Today's date:
Winter 2013

Intelligent Governance for the 21st Century

Nathan Gardels is editor-in-chief of “NPQ.” This essay, adapted from a talk at the London School of Economics in November, lays out the main themes of his recent book, “Intelligent Governance for the 21st Century: A Middle Way Between West and East” co-authored with Nicolas Berggruen. “The Financial Times“ has listed the book among “the best of 2012.”

LONDON—All governing systems today—from Singapore and China to the US and Europe—are experiencing disequilibrium.

The strength of an autocracy like China is its ability to forge consensus and unity of purpose with the institutional capacity to implement long-term policies. But lacking accountability, transparency and free expression it has become hidebound and corrupt, giving way to the power of vested interests and destroying what it has accomplished.

The strength of a democracy like the US is that everyone has a voice and can contend for power. But the inability to forge consensus out of cacophony has created gridlock and paralysis. Its adversarial political system has decayed into partisan rancor and divided the public against itself. The short-term mentality and special interests have captured the formal accountability mechanism of one person one vote elections.

The central question today is how the unity of purpose and long-term institutional capacity usually associated with autocracies can be balanced by transparency and democracy so that governance can be both effective and accountable as well as inclusive.

Behind these dilemmas of governance are larger forces.

We are in the midst of a great transition from American-led Globalization 1.0 to Globalization 2.0 due to the “rise of the rest.” Thanks to the convergence of patterns of growth and the spread of technology, the emerging economies from China to Turkey to Brazil are leveling the playing field.

Far from becoming a flat world, however, economic strength engenders cultural and political self-assertion—witness the neo-Confucian cast of China or the neo-Ottoman cast of Turkey, the world’s two fastest growing economies.

Thus, the new economic and technological convergence has also given birth to a new divergence. Globalization 2.0 is, above all, an interdependence of plural identities.

As diversity grows among cultures and nations, it is also growing within societies because of what the futurist Alvin Toffler called the “demassification” of standardized industrial society into ever more plural niches and identities because of the decentralizing impact of information technology—especially social media.

Greater diversity along with cultural and political awakening is part and parcel of the transition underway. Everywhere—from Tahrir Square to the Tea party and Occupy movement to the indignados to Catalonia to the villagers of Wukan—people are demanding the dignity of meaningful participation in the way their lives are governed.

This presents a double challenge to governance. To accommodate the demand for participation, power must be devolved downward toward the grass roots. At the same time, greater consensus-building institutional capacity of the kind associated with the meritocratic aspects of Singapore or China is required to capably manage the systemic links of interdependence and the greater complexity of diversity.

The failure to find an institutional response to this double challenge will result in a crisis of legitimacy for any governing system—either because of the failure to perform by providing inclusive growth and employment or because a “democratic deficit” that shuts out diverse voices will undermine effective consent.

“Devolve, involve and decision-division” is the operating system for intelligent governance that can reconcile knowledgeable democracy with accountable meritocracy. Intelligent governance is about the broadest possible distribution of power balanced by the institutional capacity to provide and manage common public goods.

Since every operating system is at a different starting point, differential adjustments are required.

China, for example, needs more transparency, accountability and democratic feedback mechanisms. In adversarial systems like the US, more non-partisan consensus-building institutions that are insulated from electoral politics are needed to counterbalance the short-term, special interest political culture. Europe, which already has a quasi-meritocratic executive in the European Commission, needs more democratic legitimation. Since proximity is legitimacy, the G-20 must find the means to deliver global public goods in a way that is legitimate—perhaps through national and sub­national networks.

• • •

I focus here on the US and China as the core systems of the global order—not as literal alternatives —but as a metaphor to help identify the tradeoffs in good governance between the popular sovereignty of democracy and the long-term horizon and consensus building capacities of autocracies with meritocratic qualities.

How these two societies govern themselves will shape the next world order.

Despite the deepening corruption and princeling nepotism of the past decade, China at its core continues to adhere to the centuries-long attributes of its “institutional civilization” rooted in rule by the expertise and experience of tested elites. True to its “no party” Confucian roots, China today operates under a one party system in which consensus is reached through internal competition based on performance instead of external competition, where different constituencies of the body politic are mobilized against each other. Once consensus is reached, this enables a greater unity of purpose in the effective long-term implementation of policies.

