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Catastrophe averted?

The leaders of the rich countries went to Washington to save the world from sliding into deep recess

Vincent Cable

Shadow chancellor, Liberal Democrats

By the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements.

The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table.

The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round.

While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

Will Hutton

Economic commentator

It was remarkable to gather so much economic and political power in one room to address a common agenda. That was the good news - along with commitments to co-ordinate fiscal expansion, to expand the lending power of the IMF and World Bank (Japan's $100bn loan to the IMF will increase the Fund's lending capacity by 40 per cent), to boost cross-border supervision, to tackle credit rating agencies, to reassess mad accounting rules and require member countries to attack the bonus culture in the financial services industry. A year ago such an agreement would have been inconceivable.

The bad news is that much of this is shutting the stable door after the horse has bolted. Four things have to be recognised: that the world has profound imbalances between high-saving, high-surplus areas in Asia and the Gulf and low-saving, structural deficit countries in the transatlantic economy (Germany excepted); that a system of floating exchange rates and private banks can no longer take the weight of recycling those savings; that unless the system is de-risked and the burden of adjustment is placed on deficit and surplus countries alike, the global system faces breakdown; and finally, that the business model used by the banks to recycle surpluses - securitisation and hedging in the $360trn global derivatives market - is broken.

In plain English, China must accept that its currency must appreciate; Britain and America, that they cannot run their economies on foreign savings; and all players that there has to be a system of semi-fixed exchange rates between the yen, the euro and the dollar.

One tough reality is that, for all their new economic weight, China, Brazil, Russia and India do not have fully convertible currencies - nor do they want to accept the discipline involved in having convertible currencies.

Ann Pettifor

Fellow, New Economics Foundation

Over the past decade, the Group of Eight leaders turned their exclusive annual meetings into jamborees. Rock concerts, protesters and celebrities added populist glitz. However, the real purpose of the meetings - international co-operation and co-ordination - was ducked. At last year's G8 Summit in Heiligendamm, Germany, George W Bush and Gordon Brown vetoed Angela Merkel's agenda item for co-operation over tighter international regulation and financial oversight of capital markets. That task, they argued then, could safely be delegated to "the invisible hand". Now that the fantastic, self-regulating machinery of free markets has proved grossly malfunctional, it is good to hear talk of enhanced co-operation and regulation.

But, in places, the joint statement issued by the 20 world leaders borders on the delusional. The phrase "We must . . . ensure . . . that a global crisis, such as this one, does not happen again" implies that they are avoiding the next war when they are still losing this one.

Even more questionable is the call for continued "economic growth". In a world of finite resources on a planet with limited capacity to absorb toxic emissions, and with bushfires encircling Los Angeles, we would have hoped that world leaders had some awareness of the threat of climate change and of the limits to economic growth. But no. The gravest threat to global security - our rapacious attitude to the earth's resources - is once again whipped up with talk of "market principles, open trade and economic growth".

Jesse Norman

Senior fellow at Policy Exchange

One might have thought the G20 summit a good moment for some straight talk from the Prime Minister. Instead, the political wind machine was cranked up to full blast. The summit would be a second Bretton Woods. Gordon Brown would forge a new global consensus on co-ordinated intervention to stimulate growth (while, of course, leading reforms to prevent the banking crisis from ever recurring). Luckily virtually none of this was true, or the summit would have been a hopeless failure. With fiscal measures already widely adopted, the G20 hardly needed Brown's leadership. No surprise that he returned empty-handed.

Labour has moved from despondency to a manic desperation to remain in office. The result is that the ever-fragile concept of truth in politics has wholly been cast aside. Thus the humiliating bank nationalisation has been dressed up as an act of far-seeing economic statesmanship. And a sensible warning from the shadow chancellor that current economic policy puts sterling at risk has been condemned for breaching an irrelevant semi-convention dating from the time of fixed exchange rates.

Alex Brummer

City editor, Daily Mail

There is a golden rule of international financial meetings. The larger the "G" number, in other words the more countries involved, the less likely it is that any worthwhile or binding decisions will be taken. So while it was wholly encouraging that the G20 summit brought a number of emerging market leaders to the top table of finance, including China, Brazil and Russia, there was never any real prospect of the event becoming the new Bretton Woods.

