by Paul Collier
But underpinning the successes of social democracy was an inheritance so obvious that it became taken for granted. The escape from the Depression by means of the Second World War had been far more than an inadvertent stimulus package: it had been an immense common endeavour in which leaders had crafted narratives of belonging and mutual obligation. Its legacy was to turn each nation into a gigantic community, a society with a strong sense of shared identity, obligation and reciprocity. People were ready-primed to comply with the social democrat narratives that linked individual actions to collective consequences. For the first post-war decades, rich people complied with rates of income tax that reached over 80 per cent; young men complied with military conscription; in Britain, even criminals complied with the implicit restraint necessary for an unarmed police force. This enabled a huge expansion in the role of the state: the social-democratic agenda.
Yet the social-democratic state was increasingly taken over by the Utilitarian and Rawlsian vanguards; the ethical state morphed into the paternalist state. This would not have mattered so much had the new vanguards recognized that, unless shared identity was continually renewed, this extraordinary legacy was a wasting asset. Far from doing this, they did the opposite. The Utilitarian vanguard was globalist, and the Rawlsians promoted the distinctive identity of victim groups. Gradually, the basis for the social-democrat agenda unravelled, and by 2017 across Western societies the social-democratic parties had been abandoned by voters; they were in existential crisis.1 By applying the concepts introduced in Chapter 2, we are able to see why this happened.
THE DECLINE OF THE ETHICAL STATE: HOW SOCIAL-DEMOCRATIC SOCIETIES UNRAVELLED
The collapse of social democracy was due to a double whammy: the gradual erosion in mutual obligation collided with the greater need for it as changes in the structure of the economy left a mounting trail of damaged lives. The spectacular economic growth of this period came at the price of increasing complexity. In turn, this extra complexity needed more specialist skills, and these needed highly educated people, precipitating an unprecedented expansion in higher education. This massive structural change had repercussions for identity.
To see why this cocktail proved fatal for social democracy I am going to sketch a model. A good model starts from assumptions that simplify but are not surprising, yet reaches surprising results. Ideally, it crystallizes something that thereafter seems obvious but which hitherto you hadn’t realized. Normally a model would be set out in a series of equations, but I will try to sketch this one out in a few sentences.2 While fairly simple, it requires a little patience to grasp how it works. The reward is that it is quite revealing. The model starts with some psychology and then adds some economics.
The psychology is stripped down, but considerably less crude than the grotesque pathology of rational economic man. He died out during the Stone Age, replaced (as we’ve seen) by rational social woman, and I draw on the insights of Identity Economics, the field pioneered by George Akerlof and Rachel Kranton, as to how she behaves. Suppose we all have two objective identities: our job and our nationality. Identity is a source of esteem, and each of these identities generates some of it. To specify just how much each generates, suppose that the esteem from a job reflects the income associated with it, and suppose that the esteem from nationality reflects the prestige of the nation. Now add a choice: salience. Although these objective identities of job and nationality are beyond our control, we can choose which of them to regard as most important. The identity I choose to make salient gears up its effect on my esteem. Imagine that it is like a card that doubles the esteem generated by whichever identity I place it on. Playing the salience card has a further effect: it divides us into two new groups, those who make their job salient, and those who make their nationality salient. In choosing which identity to make salient, I am also choosing to belong to one or other of these groups. I get further esteem from membership of this group, depending upon how much esteem the group has.
Bringing this together, each person is getting four servings of esteem. Some comes from our job; some comes from our nationality; an extra serving comes from whichever of them we have made salient; and a final serving comes from belonging to the group that, like us, has chosen this identity as salient. To be specific about this last serving, suppose it is simply the average esteem of each member of the group from the other three servings. So how do we decide which identity to make salient?* This is where we need the economics: our rational social woman gets her utility from esteem and she maximizes it: that’s what we mean by ‘rational’. We are now ready to apply this little model to post-war social history.