The US is the largest and most dynamic example of one person one vote electoral democracy. Within the US California carries this idea the furthest through the direct democracy of the initiative process where voters can make laws and change the constitution directly. As if often the case, the extreme case reveals the essence of an operating system. California most exposes the problems with democracy taken to the extreme.

California is also a bellwether for where the rest of the United States will go. Indeed, political awakenings around the world are generating an ever greater pressure for the kind of direct democracy California already has.

All democracies, of course, do not have the same institutional structure and are thus, depending on that structure, more or less prone to the dysfunction spreading across the West today. Britain, for example, is less prone to gridlock because of the “Westminster system” in which the prime minister and cabinet dictate budget policy if they have a solid majority. Because Germany is organized in large industry and labor bargaining units, the government can more effectively form consensus on structural reforms than in the US. The Scandinavian countries are more homogenous ethnically, also organized with large industry and labor bargaining units, and thus also more able to reach consensus.

• • •

THE TALE OF TWO SYSTEMS | Thirty years ago, California Governor Jerry Brown and I visited China, then still backward and impoverished by the Cultural Revolution. China couldn’t yet feed itself. Shenzhen in the Pearl River delta, which would become the factory of the world, was still little more than a village. Ground was just being broken on the Three Gorges Dam. Bicycles still dominated Shanghai and Beijing.

Everyone knows what has happened since then. 400 million people have risen from poverty, high-speed rail networks connect vast megacities with state of the art subways underneath. Shanghai schools test as the best globally. China is the second largest economy in the world.

In those same three decades, California, the bellwether state that once dreamed of building a society that matched the magnificence of its landscape, has ended up with mountains of debt, disappearing jobs, D+ schools, greater spending on prisons than higher education and a crumbling infrastructure that China puts to shame. Due process and the rule of law have even been hampered. Ten courts have closed in LA as a result of lack of funds. Cities like San Jose are experiencing what their mayor calls “service delivery insolvency”—in order to pay for pensions they’ve had to cut services to stay afloat.

Of course, China is a developing economy and the US, especially California, is a mature economy. But what lessons can be learned from China’s success and from California’s descent into debt and disrepair?

Despite China’s well-known problems—pervasive corruption, vast inequality, lack of political freedom and free expression—it is clear that the modern meritocratic mandarinate at the heart of its nominally Communist system—with its unity of purpose and long-term institutional capacity for execution of policies—had presided over the single most impressive poverty alleviation in history. And over the past decade, average incomes have tripled.

It is equally clear that, despite being the birthplace of Apple, Google and Facebook, California’s public space had deteriorated because its democracy had become dysfunctional, captured by a short-term special interest political culture.

• • •

The conventional wisdom is that China’s system is not self-correcting without reforms that bring more responsive feedback mechanisms, democratic accountability and the rule of law to its Communist Party mandarinate.

The unconventional observation is that democracy in the US as it is practiced is no more self-correcting than financial markets—despite one person one vote elections. Like financial markets, democracy tends toward disequilibrium, not equilibrium. Without reforms that strengthen consensus-building institutions with a long-term horizon—and insulates them from direct politics in order to check and balance the short-term, special interest adversarial political culture—democracy will falter.

In short, China needs to lighten up; the US needs to tighten up.

• • •

Democracy, in the US in particular, is not self-correcting for four related reasons:

• First, we are no longer an industrial democracy, but a consumer democracy.

In a democracy people get what they want; in a consumer democracy they get it when they want it—now.

All feedback signals in a consumer democracy—the media, the market and politics—steer behavior toward short-term immediate gratification.

We live now in a kind of Diet-Coke culture where, just as people want sweetness without calories, they want consumption without savings or infrastructure and education without taxes.

The same California voter that resists paying $50 for a vehicle license fee to fund police and fire services will spend several hundred dollars on the latest iPhone.