Furthermore, the summit took place in the final days of the lame duck administration of George Bush. Once it became clear Barack Obama was going nowhere near the confab, the event became even more of an irrelevance.

European leaders may like to blame Wall Street and Anglo-Saxon capitalism for the credit crunch and the recession now spreading through the Group of Seven like wildfire, but there is no hope of concerted international action without the new White House and Federal Reserve on board.

Almost all that was agreed could have been decided before the leaders left home. The commitment to reviving the Doha trade round is pure motherhood and apple pie. The prairie populists on Capitol Hill are unlikely to be enthusiastic.

At the core of the proposals was the commitment to use fiscal measures, tax cuts and public spending to kick-start global economies. But despite Gordon Brown's enthusiastic embrace of a new Keynesian big-spending approach - as advocated by Nobel prize-winner Paul Krugman - he neatly forgot to mention that such big-spending ways were only for those countries with a "policy framework conducive to fiscal sustainability". The UK with its ballooning budget deficit, which could hit £100bn or more next year, is clearly in no such position.

It is hard to fathom in what way the G20 was "historic", as the Prime Minister claimed in the Commons. There is little original in a bunch of old ideas designed to remove risk from the financial system and control executive pay. That is what regulators should have done before the banks ploughed into the iceberg.

James Buchan

Author and financial commentator

What is the Financial Stability Forum? What is "mitigating against pro-cyclicality in regulatory policy"? What, if anything, has the G20 summit in Washington on the weekend of the 15 November achieved?

Nothing very much, is the answer to all three questions. In the twilight of a discredited US administration, and with President-elect Barack Obama absent, the meeting was never likely to achieve a great deal or generate excitement in the US. Yet the final declaration, drafted with suspicious ease by the delegations on Saturday night, has something for everybody but not enough of anything to scare the financial horses.

Nicolas Sarkozy, the French president whose idea the whole thing was, gained some support for more institutional government of trade and finance, but no super-gendarme international of the type that has been directing financial traffic in the French imagination since the 17th century. As Jean-Pierre Robin wrote in the Figaro: "Those with fantasies of supranational supervision will need to change therapist." The US, jealous of its commercial sovereignty even when it is going about without its shirt, put paid to those Gallic dreams and also gained some platitudes about free trade.

The new commercial powers, not only Brazil, Russia, India and mainland China but also rich oil producers such as Saudi Arabia, received diplomatic recognition of their deep pockets. "The world's geopolitical structure has a new dimension," the Brazilian president, Luiz Inácio Lula da Silva, said. "There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis."

I suspect the winner is Gordon Brown. The next meeting will be held under his presidency in London in April. The Washington ragbag of proposals to reform or tinker with the current system, such as reminding us about the Financial Stability Form and mitigating against that regrettable pro-cyclicality in regulatory policy, appeals to his technical vanity and plays to his technical strengths.

Paul Mason

Economics editor, Newsnight

There was a sense in Washington, despite the throbbing engines and bulletproof glass, of powerlessness. The communiqué was stronger on the causes of the crisis than on co-ordinated solutions. Policymakers are right to stay focused on the near-term dangers: these are country-level debt default, the rising cost of borrowing for non-financial companies, rapid job losses and - via feedback - further destabilisation of the banking system. We are moving into the phase of fiscal stimulus but there are powerful technical arguments that say without "quantitative easing" - that is, printing money to stimulate demand - it doesn't work. The same people who told me it would come to recapitalisation, that the TARP (troubled assets relief programme) would not work, are now saying: nationalise the banks and print money.

Despite the urgency of the focus on near-term dangers, what was obvious at G20 was the lack of vision as to the future growth model of capitalism. The problem was seen as a failure of regulation; the solution a pretty weak brew of re-regulation that will get diluted even more as the lobbyists begin to have influence. But the problem is more fundamental: the growth model based on high debt instead of high wages has failed and will be hard to revive.

