Friday26 July 2019 ★ FINANCIAL TIMES 9

Opinion

at the conference by two arch-enemies,

both of whom were applauded: the

hawk Mr Bolton who,according to Mr

Trump, has never seen a war he doesn’t

like, andthe nativist Mr Carlson, who

reportedly helped persuadeMr Trump

not to bomb Iran.

The former shrewdly parried all

attempts to enlist him in the culture

wars, or to disavow Nato. The latter

rehashed familiar rants against diver-

sity and demographic change.

There were some more chilling notes.

An appreciative audience listened to

the academic Daniel Pipes enumerating

Europe’s hard-right parties (“some call

them Nazis or populists, I call them civi-

lisationists”) and predicting their domi-

nance in Europe. No one protested.

This is the ugly truth about the

nationalists. They preach social cohe-

sion, national renewal and restraint in

international affairs. But they endorse

and celebrate the toxic forces that

destroy these aims. These are not the

president’s critics, but his disciples.

The writer is Robert Bosch Senior Fellow at

the Brookings Institution

preference to white over non-white

immigrants. Josh Hawley, the junior

senator from Missouri, wascalled outby

the Anti-Defamation League for a

speech in which he used hoary anti-

Semitic dogwhistles such as “cosmopoli-

tan elites”.

As for foreign policy, the three tribes

that, between them, ruled Republican

foreign policy for so long — the free-

market internationalists; the realist

restrainers; and the universalist neo-

conservatives — have been mostly side-

lined in the Trump era. That is an open-

ing for younger conservatives.

The events that define their attitude

to America’s relations with the world are

not the dissolution of the Soviet Union

or halting genocide in the Balkans, but

the “endless wars” in Iraq and Afghani-

stan and the global financial crisis that

amount to a double humiliation of over-

reach and impotence. Hence the appeal

of Mr Hazony’s depiction of the world as

one of “competing tribes and nations”,

and his warning of a coming “civil war”

in America “if the fraying goes on.”

Yet the incoherence of nationalist

foreign policy thinking wasrepresented

services. This enthusiasm for an asser-

tive state is the movement’s most dis-

tinctive departure from the small gov-

ernment conservatism of the Reagan

era — and something with which Euro-

peans could find much to agree.

The conference hosts, Israeli right-

wing academic Yoram Hazony and

American conservative activist David

Brog, were likewise at pains to emph-

asise they had barred entry to white

supremacists. But, on a national level,

that door has been blown off the hinges

by Mr Trump’s embrace of the politics of

cultural grievance.

The reverberations of that breach

were felt throughout the two-day event

— whose attendees and speakers were

overwhelmingly white. A law professor

urged an immigration policy that gave

Republican party, anyone interested in

the future of American politics should

pay close attention to this attempt at

“reverse engineering an intellectual

doctrine to match [Donald] Trump’s

basic instincts” as Jacob Heilbrunn,

editor of The National Interest, a con-

servative magazine, put it.

Although the US president had

brought them together, some of the

speakers were clearly steering wide

of Trumpism. They seemed motivated

less by chest-thumping nationalism

than a desire to subject the titans of

Silicon Valley to antitrust regulation or

concerns about the social ravages cre-

ated by laissez-faire economic libertar-

ianism.

Mr Thiel (founder of online payments

company PayPal and the data-mining

company Palantir) inveighed against

Google and accused it of being pene-

trated by Chinese intelligence.JD Vance,

author ofHillbilly Elegy, the best-selling

2016 memoir about growing up in the

US Rust Belt, made a thoughtful appeal

for a nation-state that can protect its

citizens and provide them with public

goods including health and education

A

group of American think-

ers, politicians and media

personalities met ina dimly

lit basement ballroom of

the Ritz-Carlton hotel in

Washington last week to reinvent con-

servatism. Or, as the conference logo

specified, National Conservatism.

For a startup, the conference — organ-

ised by the new Edmund Burke Found-

ation — attracted an impressive number

of guests and speakers. Theroster fea-

tured big conservative names, including

the billionaireinvestor Peter Thiel, Fox

network host Tucker Carlson, and the

Trump administration’s national secu-

rity adviser,John Bolton.