In the aftermath of the Second World War wage inequality is modest, and the nation is prestigious, so that even the most highly paid workers maximize their utility from esteem by choosing to make their nationality salient, rather than their job. If we sum the four servings of esteem we see that its distribution across society is pretty equal. Everyone is getting the same esteem from their national identity; because they all make this salient they all get the same double portion; because everyone has chosen the same salient identity, they all get the same esteem from their salient identity group; so, the only differences in esteem are due to the modest wage differences.
Now watch this happy outcome unravel. Over time, with rising complexity, a growing number of people get a fancy education, a fancy job to match it, and a fancy wage to match their enhanced productivity. At some point, the most highly skilled switch their choice of salience from their nationality to their skill because that way they maximize their esteem.
As this happens, that final serving of esteem, the one generated by having chosen the same salient identity as many others, starts to diverge. Those who choose to make their job the salient identity, get more from their membership of the same-salience group. Conversely, those sticking with nationality as salient lose esteem.* This divergence itself induces more people to switch their choice of salience from nation to job. Where does it end?
It might seem that everyone ends up switching their choice of salience, and this is possible. But a more likely alternative is that those in less-skilled jobs continue to make their nationality salient. When we compare this ending to where society started, the skilled have peeled off from their nationality; among them are the Utilitarian vanguard. As a result of peeling off, they get more esteem than they did initially. In contrast, the less skilled who have kept their nationality salient lose esteem; since the most-esteemed people have peeled off, belonging to the group that makes nationality salient yields less esteem.
Like all models, this one is excruciatingly reductionist. But, without drowning us in a morass of detail, it does help to explain why and how our societies have come apart at the seams. Throughout, everybody simply maximizes their own esteem. But due to structural changes in the economy, a cleavage opens up. The skilled switch their salient identity to their work. When she interviewed Susan Chira, then foreign editor of the New York Times, Alison Wolf captured a perfect expression of it: Ms Chira told her ‘work is fulfilling, it’s so woven with identity’.3 Meanwhile, the less educated, with less to enthuse about in their work, clung on to their nationality but began to feel marginalized.
Since the smug skilled get more esteem than the marginalized, they are keen to make clear to others that they indeed make their skill their salient identity. We can now use a key insight of Michael Spence’s Theory of Signalling to tell us how they are likely to do it. To show convincingly that I have chosen to drop nation as my salient identity, I need to do something that I would not be prepared to do otherwise. I need to denigrate the nation. This helps to explain why social elites so often actively disparage their own country – they are esteem-seeking. It decisively differentiates them from their social inferiors. Since by exiting the shared identity of nation they reduce the esteem of those they leave behind, it would not be surprising if they generated resentment. I hope that some of this resonates as familiar.
The new cla
ss of well-educated people with skills included both those of the right, who had embraced the libertarian ideology of the freedom to gain from individual talents, and those on the left, who had embraced Utilitarianism or Rawlsian rights. The latter group not only shed their own national identity, they encouraged others to do so. People with some characteristic deemed to qualify for victimhood were encouraged to embrace that as their salient identity.
REPERCUSSIONS FROM THE LOSS OF SHARED IDENTITY
This unravelling of shared identity had repercussions for how society functions. As identities polarized into skill versus nationality, trust in the people at the top of society began to collapse.4 How did this come about?
Recall the big idea of Chapter 2. A willingness to help others is generated by combining three narratives: shared belonging to a group; reciprocal obligations within the group; and a link from an action to the well-being of the group that shows it to be purposive. Consequently, if shared identity unravels, it undermines the willingness of the fortunate to accept that they have obligations towards the less fortunate.
The foundation of most generosity is reciprocity. That is the big step that catapults us from the weak force of altruism and duties of rescue, to the far stronger force of reciprocity that induces people to comply with high tax rates. But reciprocity faces a co-ordination problem: if you have accepted that the obligation is reciprocal, then I am willing to accept that I have an obligation to you, but how do I know that you accept the obligation? And how do you know that I have accepted it? How do we trust each other to meet these obligations if called upon to do so?
