Throughout her career as an academic, writer and broadcaster, Helen Thompson has thought more deeply than almost anyone about the forces shaping our world.
Making connections between things that appear unconnected and exposing the deep fault lines in the world economy, in energy and in democracies, her work is both essential in bringing coherence to the crises of our time and uncategorisable.
Her new book, Disorder: Hard Times in the Twenty-First Century, which she modestly describes as her attempt to understand the world in which we now live, comes at a critical juncture for the international order. Putin’s brutal invasion of Ukraine, with echoes of Europe’s darkest days, has brought history roaring back to life.
History, as the former German Chancellor Konrad Adenauer put it, “is the sum total of things that could have been avoided.” What Disorder conveys so powerfully is that the structures that have developed since the 1970s to govern the world economy have produced unavoidable consequences in democracies, energy and geopolitics that we are now only beginning to grapple with.
In my interview with Helen Thompson for The Currency podcast, we spoke about the historical origins of the political shocks of the past decade, and how many of the crises now unfolding have been decades in the making.
These are six key insights from our conversation:
Ukraine has always been been the fault line
The demise of the Soviet Union and Ukraine’s independence created profound conflicts within the EU on security policy and energy supply that have now reached a breaking point in the Russian invasion.
Germany, in attempting to maintain its stance of ‘change through trade’ and increasingly dependent on Russian gas pursued a policy of routing transit away from Ukraine and through the Nordstream pipeline under the Baltic Sea. Until this week, the consistent position of the German political establishment was that its successor Nordstream 2 was purely a commercial matter with no political implications.
That fiction came to an end this week when Chancellor Olaf Scholz announced its postponement. It is hard to see it being revived. However, Putin’s chokehold over European energy security remains, with an estimated $600m in oil and gas revenues flowing to Russia daily. His leverage was exemplified this week by German pressure on the US to exempt energy from its ban on Russian banks clearing U.S. dollar transactions.
Energy is the critical factor
In Disorder, Helen Thompson writes that “without taking energy seriously there is no persuasive story that can be told about the trajectories of economies from the 1970s through to the 1980s, or their political consequences.”
Until recently, energy has been the missing piece in the story of our times. Instead, we have become more used to thinking about modern economies in terms of technology. We have not, as Thompson argues, collectively understood the material conditions of our existence in the modern world.
No longer. Whether it is through the lens of the climate emergency, the geopolitical instability created by fossil fuels, or the profound distributional conflicts created by the energy transition – the political debate on carbon tax for example – we have come belatedly to an energy consciousness in political and economic discourse.
The backlash against aristocratic excess
A central theme in Disorder is that the more internationalised and financialised economies from the 1970s terminated the ability of national governments to steer their own economic path and magnified the aristocratic features of democracies. Taxing the middle class became easier than taxing the rich. Despite this, the lesson parties of the centre took from the 1970 and 80s was that “it was democratic excess manifested in inflation that was the permanent hazard.”
This long period of aristocratic excess is coming to an end. We are in an interregnum. It is not yet clear what will replace it, and contradictions abound.
On the one hand, it is now widely understood by governments in the US, UK and EU that aristocratic excess is a real danger for the viability of democracies, and this explains Bidenomics, Levelling-Up and the EU Recovery Fund. Democratic politics must produce better economic outcomes for those left behind.
At the same time, there is no appetite to confront the aristocracy of our times. Political systems have become addicted to the wealth this class provides, which has only grown during the pandemic and before that during the decade of QE. No mainstream politician promotes aggressive taxation of wealth.
Until the pendulum swings in that direction, the aristocratic features of democracies and the risks they entail will persist.
The hidden forces behind Brexit
Our views on Brexit have been framed by the narrative of British nostalgia for Empire perpetuated by writers like Fintan O’Toole. In Disorder, Helen Thompson brings an entirely new perspective to this, arguing that the Eurozone crisis set in motion the path that led Britain out of the EU.