With the 2020 presidential election

already under way, a broad field of Dem-

ocratic candidates, and an eviscerated

National conservatism is coming for Washington

Enthusiasm for an assertive

state is the movement’s

main departure from its

Reagan-era predecessor

been disenfranchised. The notion that

these people are now waiting meekly

to fall in behind Mr Johnson’s infantile

“global Britain” strategy is surely

beyond even his imagination. The

Brexit struggle between those who

believe in a progressive and open Britain

and those throwing up the barricades

of nostalgia will shape politics for a

decade. In England it will widen the gap

between cosmopolitan London and the

less prosperous regions. In Scotland

it will nourish support for independence

by forcing a choice between little Eng-

land and Europe. In Northern Ireland

it may tip the balance to reunification

with the Republic.

Absurdly, Mr Johnson says he can

restore public trust in politics. The nar-

cissism is heart-stopping. The fact of his

premiership is a sorry measure of how

far Britain has fallen. You could say it is

fitting that now, at least, he will be con-

fronted directly with the consequences

of a career steeped in mendacity. Brit-

ain, though, will be paying the price.

[email protected]

might vote for it. Or, more likely, not.

Even a deal, however, would provide

only temporary certainty. Beyond a

transition would lie another cliff edge —

and the prospect of uncertainty well

into the mid-2020s until the terms of a

comprehensive trade agreement had

been hammered out.

I have heard talk in Mr Johnson’s

camp of a third option — a so-called

“managed no-deal” with an open-ended

transition period. The aim would be to

render redundant the backstop plan to

keep open the Irish border. I cannot see

why the EU27 would offer such an

accord, but in any event it would

scarcely represent the clean break

promised by Mr Johnson.

The prime minister’s promise of post-

Brexit unity belies his contempt for the

nearly half (48 per cent, or more than

16m) of voters in the 2016 referendum

who backed membership of the EU. He

dismisses them as “Remoaners” seeking

to overturn the “will of the people”.

Leave voters who wanted to withdraw

from the EU’s political project but main-

tain close economic ties have likewise

dissolve in an instant the panoply of

institutional, political and economic

connections between Britain and the

EU27. Far from allowing a clean break,

however, this would be a prelude to

years of complex and difficult negotia-

tions to restore a sustainable relation-

ship. The government would be entirely

at the mercy of Brussels in terms of the

pace of talks and scope of an accord.

Mr Johnson could decide to betray the

ideological zealots who have put him in

No 10. He could petition German Chan-

cellor Angela Merkel and French Presi-

dent Emmanuel Macron for a few cos-

metic adjustments to the withdrawal

agreement secured by his predecessor

Theresa May, and then declare the pack-

age a victory. With backing from some

Labour MPs, the House of Commons

from Rudyard Kipling’s paeans to Eng-

lish exceptionalism, he mourns the

loss of empire, rails against the “nanny

state”, and thinks the French should be

eternally grateful for being rescued in

two world wars.

And so to Brexit. Mr Johnson’s cam-

paign for the leadership was studded

with all manner of fairy tales and fanta-

sies. Perhaps the most palpably false

was a promise that Brexit would soon be

recognised as another great victory.

Another was that he could dictate to the

EU the terms of departure. A third, that

he would sprinkle harmony and unity

across a deeply polarised nation.

As intensely as Mr Johnson gazes

into the mirror in the effort to sharpen

his Churchill mannerisms (have you

noticed the studied stoop?) he is run-

ning out of road. He will whip up the

familiar blizzards of bluster and chaff.

There comes a moment, though, when

chancers are found out.

There arethree safe betsto be made

about Mr Johnson’s premiership. The

first is that for all his do-or-die promises

otherwise, Brexit will not be settled any

time soon. Deal or no-deal, Britain will

be trapped in uncertainty for years to

come. The second, that the splintering

of national unity will set the UK on a

path that leads to the break-up of the

four-nation union. And the third, that

Mr Johnson’s spell in No 10 will end in

dismal failure.

The idea that crashing out of the EU

would “settle things”, and thus put an

end to uncertainty, has always been a

nonsense. Sure, a no-deal Brexit would

L

et’s just get this done! With

a smidgen of Churchillian

grit, the fighting will be

over before Christmas. Boris

Johnson is summoning up

thespirit of the Blitz. Britain may be

battered but it is never broken. Once the

new prime minister has severed the EU

shackles on October 31 people will come

together again in a great hug of national

celebration. Call it Victory in Europe.