Peter Mandelson

Secretary of State for Business

We have been caught in a global whirlwind of extraordinary force.

It has brought with it a fear that has gripped the world economy and taken hold here at home. We are seeing it every day, with fear among consumers that is depressing demand; fear among banks that is inhibiting them from lending; fear among small- and medium-sized businesses that banks are just about to cut off their credit lines. The choice facing us and governments around the world is this: do we act decisively to counter and overcome this fear, or do we become paralysed by it and fail to act?

The government has already shown its willingness to take the bolder course as the first mover in setting about stabilising the banks. What is needed now is action to stimulate the demand essential for recovery. The UK economy, like economies in the rest of the world, needs a shot of adrenalin.

The Bank of England has already made a significant cut to interest rates. This monetary stimulus now needs to be matched by a fiscal stimulus. And because this is a global crisis this is best done if the benefit of the measures taken nationally is maximised by the same measures being taken around the world. That was the message from the international conference in Washington, as governments recognised the need to take the action necessary to stimulate their economies.

People will say, "But you are resorting to borrowing in order to deliver the stimulus that's needed." My answer to that is, what is the alternative? We certainly haven't heard one from the Conservatives.

David Cameron and George Osborne, trapped by their desire to oppose everything the government does, refuse to accept the scale of the challenge the world's economies now face and the prescribed international action. Their stance appears to be, if the rest of the world disagrees with us, it is because the rest of the world is wrong. The result is incoherence and an Opposition at sixes and sevens. One minute this is "do all it takes" and the next it is - as we heard this week - leave the recession to "take its course".

Sitting on our hands watching houses repossessed and businesses go to the wall is certainly not the approach being urged on me by people I have been speaking to up and down the country. They want their government to act to stimulate demand in the economy here and now. With all due prudence, that is what we are going to do.

Diane Coyle

Author and economist

The G20 meeting confirmed a robust and rapid response (by past standards) to recession, even in the US operating under a rump free-market administration. Policymakers around the world have been shaken to see the financial system at the brink of collapse - on their watch.

Yet it is difficult to predict how severe the recession will be. Bank lending to businesses and individuals is virtually frozen. In many (but not all) areas of the economy, activity has come to a halt. The last financial boom and bust, ending in 2001, had surprisingly little impact on jobs and growth, as the financial bubble had become increasingly untethered from anything real. Today's vicious circle of evaporating liquidity is much more serious, but lower interest rates and bigger government deficits will help. The underlying trends are easier to outline. Some challenges are clearly unaltered, such as climate change and our ageing society.

The technological opportunities are still there, too, in communications, the internet and biotechnology. Globalisation will be less driven by finance in future, but it will not be unwound. It would take a generation to turn back the clock on economic linkages, and the cultural impacts are permanent. In fact, the crisis has underlined our interdependence across national borders.

What has changed is the political economy of globalisation. In the triad of efficiency, fairness and freedom which dominates political choice in democracies, fairness will take priority in the years ahead, and the drive for ever greater productivity gains will retreat. The semi-nationalisation of the banks has started to shift the boundary between public and private domains; we will have to think more carefully about how to govern private choices that have big social spillovers. The G20 did not touch on this profound question of governance.

Iain Macwhirter

Political commentator

The G20 was largely a throat-clearing session and was never going to put in place the foundations of a new international financial system. Progress on the stalled Doha trade talks is encouraging but provides no guarantee that protectionism will not raise its head in the coming economic slump.

It is inevitable that countries faced with financial collapse will try to defend their economies by any means possible. Britain is already far down the road of "beggar my neighbour" economics by the "managed" devaluation of the pound, a crude attempt to boost UK industry by lowering the prices of British exports and creating a de facto tariff wall around imports from abroad. It won't work because Britain does not make much of anything any more except debt, and the world has plenty of that already.

But the collapse of the pound will seriously damage what is left of UK financial services. No one in their right minds would put money into the UK economy now, with the property market collapsing, UK banks insolvent and government borrowing likely to reach £100bn in the next 18 months.

