ESG Focus: The Virus And Shrinking Democracies

ESG Focus | Feb 19 2021

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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2020 has seen the biggest global shrinkage of personal liberties during peacetime, but it's all about the global pandemic and last year's trend is not necessarily spelling doom and gloom for the world's democracies

ESG Focus: The Virus & Shrinking Democracies

-The global pandemic’s seen the biggest global rollback of personal liberties during peacetime
-Autocratic leaders are using the pandemic as justification for further suppression of citizens
-Today just 23 nations – most in Western Europe – are deemed full democracies

by Ed Kennedy

The democratic model of government suffered a major setback in 2020 around the world.

That’s according to the findings of The Economist’s Democracy Index 2020. 70% of the countries included in the index saw a decline in the overall score, according to Agathe Demarais, Global Forecast Director, and Ana Nichols, Industry Operations Director, of The Economist’s Intelligence Unit, the hosts of a recent webinar on the Index’s findings.

The Good and Bad News in the Data

The Democracy Index measures each nation via the health of its electoral process, its civil liberties, the functioning of government, and related metrics.

2020’s global average score on the Index hit an all-time low of 5.37 (out of 10). It’s a regression upon the previous year’s score of 5.44.

The vast majority of countries covered by the Index recorded a decline in their total score. When measured by their total average score, every region of the world also recorded a regression.

For those of us who live in free societies and would like to keep doing so, such statistics are very confronting. Yet a contextualisation of the data in combination with a recognition of 2020’s unusual dynamics show that democracy’s current condition is serious, but by no means terminal.

Nonetheless, the pandemic’s emergence confirms there are a number of fractures in the current democratic model governments across the world use, just as autocrats are using the pandemic to their advantage in further restricting individual freedoms within their regimes.

The Campaign Pitch for Democracy

Advocates of the democratic model argue it's the greatest vehicle for empowering economic growth, especially in combination with a free market economic model.

With the right to protest shall come the right to bargain for higher wages and better working conditions, with the right to free speech corruption can be called out, and the ability for citizens to pursue private enterprise in lieu of operating in a planned economy encourages commercial innovation and upward mobility.

At no other time in history did the belief in the superiority of the democratic model have greater credence than in the 1990s. With the fall of the USSR in 1991, the decade saw democratic nations dominate the rankings of the world’s biggest economies by GDP, with the USA accompanied by Japan, Germany, France, and the UK at the top of the table.

But the blistering economic growth of China in the years to follow -alongside a decline in trust in the democratic model – over a long period of time, but particularly since the post-9/11 era that saw the calamitous wars in Afghanistan and Iraq begin – affirms the 1990’s was not the beginning of a long victory lap for the nations who advocate for a democratic model, but simply a brief intermission before resuming serious competition with the autocratic form.

The China Challenge

The prevailing wisdom for years among many academics, diplomats, and those of similar ilk was that the rising economic wealth of China would eventually pressage a period of democratic reforms.

Many in the Chinese government would argue their system is already a socialist democracy -one in which there is only one party but the capacity for diverse dialogue and lobbying within its inner sanctum- but the era President Xi Jinping has presided over since coming to power in 2013 certainly makes this claim ever more dubious.

Xi’s fervour for further restricting civil liberties, quashing dissent and jailing opponents -under the auspices of a ‘corruption crackdown’- means the Chinese government is missing many key freedoms and protections in its apparent performance of the democratic process.

But ultimately, the greatest challenge for democrats globally is not what the Chinese government is doing within its borders, but within its foreign policy alongside fellow advocates for the authoritarian model such as the Russian government.

Making an Effective Case

As Demarais and Nichols identified, a key challenge for the democratic model is the perception among everyday citizens their government is out of touch with their concerns.

In turn, even if they’re attuned to the issues, they’re unable to provide an adequate response.

Part of this necessarily owes to the complexity of a modern economy that is increasingly digitising and globalising. The old favourite adage of politicos that ‘all politics is local’ really isn’t applicable after decades of free-flowing trade across all four corners of the earth.

Yet, unquestionably, any self-indulgent antics by elected officials will deal a savage blow to the democratic brand.

The revolving door of leaders -including multiple changes of prime minister -both the Australian Labor Party and the Coalition- contributed to over the past decade occurred during the same timeline that saw democratic satisfaction in Australian government essentially halve.

In 2010 under the Rudd government the satisfaction rate was 72%, in 2018 under the Turnbull government it was just 41%. Autocrats won’t offer elections, but they’ll bring stability with an iron-fisted rule.

The People Get Their Voice Back

The findings of The Economist’s Democracy Index 2020 are startling, but must also be considered in context.

Although contemplating counterfactuals is by its nature an imprecise endeavour, if not for a pandemic it’s fundamentally unimaginable any fully-functioning democracy would flip the switch overnight and opt for mass restrictions on liberty via lockdowns.

Once the pandemic ends, so too can the current restrictions on civil liberties be expected to, and scores to rise once more on the Index.

Furthermore, while this certainly wasn’t a good year for democracy on the Index overall, the improved results on last year in nations like South Korea and Taiwan evidence much promise for these nations, and the Asian region as a whole.

Over the lifetime of the Index since it began in 2006 Asia is the only region where its score is higher in 2020 than it was in 2006. Such results in South Korea and Taiwan offset the rapid decline of democratic norms seen in Hong Kong and its impact on the score.

It’s also necessary to note signs of trouble in the system can rally a response for its cure. For anyone who would opine Donald Trump’s election to the presidency in 2016 can largely be attributed to apathy among the electorate, the record turnout of more than 156 million Americans in the 2020 election suggests an electorate newly engaged with their civic duty.

What’s more, regardless of the fates and fortunes of democratic nations, evidence suggests the leaders of the autocratic form are now in for a rough ride of their own.

Although an abundance of evidence suggests the Russian government had a hand in attempting to destablise the US political system in recent years, in anti-corruption activist Alexei Navalny and his supporters Vladmir Putin’s decades-long rule on Russia is facing it’s strongest test to date.

In turn, for all its bravado the Chinese government knows any progress it seeks to make in its strategic aims during the decade ahead will be far harder than gains made in the decade prior.

Recent years have seen Washington DC decisively shift away from the prior aspiration to see China one day become a ‘strategic partner’, to now deeming it a major rival and challenger to American interests.

Furthermore, while China is seeking to cement its rising power with ‘Wolf Warrior’ diplomacy that’s seen Beijing escalate old quarrels -such as with India and the UK- and commence new ones altogether (such as its trade war with Australia), these actions are ultimately amplifying the voices of those who advocate for nations to undergo a ‘conscious uncoupling’ with China.

Such an uncoupling is simply impossible in the short term. But Beijing’s current grip on the global supply chain which it wields in its strategic aims isn’t absolute, nor invulnerable.

For governments with ample time on their hands to draw up a national strategy for the post-pandemic era, and other Asian economies rapidly growing, there’s a new appetite for a strategic rethink, and many countries are ready to build new trade ties with a long-term view.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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