VE Day. Mr Johnson would like that.

Britain is living through the most pro-

found crisis it has faced in modern

peacetime. Its politics are dysfunc-

tional, its society badly fractured and its

economy weakened. The UK union is

imperilled. The Conservative party’s

answer is to put a second-rate huckster

in 10 Downing Street. Mr Johnson

scorns truth and is blind to ethics. Civil

servants doubtless will do theirimpar-

tial duty. They can be sure that when

things go wrong, Mr Johnson will throw

them overboard.

Britain’s new prime minister some-

times strikes a pose as a metropolitan

liberal. This week, aides have ensured

his new ministerial line-up nods in the

direction of diversity. At heart, he is a

reactionary. With a worldview drawn

Three things to

know about

Boris Johnson

The prime minister’s

promise of post-Brexit

unity belies his contempt

for Remain voters

T

he 75th anniversary of the

Bretton Woodsconference,

which took place in July

1944, hasseen a plethora of

luminaries extolling the

virtues of the multilateral system the

meeting bequeathed.

No wonder: globalisation is an admi-

rable cause. The Bretton Woods Com-

mittee recently released acollection of

essaysfrom figures such as Christine

Lagarde, outgoing managing director of

the IMF and nominee as the next head of

the European Central Bank, and James

Wolfensohn, former president of the

World Bank. They mostly laud the inter-

national financial institutions that

emerged from Bretton Woods.

Butif you want to find a little grit in

that multilateral oyster, take a look at

the contribution from Myron Brilliant

and Gary Litmanof the American

Chamber of Commerce.

Their essay opens with the usual tact-

ful niceties, noting the “positive impact”

that the international financial institu-

tions have had in past decades.But it

then argues that business executives are

getting fed up with thesebehemoths.

One reason is that during the 2008

crisis they “looked ill equipped to pro-

vide a coherent response to the new

challenges, let alone prevent the next

crisis”. Another problem is that the

institutions have now become so rigid

and bureaucratic that they fail to incor-

porate corporate interests when design-

ing policies.

Worse still, business finds it increas-

ingly hard to navigate a complex system

in which institutions often appear to be

competing with each other. And while

bodies such as the World Bank claim to

be keen to work with the corporate

world, companies have fewer incentives

to collaborate.

“What the bank offers in risk manage-

ment,” Messrs Brilliant and Litman

write, “it takes away in efficiency

and vulnerability to politics.” Ouch.

Now, some business executives might

view these comments as simply an unu-

sually public statement of the obvious.

Indeed, I have often heardsuch remarks

made discreetly by corporate figures on

the fringes of World Bank and IMF

meetings. Conversely, some of theBret-

ton Woods luminaries might retort that

business criticism of this sort is just

another instance of corporate power

flexing its muscles at a time when the

public sector is in retreat. Non-Ameri-

can observers might also assume that

the Chamber of Commerce is simply

echoing the anti-globalist stance of the

Trump administration.

However, it is worth pointing out that

the chamber actually supports globali-

sation — so much so, in fact, that Presi-

dent Donald Trump recently launched

an attack on Mr Brilliant onTwitter

because he criticised US trade tariffs. So

instead of dismissing the chamber’s

broadside, what defenders of the Bret-

ton Woods institutions should do is to

ponder what, if anything, might allay

business concerns?

One interesting idea has been

advanced byTharman Shanmugarat-

nam, senior minister of Singapore, who

co-authored a report on global financial

governancelast year. Speakingat the G

finance ministers meeting in France last

week,he agreed with the chamber’s

view that the Bretton Woods system, as

currently constituted, is breaking down.

However, Mr Shanmugaratnam

argued that the best response to thisis

not to abandon the ideas underpinning

Bretton Woods, but rather to stop trying

to defend the bureaucratic institutions

that the 1944 agreement created.

Instead, global leaders should collabo-

rate via interconnected national and

regional platformsto tackle specific

challenges, such as migration or climate

change. To put it another way, the 21st-

century successor to Bretton Woods

should be defined by problems to solve

— not by institutional boundaries. Net-

works, not institutions, should rule.