We know from experimental social psychology that the answer is that we need common knowledge. We each need to know that the other knows that we accept this obligation, ‘we know that we know, that we know’ echoing back recursively. This is what shared narratives of belonging, obligation and purpose circulating in a networked group gradually build. The claimed boundaries of shared belonging define the limits of reciprocity, and our awareness that we share exposure to narratives reinforces this with a sense of the practical boundaries to common knowledge. Because narratives are expressed primarily in language, there is a natural upper limit to the size of the group that is difficult to surmount – a shared language.5 But there is no equivalent lower limit: within a language group, identities can become highly fragmented. Breaches in shared identity both weaken the defined group to which reciprocity applies, and the practical feasibility of reciprocal obligations spanning separated groups.
There is not much doubt that our societies have indeed polarized into those earning above average incomes who have jettisoned national identity in favour of their job, and those lower down society who have clung on to it. Nor, after Trump, Brexit and Le Pen, is there much doubt that these two groups are conscious of this polarization.
The story so far: the part of the population that is skilled and educated has tended to sheer off from nationality as its core identity, leaving the less fortunate clinging to its diminished status. In turn, this has resulted in the weakening of shared identity across society. This has weakened the sense of obligation felt by the fortunate towards the less fortunate, and this has in turn undermined the narrative built following 1945, that the affluent should be willing to pay high redistributive taxes to help the poor. This is at least consistent with the very substantial decline in top tax rates post-1970.
Now we are ready to push one step further: the less fortunate part of the population recognizes this weakening of the sense of obligation among the fortunate. It would, after all, be quite hard to miss it, and it does matter for the poorer part of the population. This being the case, would it be likely to have any impact on the extent to which ordinary people trust their ‘betters’? Just by posing the question the answer becomes evident: trust would decline. If the educated see themselves as different from the less educated, and with diminished responsibility towards them, those others would be foolish to continue to trust them as much as when they knew that everyone had the same salient identity. We trust people if we are confident that we can predict how they will behave. We have more confidence in our predictions if we can safely use the techniques of a ‘theory of mind’: I predict your behaviour by imagining how I would behave in your circumstances. But using this technique is only reliable to the extent that I am confident that we share the same belief system. If we have radically different belief systems, I cannot put myself in your shoes because I do not inhabit the mental world that shapes your behaviour. I can’t trust you.
The Utilitarian vanguard even developed a theory that anticipated the decline of trust and proposed how to prevent it. Henry Sidgwick, Professor of Moral Philosophy at Cambridge and an ardent follower of Bentham, argued that the solution was for the ruling vanguard to conceal its true purpose from the rest of the population. The decline in trust could be prevented by deception.* Of course, the severe decline in trust since the 1970s has been reinforced by the revealed failure of the vanguard running public policy to address the new cleavages. But, as Sidgwick’s ludicrously self-defeating proposition suggests, the roots of the problem are much deeper than just this failure of outcomes.
The decline in trust is not the end of the unravelling of social democracy. The next rung down the ladder is the implications of the decline in trust for the ability to co-operate. In a complex society, myriad interrelationships depend on trust. So, as trust collapses, co-operation begins to fray. People start to rely more upon legal mechanisms for enforcement of good behaviour (this is good news for lawyers but not necessarily for the rest of us). As the sense of obligation on the part of the skilled towards their fellow-citizens weakens, because they no longer share a salient identity, behaviour becomes more opportunistic. The skilled may even come to view the rest of the population as ‘muppets’, and take pride in their skill in fleecing suckers. This appears, from email revelations, to have been a sentiment circulating in the higher echelons of financial firms. As Joseph Stiglitz aptly depicted the business model of Wall Street in the years preceding the financial crisis, it was ‘find suckers’. Evidently, this amplifies the underlying structural economic forces in society that are increasing inequality.