Gordon Brown seems to believe that sterling is like the dollar, and that people will buy our dud pounds whatever the likely losses. However, as we are discovering, sterling is not a reserve currency and unlike the US we cannot force other countries to pay our debts. The future for our battered island is likely to be hyperinflation punctuated by appeals to the International Monetary Fund for emergency aid. Forget about spending our way out of recession - the UK government simply lacks the resources to fund the huge borrowing that would be required. Something will have to give. Brown will have cause to regret being so beastly to the Icelanders.

Richard Reeves

Director of Demos

James Carville, the hardened political aide to Bill Clinton, said that if he was reincarnated he'd want to come back as the bond market: "You can intimidate anybody." Right now it seems odd to think of any financial markets threatening anybody. But it is one of the ironies of the current economic situation that the capital markets still have some serious muscle.

Western governments, faced with recession, need to throw a lot of money at their ailing financial institutions - money that can be raised only by selling Treasury debt, mostly to the capital-rich investors of the Far East. For Gordon Brown, this is likely to become a more difficult sell, as Prudence is given the push and the pound takes a nosedive. Even national exchequers invite sceptical scrutiny in this new, nervous world.

The financial crisis is at heart a loss of faith. The word credit derives from the Latin credo - "I believe". When the Titanic of the financial world - in the shape of Lehman Brothers - was allowed to sink, the bonds of trust stretching around the world were snapped. In an instant, everyone stopped believing in each other.

A number of sensible measures should be on the agenda when the G20 reconvenes next year, including legislation to ensure bonuses in financial services are paid on the basis of five-year performance; new "pro-cyclical" provisioning rules requiring finance houses to increase their store of capital in economic upturns; and tougher, independent regulation of the rating agencies whose doe-eyed assessments of banks built on a mountain of paper helped get us in this mess.

There is, however, no quick technical fix for such a dramatic loss of confidence. Trust can be lost in the blink of a market-trader's eye - but it will take years to rebuild.

TEN THINGS THEY ACHIEVED

  • 1 Created a road map aimed at stabilising the world economy and overhauling the banking system with targets for the end of March 2009
  • 2 Advocated Keynesian big-spending
    “fiscal stimulus”
  • 3 Expanded from a small club making world decisions to recognise the importance of the economies of Brazil, Russia, India and China
  • 4 Agreed to reform international finance institutions, including better transparency and supervision of credit ratings agencies
  • 5 Agreed that the Financial Stability Forum should include emerging economies
  • 6 Banks and hedge funds to hold increased levels of capital and cash
  • 7 Recommended “supervisory colleges” for all major cross-border financial institutions
  • 8 Return to the Doha round – trade ministers to meet in Geneva next month
  • 9 Instructed G20 finance ministers to draw up plans and timeline
  • 10 Agreed to meet again, in London next April

. . . AND FIVE THEY DIDN’T

  • 1 Agree a future growth model for capitalism. Instead they reconfirmed their “shared belief in market principles”
  • 2 Agree detailed plans for regulatory reforms of banking
  • 3 Establish a plan of action for achieving the already endangered Millennium Development Goals
  • 4 Set up an international supervisory body with sufficient power to control global markets
  • 5 Halt the run on sterling, which fell sharply against the euro and dollar

Alyssa McDonald

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess

Picture: Ralph Steadman
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The age of disorder: why technology is the greatest threat to humankind

Disruptive technologies might change the very nature of humanity – and no nation can fight on its own.

Though human beings are social animals, for millions of years they lived in small, intimate communities numbering no more than a few dozen people. Even today, as the evolutionary biologist Robin Dunbar has shown, most human beings find it impossible properly to know more than 150 individuals, irrespective of how many Face­book “friends” they boast. Human beings easily develop loyalty to small, intimate groups such as a tribe, an infantry company or a family business, but it is hardly natural for them to be loyal to millions of strangers. Such mass loyalties have appeared only in the past few thousand years as a means of solving practical problems that no single tribe could solve by itself. Ancient Egypt was created to help human beings gain control of the River Nile, and ancient China coalesced to help the people restrain the turbulent Yellow River.