The driving ethos of consumer democracy invites populism that can’t be paid for. It is easy to see from this dynamic how the self-interest of immediate gratification results in exuberant bubbles, mountains of debt and fiscal crisis.

To go against the grain requires extraordinary leadership, and comes at a high political price because good policy tends to be bad politics.

Former German chancellor Gerhard Schröder’s Agenda 2010 reforms are a good example of this problem. As Schröder himself often says in frustration, the results of structural reforms—on labor flexibility, pensions, welfare and new investment in R&D—can take a decade to reveal their impact, but elections take place immediately, and reform measures are always unpopular. So, the German public removed him from office and now, 12 years after he introduced his measures, Germany is the strongest and most competitive economy in Europe.

Just as the financial markets mispriced the bonds of Greece, Italy and Spain over the past several years based on German economic strength, so too democracy mispriced the value of Schröder’s reforms.

Jean-Claude Juncker, the prime minister of Luxembourg and current president of the euro group of finance ministers similarly says “we all know what needs to be done, we just don’t know how to do it and be re-elected after we’ve done it.”

In a recent conversation with historians, President Barack Obama expressed his frustration with the short-term mentality of consumer culture and “the inability to get people to think long term.” “It is hard to make the case for solutions to problems when you’re not going to feel either the problem or the solution any time soon,” he said.

• Second, deliberative institutions that “enlarge the public view” have withered and been overtaken by partisan rancor and the narrow short-term horizon of the voting public.

The resulting gridlock and inability to find consensus has paralyzed governance. We already see halting efforts to respond to this with meritocratic-type solutions.

Mario Monti’s so-called “technocratic government” in Italy has been one response to politics as usual that just can’t get there. To resolve the long-term deficit overhang in the US, some are proposing the successful approach used to close military bases after the Cold War. These non-partisan base closing commissions were bodies of eminent citizens chosen by elected officials to make the tough decision outside the political process. Their recommendations could then only be voted up or down with no amendments.

There is a growing recognition that, when deliberative bodies in democracies wither, the seeming rationality of short-term fixes at the ballot box can result in even worse long term problems.

In California, we ended up with the unintended consequence of spending more on prisons than higher education after a series of initiatives over several years that cut taxes and were tough on crime.

In California the ungovernability problem is that, as a result of undeliberated direct democracy through initiatives, ballot box mandates by citizens have locked in spending and locked out revenues.

One key example is the “three strikes you are out” law. That law required that the commission of a third felony meant a person was automatically sentenced to life in prison. Yet, the same public would not pay for more prisons. As a result, the US Supreme Court last year ordered the release of 36,000 felons for human rights violations of overcrowding.

This is not surprising. As the Public Policy Institute for California noted in its October, 2012 report on “Improving California’s Democracy,” less than 10 percent of all voters in California—Democrats, Republican and Independents—said that they want the governor and legislature to make the tough choices involved in the state budget, while a full 80 percent said California’s voters should make those decisions through the initiative process.

Yet, only 1 in 5 voters say they know a lot about how state and local governments spend and raise money, and most “cannot name the largest area of state spending (K-12 education) or the largest area of state revenues (personal income taxes).”

While the recent elections in California, which favored an initiative by the governor to raise new revenues by taxing the rich, has created some breathing space by stopping the budget bleeding, it has done nothing to change the structural dynamics that got California into its fiscal mess in the first place. In fact, it has sown the seeds of the next crisis by increasing the state budget’s reliance on a very narrow income tax base instead of broadening it. The top one percent will now pay 50 percent of all income taxes. This creates an “automatic destabilizer” in the budget. If the Dow falls, state revenues will plummet.

As California’s former chief Supreme Court Justice, Ron George, has also pointed out, instead of being a recourse of the public initiatives have become a tool of the very special interests they were intended to curb.

The average citizens simply lack the many millions required to pay for statewide signature gathering to qualify ballot measures and the media campaigns that cost many millions. An incredible $372 million was spent in the recent election by unions, billionaires with personal agendas and corporations on 11 initiatives.

All this is relevant to Europe today as some, including Martin Schulz, president of the European Parliament, want to bring the citizen’s initiative process to Europe as a whole.

