[Andrew Sheng] On leadership: Why is global reform so difficult?

In Chinese history, several famous reformers failed, the most prominent being Song Dynasty reformer Wang Anshi, who was no idealist but highly talented and experienced. He wanted to strengthen governance and finances through major tax, land and market reforms, but failed when he lost political support. Qing Dynasty reformer Kang Yuwei was also not successful because he was too loyal to the dynastic system and did not have sufficient experience in the bureaucracy to push through necessary reforms. 

But the problem of reform is particularly urgent in the current global context, where global issues of rapidly changing population, climate warming, unemployment, water and energy constraints, terrorism and corruption are exponential in risks, whereas national mindsets, institutional effectiveness and change are linear. The Arab Spring is a volatile combination of rising population, massive youth unemployment and the inability of corrupt and ineffective governance to deal with discontent spread widely through the Internet.

But reforms of the system are very tough. Witness the reforms in the financial sector with dogged resistance and lobbying by the financial community. Recently, Financial Times columnist Clive Crook brought to our attention a presentation by University of Virginia social psychologist Jonathan Haidt at an Aspen Ideas Festival on different psychological make-up of liberals and conservatives. I personally hate the labels “liberals” and “conservatives,” since many liberals have very conservative views and vice versa.

Prof. Haidt’s main research interest is on the moral foundations of politics. He defines moral systems as “interlocking sets of values, practices, institutions, and evolved psychological mechanisms that work together to suppress or regulate selfishness and make social life possible.” Of course, no one admits that they are selfish, but the whole foundation of unfettered capitalism is individual greed adding up to public good. We now know that this is a hope, not reality, since greed has to be restrained by self or by society for the system to be stable.

Haidt introduces psychological reasoning behind the game between liberals and conservatives. He argues that there are five psychological systems that underpin global moralities. Liberals argue for change because they think more about harm/care and fairness/reciprocity, whereas conservatives have these as well as ingroup/loyalty, authority/respect, and purity/sanctity.

In other words, conservatives are groups that respect loyalty to the existing institutions of authority, faith or cultural values. They benefit most from the current system and do not feel comfortable with change, which bring risks and unknowns, including loss of benefits or franchise. By definition, reformers want a game change, because they see that the present system is unfair or uncaring, or that the externalities are harming people, so they want someone to do something about it.

Global warming is a good example where reformers cannot prove to the public in concrete terms that the future is better with reforms, whereas conservatives can defend against change zealously, because they stand to lose real benefits. There are many who question whether the environmental scientists are at best guessing or whether the data and methodology to predict global warming is shaky. This is why during war, crises or natural disasters, there is greater support for reforms because those who are harmed in real terms see the urgent need for change.

Leaders who miss that narrow window of opportunity for change “waste” the crisis opportunity. When conditions go back to “normal,” the momentum for change is often lost.

In his new book, “The Globalization Paradox: Democracy and the Future of the World Economy,” Prof. Dani Rodrik of Harvard argues that those who are strongly for globalization are the urban elite who benefit from globalization. They are the talent that can go global and win big. The rural masses, however, see globalization as the erosion of family or local values, erosion of respect for local institutions, cultures or religions, so that the reaction is about loyalty and sanctity. He shrewdly states, “When globalization collides with domestic politics, the smart money bets on politics.”

The trouble is that the world is also urbanizing very fast.

Thus, in addition to the impossible trinity of fixed exchange rates, monetary freedom and capital flows (in which you can have two but not all three), Rodrik argues that there is a “political trilemma” where nations cannot simultaneously pursue democracy, self-determination and economic globalization. He argues convincingly that because all politics is local, the world is too diverse to have one single global political community.

Nowhere is this so obvious as the European debt crisis. The European politicians are arguing for a single currency, but the financial markets are betting that local politics in Greece are such that a default has happened in everything but name. During the Asian crisis, the currency speculators were similarly betting that central banks could not maintain fixed exchange rates because local politics could not tolerate the pain from financial and fiscal discipline.

In these turbulent times, it is not political leadership but statesmanship that is called for. Will someone or this generation be willing to sacrifice for the next generation?

Between the long-term and short-term, bet on most making the short-term decision. 

By Andrew Sheng

Andrew Sheng is the author of “From Asian to Global Financial Crisis.” ― Ed.

(Asia News Network)