long history of constitutional democracy, its traditions of intellectual
curiosity and its experience of open markets, Europe
should be a model for liberals the world over. Notwithstanding the hopes placed
in the new American administration, many people throughout the world look to
European leadership in fields such as human rights, democracy and environmental
And yet in
these turbulent times, Europe is increasingly
characterised by fear, polarisation and lack of vision. Populist political
parties speak to public anxieties over immigration, international trade and
national security while governments struggle to articulate their message. For
the first time in generations, today’s young European parents are not convinced
that their children will be better off than they are.
If Europe is to fulfil its global responsibilities, it first
needs to get its own house in order. One of the foremost challenges it faces is
the decline in its global competitiveness and the slow but steady erosion of
its industrial base. This is one of the forces driving public scepticism
towards globalisation. But the issue should not be whether globalisation is
good or bad, but rather how best to take advantage of the opportunities offered
by technical advances and the internationalisation of global markets.
look at the overall outcome of globalisation processes, the growing distrust
among ordinary citizens is perhaps easier to understand. After all, recent
years have seen an intensive redistribution of production resources between the
global east and the west – meaning factory closures and job losses in the west
– and a focus on short-term returns among a small cadre of investors. In the
eagerness to bring about reduce costs, production has in many cases been
transferred without sufficient focus on the retention of vital knowledge.
Short-term benefits have accrued to the few, while long-term benefits are not
at all apparent.
offshoring of production has freed up business minds in Europe
to focus on the intangibles: strategic development, brand building and
communication. But in many cases this has been short-sighted. In ten or 15
years, who will have the greatest knowledge of production technology, new
materials and processes, and from where is it most likely that the new
innovations will come? The answer is unlikely to be found in those places that
long ago decided that the grubby business of making things was not for them.
short-term thinking that has driven these processes is the result of a historical
anomaly in the financial markets. Capital markets over the last few decades
have experienced extremely low interest rates and enormous liquidity. Almost
all capital under institutional management circulated in secondary markets in
the pursuit of rapid return. Profit and liquidity targets were assessed
quarterly or even monthly, and incentive systems for money managers followed a
question today is: how do we create a capital market that can replace the old
industrial base with a new strong one? How do we construct a capital market
with sufficiently long time horizons to incentivise investment in strategic
research and product development initiatives? How do we encourage not only the
exploitation of old innovations but the creation of new ones?
is that a large proportion of the funds in our capital markets are pension
funds that carry commitments of 20, 30 or even 40 years. Yet this capital is
often characterised by the same incentive models and liquidity preferences as
the short-term capital described above.
I am 38,
and my pension savings will have to mature for at least another 30 years. I
would very much prefer to see a proportion of this capital being invested in
structures that contribute to the building of a sustainable and competitive
industrial base in Europe and thereby to
long-term prosperity. I want this capital to be managed with a long-term
perspective that grants it the time and means to succeed. This could of course
come at the expense of short-term returns. But if you do not believe, as I do
not, that present developments are sustainable, this approach is ultimately the
only game in town.
This is not
a question of altruism, but rather of economic reality. It is not that we who
are active in the capital markets should give up opportunities for returns but
rather that in order to ensure long-term gains, we need to shift our focus from
a perspective of between three and 24 months to between three and 24 years. And
where better to start than with our pensions?
We are in a time of severe structural crisis.
Many of the things we value and take for granted are threatened – our
environment, our democracy, our welfare and our prosperity. This moment offers
both the threat of destructive conservatism and, at the same time, an
opportunity for radical change. Fear may lead us to regress into the false
safety of what was before, that which is most familiar and close to us; or it
may lead us to take the opportunity that turbulence offers to fundamentally
rethink our models and systems and embrace difference and alternative thinking.
This is the time to revise our ideals and start anew – to build a new society.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.