STANFORD — For many of the world’s economies, financial markets, heads of government and carbon policies, 2018 did not end well. The scars of the global financial crisis and Great Recession, combined with longer-term structural economic, technological, cultural and demographic trends have left large swaths of the population in many countries feeling politically neglected, culturally disparaged and/or economically wounded. And their expression of their grievances — at the polls, on the Internet and in the streets — has left their leaders profoundly weakened. In Germany, four-term Chancellor Angela Merkel has long acted as the European Union’s de facto leader. Then came her fateful 2015 decision to welcome more than 1 million refugees into Germany. The backlash — fuelled by frustration with the added pressure on public services, finances and law enforcement, not to mention political fearmongering — left Merkel so wounded that she did not seek reelection as leader of her party this month, and will not stand for reelection as chancellor after her current term expires in 2021. Anti-immigrant sentiment is hardly confined to Germany. From Italy to Poland, it has helped populist political parties win power. Hungary erected barbed-wire fences to keep out refugees. Denmark confiscated immigrants’ assets and is now set to send hundreds of “unwanted” asylum-seekers to a remote, uninhabited island once used for research on diseased animals. Resistance to immigration and, more broadly, anxiety about the surrender of sovereignty to the EU also helped to propel another key development of recent years: the United Kingdom’s 2016 Brexit referendum. After then-prime minister David Cameron promised to hold a popular vote to leave the EU — a ploy to maximise his 2015 reelection victory margin — he was unable to gain enough flexibility from the bloc’s leaders, including greater control over immigration, to convince a majority of voters to remain. In 2018, the Brexit drama continued. Prime Minster Theresa May secured a compromise deal with the EU, but, facing a resounding defeat in parliament, was forced to postpone a vote on it until January. Opposition to her compromises was so strong among her fellow Tories that she was forced to endure a Conservative Party no-confidence vote. While May managed to survive that challenge, she remains trapped between the rock of the EU’s refusal to offer any more concessions and the hard place of deep domestic divisions. Polls now indicate that the Labour Party’s hard-left and apparently anti-Semitic leader Jeremy Corbyn is likely to be Britain’s next prime minister. Then there is France, where President Emmanuel Macron — once hailed as Europe’s next de facto leader — has faced a wave of protests and civil disorder in recent weeks. Macron had already been struggling to enact his pro-growth reform agenda, focused on imposing modest constraints on France’s hypertrophied welfare state. But it was a fuel-tax increase, billed as a measure to help reduce greenhouse-gas emissions, that triggered the so-called yellow vest protests. In the world’s most highly taxed major economy, citizens have apparently had enough of the political class tending to what they perceive as a distant global goal, rather than to voters’ immediate needs. Similarly, in Canada, Prime Minister Justin Trudeau is facing a backlash against a federal carbon tax imposed on the four (of 10) Canadian provinces that rejected his original emissions-reduction policies — and it might cost him his job next year. The heightened tension between central and subnational governments is one of the most important, yet least reported global trends of recent years. Climate action is facing headwinds elsewhere, too. At this month’s United Nations Climate Change Conference (COP24), held in the Polish coal-mining city of Katowice, negotiators barely managed to agree on a rulebook for implementing the 2015 Paris Climate Agreement, including a consistent methodology for measuring progress. More tellingly, it was revealed at COP24 that many other countries are lagging behind their Paris commitments (which, even if met, probably would not be enough to achieve global emissions goals). That includes Germany, where Merkel’s renewables push and nuclear phase-out have resulted in increased reliance on the dirtiest form of coal, lignite, to keep prices manageable and provide a backup for wind and solar. Early in the conference, criticism centred on the United States, because of President Donald Trump’s decision to withdraw from the Paris agreement as soon as possible (in 2020). But America’s emissions reduction record remains among the world’s best, despite growing resistance to new climate policies. For example, the states of Washington, Arizona and Colorado recently rejected initiatives to curb fossil-fuel use. Even in ultra-green California, a previously enacted fuel-tax hike was almost repealed; it survived only because voters were concerned about how to fund repairs to the state’s maintenance-starved roads and highways. Climate is far from the only concern dogging the Trump administration. In this year’s midterm elections, his Republican Party lost control of the US House of Representatives. While macroeconomic indicators remain strong, many are worried about rising interest rates, slowing growth abroad and late-cycle economic and market tendencies. Trump’s tariffs, especially against China, are amplifying these concerns, as they risk offsetting the growth-enhancing effects of his tax and regulatory reforms. The political recalibrations occurring in the world’s major economies highlight the limits on the level and pace of immigration a society can absorb without excessive disruption; on citizens’ willingness to abide centralised, let alone supranational, rule; and on public tolerance of economic weakness. As 2019 begins, leaders must focus on bread-and-butter domestic issues, while moving toward more flexible and decentralised political models capable of governing diverse populations. This will not only improve stability within countries; it will also provide stronger foundations for cooperation on high-priority international issues, from trade to climate risk. The writer, professor of Economics at Stanford University and senior fellow at the Hoover Institution, was chairman of George H.W. Bush’s Council of Economic Advisers from 1989 to 1993. Copyright: Project Syndicate, 2018.