Nations solved some problems and created new ones. In particular, big nations led to big wars. Yet people were willing to pay the price in blood, because nations provided them with unprecedented levels of security and prosperity. In the 19th and early 20th centuries the nationalist deal still looked very attractive. Nationalism was leading to horrendous conflicts on an unprecedented scale, but modern nation states also built systems of health care, education and welfare. National health services made Passchendaele and Verdun seem worthwhile.

Yet the invention of nuclear weapons sharply tilted the balance of the deal. After Hiroshima, people no longer feared that nationalism would lead to mere war: they began to fear it would lead to nuclear war. Total annihilation has a way of ­sharpening people’s minds, and thanks in no small measure to the atomic bomb, the impossible happened and the nationalist genie was squeezed at least halfway back into its bottle. Just as the ancient villagers of the Yellow River Basin redirected some of their loyalty from local clans to a much bigger nation that restrained the dangerous river, so in the nuclear age a global community gradually developed over and above the various nations because only such a community could restrain the nuclear demon.

In the 1964 US presidential campaign, Lyndon B Johnson aired the “Daisy” advertisement, one of the most successful pieces of propaganda in the annals of television. The advert opens with a little girl picking and counting the petals of a daisy, but when she reaches ten, a metallic male voice takes over, counting back from ten to zero as in a missile launch countdown. Upon it reaching zero, the bright flash of a nuclear explosion fills the screen, and Candidate Johnson addresses the American public: “These are the stakes – to make a world in which all of God’s children can live, or to go into the dark. We must either love each other. Or we must die.” We often associate the slogan “Make love, not war” with the late-1960s counterculture, but already in 1964 it was accepted wisdom, even among hard-nosed politicians such as Johnson.

During the Cold War, nationalism took a back seat to a more global approach to international politics, and when the Cold War ended, globalisation seemed to be the irresistible wave of the future. It was expected that humankind would leave nationalistic politics behind, as a relic of more primitive times that might appeal at most to the ill-informed inhabitants of a few under­developed countries. Events in 2016 proved, however, that nationalism still has a powerful hold even on the citizens of Europe and the United States, not to mention Russia, India and China. Alienated by the impersonal forces of global capitalism, and fearing for the fate of national systems of health, education and welfare, people all over the world seek reassurance and meaning in the bosom of the nation.

Yet the question raised by Johnson in the Daisy advertisement is even more pertinent today than it was in 1964. Will we make a world in which all human beings can live together, or will we all go into the dark? Can Donald Trump, Vladimir Putin and their like save the world by appealing to our national sentiments, or is the current nationalist spate a form of escapism from the intractable global problems we face?

***

Let’s start with nuclear war. When the Daisy advert aired, two years after the Cuban missile crisis, nuclear annihilation was a palpable threat. Pundits and laypeople alike feared that humankind did not have the wisdom to avert destruction, and that it was only a matter of time before the Cold War turned scorching hot. In fact, humankind successfully rose to the nuclear challenge. Americans, Soviets, Europeans and Chinese changed the way geopolitics had been conducted for millennia, so that the Cold War ended with little bloodshed, and a new internationalist world order fostered an era of unprecedented peace. Not only was nuclear war averted, but war of all kinds declined. Since 1945, surprisingly few borders have been redrawn through naked aggression, and most countries have ceased to use war as a standard political tool. In 2016, despite wars in Syria, Ukraine and other hot spots, fewer people died from human violence than from obesity, car accidents or suicide. This may well have been the greatest political and moral achievement of our times.

Unfortunately, we are so used to this achievement that we take it for granted. This is partly why people allow themselves to play with fire, and that includes not only the latest Russian adventures in eastern Europe and the Middle East, but also the choices made by European and American voters.

The Brexit debate in Britain revolved mainly around questions of economics and immigration, while the EU’s vital contribution to European and global peace has largely been ignored. After centuries of terrible bloodshed, the French, Germans, Italians and Britons have finally built a mechanism that ensures continental harmony – only to have the British public throw a wrench into the miracle machine. Meanwhile, Donald Trump mixes calls for US isolationism with plans to strengthen the country’s nuclear arsenal and reignite a nuclear arms race, thereby threatening to undo the hard-won gains of the past decades and bring us back to the brink of nuclear annihilation.