Economic depressions in Southern Europe created a new surge of immigration to the UK which “had effectively become an employer of last resort for the Eurozone”, at precisely the time that UKIP was starting to become a real threat to the Conservative Party.
At the same time, the UK’s position outside the Euro but host to the Eurozone’s financial centre in the City of London became increasingly untenable. For Thompson, the crucial juncture is the 2011 EU summit that agreed on the Fiscal Treaty, where Prime Minister David Cameron’s attempt to veto it absent exemptions for British financial services went horribly wrong for Cameron. In the aftermath, as Cameron acknowledges in his memoirs, he began to seriously consider an in/out referendum, writing in 2012 that unless a way could be found to protect UK interests as a non-Euro member that it was on a path out of the EU.
The die may have been cast at this stage, but the momentum towards Brexit was copper fastened by Cameron’s fatal error in preceding the referendum with a renegotiation of Britain’s relationship with the EU that was doomed to failure from the start. In failing to achieve any meaningful concessions from EU leaders, particularly around immigration, Cameron effectively gave Vote Leave its ace card.
As Thompson concludes, Cameron would have been better off just calling a referendum without a renegotiation. A counterfactual history, to which Adenauer’s aphorism seems particularly apt.
The ECB’s overreach
While the Eurozone crisis destabilised the UK, it also posed a profound dilemma for European democracy.
In Disorder, Thompson notes that “the monetary-economic distinction entrenched in Maastricht, where the monetary realm is supranational and technocratic and the rest of economic policy is national and democratic, has nearly entirely broken down.”
Throughout the crisis, and again during the pandemic, the ECB played a role that made a nonsense of this distinction. As Thompson makes clear, if everything had been done by the book of the Maastricht Treaty, then the Eurozone would not have survived. The same is true of the pandemic response. As a result, this ECB is nothing like the ECB created in Maastricht.
The political difficulty this poses is most apparent in Italy, where no government since 2011 has been able to take office without the tacit or explicit approval of the ECB. The ECB’s backstop to Italian sovereign debt has made it a participant in the formation of Italian governments, with the result that elections alone do not determine who holds power. Over the past decade, most Italian prime ministers and finance ministers have been unelected technocrats, including the current incumbent, former ECB President Mario Draghi.
The ECB has been dragged into the political arena by the failure of the Eurozone to develop a collective fiscal capacity, as both Draghi and his predecessor Jean-Claude Trichet have argued. And while the Recovery Fund that enables joint borrowing was a major shift, it is still not clear if the political forces within the Eurozone are yet prepared to make a more consequential leap towards greater fiscal integration. This week, even in the face of Russia’s aggression, EU leaders were unwilling to commit to greater fiscal integration as part of an overall deal on economic sanctions.
Beyond climate doom and utopia
At the end of Disorder, Thompson predicts that it is more likely that there will be a long energy transition than a rapid one. She writes, “Careening between the ideas of a technologically driven salvation and an inescapable Gotterdammerung is a hopeless response.”
In the same way that the disasters of the 20th century led to the Keynesian political and economic consensus, the contemporary world is crying out for a politics of climate realism that transcends doom, denial, or utopia. The pertinent question is whether this is more likely to emerge within democracies or authoritarian states like China?
For the time being, what Thompson describes as China’s greater faith in modernity in China, means that the Chinese Communist Party is more serious in both words and deeds about grappling with the dilemmas that the energy transition poses. As she puts it, if energy is the dark underbelly of modernity, then the country where modernity is taken most seriously as a project of national transformation is where there is the most serious thinking about energy. To adapt Adam Tooze’s concept, China thinks about this as a ‘polycrisis’ of energy and is developing a coherent system-level response.
Democracies, on the other hand, will always be better than authoritarian states at dealing with the profound distributional conflicts that will be caused by the energy transition.
The path ahead is long and narrow. As Thompson concludes, how democracies can be sustained as they are destabilised by the conflicts over climate change and energy consumption, will become the central political question of the coming decade.