• Third, the idea of an informed public is a myth and the role of the “fourth estate” as a tool of informing the public has seriously decayed.

In large countries with highly diverse populations and multitudes of contending interests, the issues are complex. Figuring out the tradeoffs that are in the common interest—and developing a consensus on the resulting policies—is no easy task. It is beyond the competence of the average voter not because they are stupid, but because they are busy with life, family and work and don’t posses the information to connect all the dots.

This is why deliberative institutions are necessary—not to think for the voter, but to parse out the difficult choices for their consent.

In modern democracy, the media is supposed to play this role of informing the public. But in today’s highly competitive media market, “monetizing attention” is more about entertainment than education. So the mainstream media panders to the lowest common denominator, financed by advertising that prospers by selling immediate gratification. Kim Kardashian trumps Bill Moyers for the vast majority of viewers.

And during elections, special interests employ the persuasion industry to spin their own self-interested perspective. This is particularly an issue in the US where the US Supreme Court has sanctified election spending as free speech.

The arrival of social media has in many ways worsened the situation because it severely fragments the common perspective. The broader the bandwidth, the less the scope of information because netizens tend to find only the information they are looking for among the like-minded peers of their digital tribe. Instead of enlarging the public view, social media tends to narrow it. The information age risks becoming the age of non-communication.

• Fourth, Francis Fukuyama has argued that democracy in the US, as well as in many other places, has mutated into a state of political decay he calls “vetocracy.”

By this he means the general will and long-term fiscal health of the system have been subverted by special interest lobbies and the short-term mentality of ideologically rigid or narrowly self-interested constituencies.

These organized groups—from the teachers unions to the oil or financial corporations—or think of the agricultural lobbies in the European Union—have amassed the clout to veto whatever threatens their hold on government and its spoils. They accrete to the system like barnacles and anchor it in the past.

The votes of the diaspora of unorganized citizens are thus steeply discounted, if not meaningless.

A vote for democracy in this decayed form is a vote for the past because it is a vote for the vested interests of the present that, over the years, have staked their claims on the state.

This is a system almost guaranteed to generate debts and deficits while blocking any change in the status quo.

• • •

I am not, of course, making the case that China is a better system than the US or vice versa, and each should adopt the other’s ways. The US is not about to become Confucian any more than multiparty democracy is likely to resonate in China. I am focusing on these core systems as a metaphor to identify the trade-offs required for good governance.

The best system of governance would be a balance between the long-term horizon, knowledge-based and consensus-forming attributes of political meritocracy and the accountability of popular sovereignty. This combination of knowledgeable democracy and accountable meritocracy is not far from the vision of the American Founding Fathers who designed institutions to ward off both monarch and mob.

As they understood, liberal democratic constitutionalism is not just about one person one vote elections. It is about the rule of law, free expression and, above all, deliberative, consensus building institutions that check and balance both power and the public while getting the job done.

As in democracies, division of powers and accountability are key to good governance; so is knowledge-based policy, unity of purpose and the institutional capacity to implement long-term policies, as in meritocracies. The best system balances both.

Every system needs “circuit breakers” to correct disequilibrium. Financial markets need them to correct exuberant bubbles and imbalances; meritocracies and mandarinates need accountability; so too one-person, one-vote democracies need non-partisan deliberative institutions with a long-term horizon—rooted in popular sovereignty but insulated from electoral politics.

A final anectode. I knew the great Mexican novelist Carlos Fuentes for 25 years. For the first half of that time, when we talked politics it was always about the need for democracy and ending the monopoly one-party rule of the Institutional Revolutionary Party (PRI) in Mexico. For the second half of that time, after democracy came to Mexico, when we talked politics it was always about how ineffective the state was, how nothing could get done and how weak were the candidates democracy produced.

Once, only half-jokingly, Fuentes said we need “a Lee Kuan Yew”-type from Singapore to come in and straighten things out in Mexico.

Of course neither he nor anyone else would suggest the Sinagpore model for Mexico. But he was raising the core issue I have raised here: Democracy by its nature generates adversarial contention, discord and diversity. The challenge is to be able to govern it effectively.