It was extremely difficult to construct the internationalist regime that prevented nuclear war and safeguarded global peace. No doubt we need to adapt this regime to changing conditions in the world: for example, by relying less on the United States and giving a greater role to non-Western powers such as China and India. But abandoning this regime altogether and reverting to nationalist power politics would be an ­irresponsible gamble.

True, in the past, countries played the ­nationalist politics game without destroying human civilisation. But that was in the pre-Hiroshima era. Since then, nuclear weapons have raised the stakes and changed the fundamental nature of war and politics. No matter whom American voters elect to the presidency, the atom bomb is still there and E still equals MC². As long as human beings know how to enrich uranium and plutonium, their survival will depend on privileging the prevention of nuclear war over the interests of any particular nation. Zealous nationalists should ask themselves whether their nation by itself, without a robust system of international co-operation, can protect the world – or even itself – from nuclear destruction.

On top of nuclear war, in the coming decades humankind will face a new threat to its existence that hardly registered on the political radar in 1964: climate change. If we continue with our present course it is likely that global warming, ocean acidification and ecological degradation will result in unprecedented economic, political and social problems, and might well destroy the foundations of human prosperity. What is the nationalist answer to climate change? How can any nation, however powerful, stop global warming on its own? Will the US build a wall against rising oceans?

When it comes to climate, countries are not sovereign, but are at the mercy of actions taken by governments on the other side of the planet. As long as 200 governments pursue 200 different ecological strategies, shaped by their unique needs and interests, none is likely to succeed. With present-day technology, any serious measures to stop global warming are likely to slow down economic growth. Such a policy carries an unbearable political price if it is undertaken by a single country while others continue with business as usual. Any US administration that deliberately slowed down economic growth for environmental reasons would be bound to lose the next election; a Chinese administration that does so courts revolution tomorrow morning. In a nationalist and xenophobic world no government will sacrifice itself for the greater good of humanity, as Trump’s actions show.

***

Indeed, nationalism is even more dangerous in the context of climate change than that of nuclear war. An atomic bomb is such an obvious and immediate threat that even the most ardent nationalist cannot ignore it. Global warming, by contrast, is a much more vague and protracted menace. Hence, whenever environmental considerations demand some painful sacrifice, nationalists will be tempted to put the national interest first, reassuring themselves that we can worry about the environment later, or just leave it to people elsewhere. Alternatively, as in the case of Trump, they may simply deny the problem. It isn’t a coincidence that scepticism about climate change is usually the preserve of nationalist politicians. They have no answer to the problem, and so they prefer to believe it does not exist.

The same dynamics are likely to spoil any nationalist antidote to the third large threat to human existence in the 21st century: technological disruption. New technologies, particularly in the fields of bioengineering and artificial intelligence, will soon give humankind unprecedented, godlike powers. Whereas previously human beings learned to produce food, weapons and vehicles, in the coming decades our main products will probably be bodies, brains and minds. However, it is extremely difficult to foresee the potential impact of such technologies. They open the door to an entire supermarket of doomsday scenarios.

If and when artificial intelligence (AI) surpasses human intelligence, it may be given control of weapon systems and crucial decisions, with potentially calamitous consequences. In addition, as AI outperforms human beings in ever more tasks, it might push billions of us out of the job market, creating a new “useless class” of people, devoid of both economic value and political power. Meanwhile, given enough biometric data and enough computing power, external algorithms could know us better than we know ourselves, and then governments and corporations could predict our decisions, mani­pulate our emotions and gain absolute control over our lives.