This might sound too vague to be

workable. But you could argue that Mr

Shanmugaratnam is simply pointing

out the direction the Bretton Woods sys-

tem is already drifting in. So instead of

grudgingly accepting this, perhaps

world leaders should learn to celebrate

it. For one thing, a “networked” vision is

something that China seems more likely

to collaborate with, given its suspicion

of the IMF. “China’s Belt and Road Initia-

tive... aims to connect and build net-

works,” says Keyu Jin of the London

School of Economics. Moreover, the

idea of networks chimes with the spirit

of 21st-century business.

The Bretton Woods Committee

should be applauded for publishing a

dissenting view. The next step forbusi-

nesses is to list the most urgent prob-

lems they want global “networks” to

solve, whatever bureaucratic category

they might belong to. That would

concentrate minds.

[email protected]

Corporations find it hard to

navigate a system in which

official bodies appear to be

competing with each other

The business case against Bretton Woods

FINANCE

Gillian

Tett

C

harges of short-termism

have been aimed at financial

markets and companiesfor

decades, but concerns have

intensified recently. Now US

regulators are askingwhether rule

changes are needed to address the issue.

But are our markets really too focused

on immediate results at the expense of

long-term growth? As an academic

finance professor, I believe we can rely

on empirical researchon how the mar-

ket values highly innovative companies.

Innovation, after all, is the ultimate

proof that companies are investing for

the long haul.

First, let’s look at whethercompanies

are discouraged from risky investments

aimed at ambitious discoveries or from

deploying unconventional methods. A

2013 studyfound that highly innovative

companies — as identified by high levels

of research and development spending

— are fairly priced, rather than heavily

discounted as “market short-termism”

would predict. Their future stock

returns are comparablewith those

earned by other companies in the same

class. In fact, the study found thatmany

high R&D companies with lower past

success — as reflected in their ability

to convert R&D spending future sales

growth — are, if anything, overvalued

for an extended period of time. That

suggests public market investorsare

rather tolerant of failure.

We must consider, too, the impact of

hedge fund activists, who often seek

payouts through share buybacks. Critics

say that these reduce the value of the

companies in the long run by leading to

reduced investment in innovation. But

not all R&D spending is created equal. A

study that three co-authors and Ipub-

lishedlast yearfound that while corpo-

rate spending on R&D does tend to fall

in the year following interventions by

shareholder activists, the R&D spending

that remains becomes more productive.

At such companies, the number of

new patents increased by 15 per cent,

three to five years after the activists’

intervention, and the number of cita-

tions per patent — an indicator of patent

impact or quality — alsorose by 15 per

cent. That suggests increased R&D effi-

ciency and additional innovation.

Some investors, then, are more than

willing to take the long view. But what

about corporate managers? Evidence

suggests that executiveshortsighted-

ness is not only a possibility, but can be a

likely outcome in today’s markets.

Here’s why: mostbusinesses are at

risk of“stakeholder runs.” Creditors,

suppliers and employees may seek to

flee at the first sign of trouble, so theper-

ception — possibly distinguished from

the reality — of financial health is vital.

Hence managers will often take actions

that favour current observable results —

think earnings here — to convince (or in

some cases mislead) the market about a

company’s fundamental health.

Investors aretypically not fooled:

they understand the incentivesfor man-

agers to set and then beat earnings

targets, and they correctly suspect

that there will be “short-termist” efforts

to meet those targets — stuffing invento-

ries into the supply chain or cutting

productive R&D if necessary.

Once it becomes clear managers are

willing to play the earnings “game”,

investors adjustwhen pricing the stock.

For such companies, missing forecasts

by small amounts can trigger a bigsell-

off because investors expect executives

to exhaust all possible resources to meet

their targets. Companies can short-

circuit this unproductive cycle by avoid-

ing quarterly earnings guidelines and

a number of them have done so. This

allows them to focus onother measures

of performance, such as R&D spending

and patent filing.

While short-termism can be a prob-

lem for our financial markets, the long-

term is, of course, nothing more than a

continuous series of short-terms. Inves-

tors can make it easier for companies to

arrive at the right long-term mark by

encouraging them to pick intermediate

goals that keep them on the right path.

The writer is a Columbia Business School

professor of finance

Investors can

think long-term

but managers

are a harder case

We i

Jiang

Executives engage in

short-termist efforts

to meet targets by cutting

research and development

AMERICA

Constanze

Stelzenmüller

POLITICS

Philip

Stephens

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