WHY WE ARE WARY OF SHARED NATIONAL IDENTITY
People are understandably wary of making national identity salient: nationalism has led to some truly terrible things. All identities implicitly define the characteristics for exclusion, but this becomes toxic if the characteristics for exclusion are not merely implicit, but explicit and hostile: ‘we’ are defined as ‘not them’, and ‘they’ become an object of hatred – we wish them ill. Such identities are oppositional. In some contexts, oppositional identities can actually be healthy. Sports teams, for example, strengthen their performance by having a clear notion of a rival; so do many firms. Such competition benefits all of us, spurring people to greater effort – it is one of the underrated benefits of capitalism. But, historically, the most damaging forms of oppositional identity have been large-group identities such as ethnicity, religion and nationality. They have led to pogroms, jihad and world war.
Few societies have suffered more from such oppositional identities than Germany. In the seventeenth century the Thirty Years War between Catholics and Protestants utterly devastated what had been a prosperous society. It was resolved eventually by the Peace of Westphalia, which in essence switched the salience of identity from religion to nationality. It indeed restored peace, but eventually took Germany into the hell of National Socialism, the Holocaust, world war and defeat. Unsurprisingly, most Germans now want a larger identity and so are enthusiastic Europeans.
But Europe is not just a lump of land on to which a polity can be fitted. As we have seen, the polity is better able to function if the units of political power coincide with shared identity. If they don’t, then either identity needs to adjust to power, or power needs to adjust to identity. In all modern societies, political power depends upon very modest levels of coercion and a high degree of willing compliance.
Willing compliance takes us back to the sense of obligation that turns power into authority. Without that sense of obligation, power faces only three options. One is to force people to comply by means of effective coercion – the North Korean option. The second is to attempt this option but to provoke reactive organized violence against the state – the Syrian option. The third is for power to recognize its limitations and retreat into theatre: power issues commands that it knows will be ignored, and those commanded find some means of avoiding compliance without causing too much offence. This has been the experience of the European Commission in trying to achieve compliance with its targets of fiscal discipline; only the Finns have never breached them.
People in modern prosperous societies have grown up with power already transformed into authority and so take it for granted. Having worked all my life in societies which are struggling to make this transformation, I have come to realize that it is valuable, challenging and potentially precarious. To build Europe as a polity depends on building a new large identity, but this is an extremely difficult undertaking. Common endeavours on such a scale are difficult to organize, and the vehicle for narratives of identity and obligation – language – is itself highly differentiated: Europe doesn’t have a common language.* Potentially, the attempt to transfer authority to a central entity with which few identify, strips power of authority, opening the way for fragmentation into regional identities and the collapse into individualism: the hell of economic man.
Indeed, rather than building larger identities, many people are retreating into smaller ones. After over five hundred years of being Spanish as well as Catalan, many Catalans now want to retreat into being only Catalan. After over three hundred years of being British as well as Scottish, many Scots now want to retreat into being only Scottish – the wee we in preference to the big we. After over one hundred and fifty years of being Italian, the Northern League would like to retreat into being ‘Northern’. After over fifty years of being Yugoslavian, Slovenes actually achieved the dream of secession; the consequences for other Yugoslavians were catastrophic. As I write, the Catalans are inspiring the southern regions of Brazil to seek secession. And, most astonishing of all, Biafra is back. The secession movement that fifty years ago led to a murderous war in Nigeria is once more agitating. All these seemingly distinct secessions have one thing in common: they are rich regions trying to exit obligations to the rest of the country. Catalonia is the richest of the seventeen regions of Spain and objects to paying taxes to poorer regions. The campaign slogan of the Scottish Nationalist Party has long been ‘it’s Scotland’s oil’ (this, despite the fact that the oil is actually located way out in the North Sea). Northern Italy is the richest part of the country and the secessionist narrative points resentfully to the fiscal transfers to poorer regions. Guess which region of Yugoslavia was the richest? Guess which three regions of Brazil are the richest? Guess where the oil is in Nigeria? Behind the posturing narratives of the right to self-determination, these political movements are further manifestations of the unravelling of the social democratic state: resentment against the reciprocal obligations built across a vast shared identity. They, as much as capitalism, warrant the epithets of greed and selfishness. That they have avoided them is a tribute not to their purpose, but to their PR.