On the bioengineering front, breakthroughs in genetics, nanotechnology and direct brain/computer interfaces could unleash deadly new epidemics or disturb our internal mental balance. In past centuries we have gained control of the world outside us and reshaped the planet, but because we didn’t understand the complexity of the global ecology, the changes we made inadvertently disrupted the entire ecological system. In the coming century we will gain control of the world inside us and reshape our bodies and brains, but because we don’t understand the complexity of our own minds, the changes we will make might disrupt our mental system. In addition, bioengineering might for the first time in history translate economic inequality into biological inequality, creating an upper caste of enhanced superhumans, and relegating the poor to the dustbin of evolution.

What is the nationalist answer to these menaces? As in the case of global warming, so, too, with technological disruption: the nation state is the wrong framework to address the threat. Given that research and development are not the monopoly of any one country, even a superpower such as the US or China cannot restrict them by itself. If the US government forbids the genetic engineering of human embryos, it won’t prevent North Korean scientists from doing such work. And if the resulting developments confer on North Korea some crucial economic or military advantage, the US will be tempted to break its own ban. Particularly in a xenophobic, dog-eat-dog world, if even a single country chooses to pursue a high-risk, high-gain technological path, other countries will be forced to do the same, because nobody can afford to remain behind. In order to avoid such a race to the bottom, humankind will probably need some kind of global identity and loyalty.

Whereas nuclear war and climate change threaten only the physical survival of humankind, disruptive technologies might change the very nature of humanity, and are therefore entangled with human beings’ deepest ethical and religious beliefs. Although everyone agrees that we should avoid nuclear war and ecological meltdown, people have widely differing opinions about using bioengineering and AI to upgrade human beings and to create new life forms. If we fail to cobble together globally accepted ethical guidelines, it will be open season for Dr Frankenstein.

When it comes to formulating such ethical guidelines, nationalism suffers above all from a failure of the imagination. Nationalists think in terms of territorial conflicts lasting centuries, whereas the technological revolutions of the 21st century should be understood in cosmic terms. Ever since its appearance on Earth, four billion years ago, life has been governed by the laws of natural selection. During those aeons, whether you were a virus or a dinosaur, you evolved according to the principles of natural selection. No matter what strange shapes life took, it remained confined to the organic realm. Whether a cactus or a whale, you were made of organic compounds. Now science might replace natural selection with intelligent design, and might even start creating non-organic life forms. After four billion years of organic life shaped by natural selection, science is ushering in an era of inorganic life shaped by intelligent design. What has Israeli, Russian or French nationalism got to say about this? In order to make wise choices about the future of life we need to go way beyond the nationalist viewpoint and look at things from a much wider perspective.

***

The nationalist wave sweeping across the world cannot turn the clock back to 1939 or 1914. Technology has changed everything by creating a set of global threats to human existence that no nation can fight on its own. A common enemy is the best catalyst for forging a common identity, and humankind now has three such enemies – nuclear war, climate change and disruptive technology. If, despite these threats, we choose to privilege our particular national loyalties above everything else, the results may be far worse than in 1914 and 1939.

A much better path is the one outlined in the EU’s constitution, which states that “while remaining proud of their own national identities and history, the peoples of Europe are determined to transcend their former divisions and, united ever more closely, to forge a common destiny”. There is still plenty of room in the world for the kind of patriotism that celebrates the uniqueness of my nation and stresses my special obligations towards it. Yet, if we want to survive and flourish, humankind has little choice but to complement such local loyalties with substantial obligations towards a global community.

In previous centuries national identities were forged because human beings faced problems and discovered opportunities that went far beyond the scope of ­local tribes, and which only countrywide co-operation could hope to handle. In the 21st century, nations find themselves in the same situation as the old tribes.

We need a new global identity, because national institutions are incapable of managing a set of unprecedented global challenges. We now have a global ecology, a global economy and a global science – but we are still stuck with only national politics. This mismatch prevents the political system from countering our main problems effectively.

To have effective politics, we must either de-globalise the ecology, the economy and the march of science, or we must globalise our politics. As it is impossible to ­de-globalise the ecology and the march of science, and as the cost of de-globalising the economy will probably be ruinous, the only solution is to globalise politics.

Yuval Noah Harari lectures at the Hebrew University of Jerusalem. His latest book is “Homo Deus: a Brief History of Tomorrow” (Vintage)

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess