Things Fall Apart

2018 is the 100th anniversary of the end of the First World War. In 1919, the poet WB Yeats wrote these famous lines in his poem The Second Coming: "Things fall apart; the centre cannot hold; / Mere anarchy is loosed upon the world, / The blood-dimmed tide is loosed, and everywhere / The ceremony of innocence is drowned; / The best lack all conviction, while the worst / Are full of passionate intensity."

These words echo the present state of shambolic chaos, as the US-China trade war seems to escalate towards confrontation at multiple levels. The high tide of financial markets is now in retreat, and murder in the oriental consulate unfolds in internet speed. Everywhere, the centre in politics and creed cannot hold, whilst polarisation is increasing by the day.

Yeats was shell-shocked by the First Great War, whereas we seem to be poised at the exit of a golden era of maximum prosperity marked by maximum disparity and social inequality. The US Fed Flow of Funds data unveiled that household debt has increased to USD 106.9 trillion by mid-2018, double that a decade ago. US total debt, on the other hand, has grown to USD 50.7 trillion or 248.5 percent of GDP, of which the fastest growing component is federal debt of USD 17.5 trillion or 85.7 percent of GDP.

At the same time, wealth disparity has widened, with latest data showing that the top 0.1 percent of US households owning as much as the share of national wealth of the bottom 90 percent. This trend was global, fuelling the populist uprising. In the words of former UK Chancellor of the Exchequer and current editor of the Evening Standard George Osborne, "The elites have failed you, the establishment have failed you, we need to tear up all the country's political and economic arrangements."

As a result, the consensus that formed the moderate middle in the last three decades has been polarised into a right wing that wants more protectionism and a left wing that argues for more welfare spending to improve inclusivity. The populist desire for change has brought new "strongmen" leaders who do not hesitate to disturb the status quo.

It is this falling apart of the middle ground that is creating very shaky coalitions or fragmented governments that cover interests from greenies to extreme right. The ongoing elections in Germany reflect this trend, as the two ruling parties see losses of votes to the Green Party and Alternative for Germany, an extreme right party.

Stanford philosopher Francis Fukuyama calls this in his new book the rise of Identity Politics, as tribalism emerges to reject the idea that globalisation is good for all. There is a clear loss of trust in the establishment and experts. In a February 2018 survey by the Pew Research Center, only 25 percent of US adults trusted elected officials to act in the interest of the public, whereas the numbers for news media were 40 percent, business leaders 45 percent, and military 80 percent.

This loss of trust came from the fact that the authorities, including the government bureaucracy that was supposed to protect the less privileged, have been politically captured. Even though the banks lost billions during the last financial crisis, no banker went to jail. Multinational companies would cut staff costs, shifted jobs overseas and kept stock prices high by engaging in share buybacks. It was not surprising that the American public turned against globalisation and blamed China and immigrants for their problems.

In 1983, Harvard sociology professor Charles Perrow studied complex organisations and why many of them failed, especially when dealing with crisis situations. In two of the biggest disasters in recorded history, the US subprime crisis of 2007 and the 2011 Japanese Fukushima nuclear meltdown, official enquiries concluded that both crises were manmade and could have been avoided. But somehow, both the industry and their regulators fell down on their jobs. Why?

After studying many cases of corporate and regulatory failure, Perrow concluded that large organisations or bureaucracies fail because they became too complex and interconnected but fragmented in silos where no one had a picture of what was going on, no one was accountable with a common factor that he called "tight coupling".

Organisations become more and more complex because they have to continually adapt to new situations. Every time something happens, new rules, staff and procedures are added, making structures, processes and jobs more and more complex. The staff were taught to follow the rule-book, and since human errors were often blamed, no one was willing to admit that it was the system that was at fault. Tight coupling means that the solution to every problem is to write more rules or automate the process until no one had room to move. Overtime, the bureaucracies were writing rules for everything, as if rules can solve all problems and avoid blame. The result is that ordinary people felt that the "experts" lost touch with humanity and common sense. These institutions became rigid, fragile and prone to crashes and crises.

Brexit occurred because the British people voted to get out of "tight coupling" coming out of the European Commission bureaucracy in Brussels. The promotion of an idealised "rule-based Europe" meant that there was less and less discretion (degree of freedom) at the national level.

The British were uncomfortable with no control over immigration, but wanted the benefits of free trade. By not joining the Eurozone, Britain avoided the deflation pains of the debt crises of countries such as Portugal, Italy, Ireland, Greece and Spain. The EU has to make even harder and tighter coupling on Brexit, because a soft Brexit would encourage more defections and break-up of Europe.

From this perspective, it makes sense that Trump is rolling back the complex Dodd-Frank legislation, lowering taxes, and disengagement from various international trade and other agreements. America is going back to "loose coupling" to allow itself new degrees of freedom to negotiate better deals at a bilateral, rather than multilateral, level. In a situation of order, disorder wins. In this barrage of disorder offensives, those who try to maintain order will be on the defensive.

Things Fall Apart, because of the uncoupling of the Old Order. The New Order brings new opportunities, but also very grave dangers. The falling global markets this week reflect that nervousness.

Andrew Sheng writes on global issues from an Asian perspective.

Copyright: Asia News Network