Pi wasn’t initially invented as a means to turn a profit. Instead, Eben Upton noticed an incredible decline in the number of high calibre candidates applying to study Computer Science at Cambridge, and ultimately decided that the decline to the absence of hobbyism which characterised the previous generation, who grew up fiddling around with Spectrum computers and hand-coding programs into their ZX Spectrums from magazines specialising in such matters.

So, as a result of the cultural changes in the sixties, societies oddballs, heretics, visionaries, geeks and boffins were increasingly drawn to culture, rather than the sciences- and it isn’t an accident that the one area where American technology, sciences and monetised innovation remained robust, namely tech and software engineering, was the one area which continued to be overwhelmingly populated by these types- thanks in large part to the maverick and socially nonconforming reputation of early pioneers in this field.

At the same time, the universities massively ramped up production of graduates with the ‘soft’ skills of the humanities, at exactly the same time that it rapidly became clear that the market didn’t need these skills beyond certain levels, and even clearer that these types of careers, especially in the professional management class, were most likely to be rationalised and deemed surplus to requirement in the next couple of decades.

In his now famous essay, Peter Turchin christened this expansion as elite overproduction. Had the university expansion been managed as a system which pushed kids towards the sciences, engineering, and technical occupational skills of the sort that the old UK polytechnic system used to be very good at producing, then this wouldn’t have been a problem. The West could have moved seamlessly towards more productive technocratic societies with perhaps the technological elan seen in the Nordic model countries or Germany (which also benefits by limiting the percentage of the population which is streamed towards higher education). But as the same time we were expanding the number of teenagers being streamed towards higher or further education, in countries like the UK we were also actively engaged in dismantling the polytechnic system and shifting these institutions towards offering more general, ‘soft skill’ degrees.

The effect of this social policy is parasitism. We see it in government with the proliferation of bureaucrats serving no useful function. We see it in commerce with an increase in useless, made-up jobs. When terminal 5 was added to Heathrow there was an ongoing industrial dispute with baggage handlers who felt themselves to be under increasing pressure. They had a point, the number of customer service representatives sat in offices ,whose jobs seems to have consisted almost entirely in responding to emails from each other, with the occasional angry progress report demanded from baggage handling, was twice that of the baggage handlers.

Most worryingly, we see it in the universities in the form of administrative and DEI bureaucracies proliferating outwards into Western corporations, like an infestation of weeds gradually choking the life out of previously productive enterprises. In the sciences, this development has become even more alarming, as diversity statement have increasingly become an ideological litmus test to service the needs of the parasitic organism, shutting down whole fields of scientific enquiry if they happen to conflict with the standard narratives which are only supposed to have a very prescribed set of answers.

Where Peter Turchin goes wrong is in failing to distinguish between static and dynamic elites, and in understanding that a part of the phenomenon was produced by the historic shift of creative nonconformists away from the sciences and towards culture, creating structural imbalances in both spheres. Static elites are the subject of his essay, they are those with the soft skills of the humanities and a number of other fields, which society has a limited ability to absorb. Meanwhile, scientists, engineers and entrepreneurs are dynamic elites- unlike static elites which tend to consume resources which might otherwise be utilised towards worker pay and benefits, these types actually generate their own productive profit-rendering enterprises, effectively improving the wealth and health of the society in which they live.

To be fair, some have pointed out that these dynamic elites are a finite resource, and are heavily dependent upon also being cognitive elites, but in science and engineering every exemplary type requires an entire support system of fellow scientists, engineers and support staff in order to generate their innovations, and the chances of success as an entrepreneur tend to top out at 120 IQ (although the dollar magnitude of success is still dependent upon IQ, with the average IQ of a billionaire falling around the 153 point mark).

In many ways the redirection of least a portion of our cognitive elites towards disciplines in which their intelligence is unlikely to be a decisive factor, or even a requirement, is a failure of our education system. We still seem to be directing our brighter kids towards skills and knowledge ideal for office jobs, which hopefully won’t exist when they enter the employment market. The irony is that the current strain of activism in journalism is in some ways justified- there is something entirely wrong with a system which directs often otherwise talented young people towards jobs with a ready made ideology, which is entirely unsuited to creating value for ordinary people.

We see this collapse in the recent destruction of value at Disney, Netflix and more generally in the calibre of movies being produced by Hollywood. Like the Art World before them, the pandering to a tiny and eclectic class of critics, produces nothing of value for ordinary people. In art, people want transcendent beauty, in movies people want feel-good escapism, with the morality tale embedded in the heroes journey. Neither of these tastes are being fulfilled.

Of course, the shift of Left-leaning liberals away from the sciences and towards the humanities, with the massive overproduction of static elites, isn’t the only issue. Globalism and neoliberalism may have been a boon for the Developing world, raising countless people out of the indignity of living on less than $1.90 a day, over a billion of whom were raised out of poverty between 2000 and 2012 alone. But for the West, this trade-off has turned out to be a Faustian bargain, with the promise of cheaper goods also causing hollowed out societies in which many blue collar workers have seen there wages stagnate, their jobs become increasingly insecure, and deindustrialisation creating an urban hellscape of decay in many parts of the country.

Economists will take an overview, and point to the decline of productivity, whilst neglecting to consider that in tradeables, the production industries of manufacturing productivity has continued to increase. Meanwhile, with the notable exception of finance and few high tech or very niche businesses, service sector work is inherently low value, lethargic in terms of productivity, and incapable of generating societal wealth at a level which it sustains a middle class. It’s not by accident that the countries with the most embarrassingly low productivity figures also happen to be those with the highest percentage levels of service sector employment.

Of course, most economists are loathe to admit these economic facts. They see the service sector as having averted a potential disaster of unemployment in the West and are generally keen advocates of free trade, neoliberalism and globalism. One will generally only see such speculation buried in the Japan Times, firmly under the heading of Opinion, but any ordinary Westerner, not cushioned by living in the top 20% of the income spectrum, will tell you of the decline- they’ve experienced it- the precarious feeling of employment insecurity, the prevailing mood of seeming scarcity in a consumer world designed to cater to our every need.

So, it’s two forces, the elite parasitism of the humanities and affiliated fields and the underlying scarcity that a fixated focus on the service sector as a means of creating future value causes. India will tell what looking towards the service sector will bring you. In the same time that Indian earnings have risen to $428.49 a month, at the same time that average Chinese earnings a month have risen to $1,225. And has to consider that buried in this overall figure is the roughly 300 million coastal Chinese who have benefitted from plentiful manufacturing, and the 1.1 billion who have not.

Funnily enough the answer also comes from the Chinese. In order to sustain their economic miracle the Chinese have increasingly had to look to housing as a means of value creation, rezoning entire areas of the map adjacent to urban centres over to residential housing. We should do the same. It’s one area of high value creation which is location dependent, and it also commands the type of medium to high value labour rates which could reinvigorate our lethargic Western societies, acting an equaliser against the power and wealth of parasitic static elites.

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Funny but tragically true.