Daily Archives: November 7, 2012

This may well prove to be the luckiest day of Barack Obama’s life: he scraped through to win a second term. But it could well prove to be the unluckiest day of his life. A crunching set of challenges could overwhelm him and damage his legacy.

The first challenge is the economy. The fiscal cliff can be postponed if the Republicans cooperate in Congress. But the structural challenge of creating jobs when globalisation and automation have eroded many middle class occupations may prove to be insoluble. Most painfully, Obama may be remembered as the president who led America to the number two position in the world. In 1980, in terms of purchasing power parity, America had a 25 per cent share of the world economy while China had 2.2 per cent. By 2016, America’s share will slide to 17.6 per cent while China’s will grow to 18 per cent. America is not yet ready to accept becoming number two.

The second challenge is China. A more assertive and nationalist China is raising its head. Japan-China relations are spiraling downward. China is behaving in an unusually aggressive fashion towards its Asean neighbours around the South China Sea, even scuttling the Asean joint communique in July 2012. Xi Jinping could prove to be the most constrained leader China has had in recent times. He is hemmed in by other factions. The weaker he is internally, the more assertive he will have to be externally.

The third challenge is the Islamic world. America has wasted more than a decade fighting an unwinnable war in Afghanistan (which may well collapse in Obama’s second term) and a futile war in Iraq. Syria and Bahrain loom as new challenges. The pressure to bomb Iran will grow more intense. But if Mr Obama were to bomb Iran, he would hand China a major geopolitical gift, wreck the global economy with high oil prices and ruin America’s prospects of growing again economically.

In short, if Mr Obama is not careful, he could sink into a quagmire of problems that could overwhelm him. The tears he shed in Iowa were in fear of losing. Now the tears may flow as a result of winning. Yet, fortunately for him, there is a solution to each big challenge that could save him and America.

As regards the Islamic world, a two-state solution for Israel and Palestine would suck away much of the anti-American poison and would serve Israel’s interests too. Bill Clinton would make the perfect envoy. There is nothing Mr Clinton wants more than the Nobel Peace Prize that Mr Obama and Mr Gore already have. His Taba Accords can be revived and modified. Each recent US president has made the mistake of waiting till the end of his term to seek Middle East peace. Mr Obama can do the opposite.

Equally important, Mr Obama should revisit the wonderful speeches he delivered in Cairo and Istanbul. The contents were correct. Now, in his second term, he can implement them. The best way to undermine the Iranian regime is through engagement, not isolation. This is the lesson Asia has taught the world through Myanmar. And the world’s most populous Islamic country, Indonesia, is still waiting for Mr Obama’s triumphant return as the local boy who made good. Mr Clinton captured Indian hearts, Mr Obama can do the same with Indonesia – which could well become the new modernising beacon for the Islamic world.

Mr Xi also wants nothing more than a deep engagement with America. The only way to strengthen his rule is to focus on internal economic development, rather than external distractions. GM and Ford have made record profits in China. Other US companies can do the same. Many US states welcome Chinese investments. Mr Xi needs economic growth. So does Mr Obama. A win-win strategic business partnership is feasible.

A strong US-China economic partnership can also pave the way for an agreement on trade liberalisation. In his second term, Mr Obama can stand up to the agricultural lobbies that scuttled the Doha round of trade talks. Most emerging economies are also prepared to make concessions. Privately, many trade experts tell me a deal is feasible.

Most fundamentally, long-term trends are also working in Mr Obama’s favour. The great convergence of incomes, which will result in the explosion of the global middle class from 1.8bn today to 3.2bn in 2020, will push the world towards greater global integration and cooperation. The number of people dying in interstate conflicts is the lowest it has ever been. Yes, Mr Obama will have to cut US defence budgets, but there could not be a more propitious historical moment to do so.

This is Mr Obama’s opportunity. The world is looking to him to take advantage of a uniquely propitious moment for fashioning a new global order. Contrary to conventional wisdom, the stars are aligned in his favour. All he has to do now is to lead.

For a while in the small hours, even after the arithmetic of the electoral college had already doomed his campaign, it seemed Mitt Romney would not concede defeat. Karl Rove, whose perpetual air of self-satisfaction must for once have been tinged with chagrin, was muttering on air that Ohio would have to be recounted; that his home network of Fox had thrown in the towel prematurely. Hopes of a repeat of Bush-Gore were evidently still glimmering. But this was the last gasp emitted from the echo chamber of delusions within which the Republican elite have sealed themselves for years

Then Mr Romney came on stage in Boston to make his concession speech. It was gracious but less moving than John McCain’s speech four years ago, a concession so generous and imbued with a sense of the historical moment that it alarmed even his own Republican troops. But in his way, too, Mitt Romney for a moment dropped the mask. Behind it was a chastened man, for once slightly unkempt, the weariness visible. But not much else. Graceful good wishes to the victor, a prayer for the President and the country and then true Romney, a homily that teachers, investors, citizens of strong faith might lead us out of dire straits. And that was it.

Suddenly the man who had tried to be everything to everyone was nothing to anyone, except a tired private equity executive and former Governor of a state that had just repudiated him by a huge margin. In the last weeks of the campaign his strategists had imagined they might expand the “battleground map” into the industrial mid-West, concocting a fable – that Barack Obama had sent the auto industry into bankruptcy and was even now outsourcing jobs to China – so at odds with the truth that even MoTown executives were compelled to denounce it. Detroit, Milwaukee and Cleveland were not buying it, and so long before Pennsylvania was known to have turned the tide Mr Obama’s way, the Republicans had lost the presidency in the industrial heartland.

What bit the dust on Tuesday was the world of denial in which Republicans have immured themselves ever since the rise of the Tea Party in 2009. This is a universe in which the financial crash was caused by over-regulation; one in which, despite years of brutal drought and violent weather patterns, climate change is a liberal hoax; a country that can correct a vast structural deficit without ever raising additional revenue, while expanding the military budget beyond anything sought by the Pentagon; a belief system in which Mr Obama was the source of all economic ills rather than the steward of the most intractable crisis since the Depression. The mantra was that a business executive would, simply by virtue of that fact, effect a magical rejuvenation of the staggering American economy.

But the most obstinate fantasy to die in this election was that the greatness of the United States was somehow inseparably bound to the dominion of the white male. The most egregiously offensive candidates for the Senate, Richard Mourdock in Indiana, who proclaimed that post-rape conceptions must be part of God’s plan, and Todd Akin in Missouri, who spoke of “legitimate rape”, threw away Senate seats that were the GOP’s for the taking. Another illusion was that huge sums poured through Super- Pacs would tip the balance in competitive races. Linda McMahon, the professional wrestling tycoon, spent $100m in two elections attempting to become Senator for Connecticut and still head-locked herself into disaster.

Built into these assumptions was the conviction that non-white, non-male voters, especially Latinos, could not be mobilised, especially not with the same intensity or numbers they had shown in 2008. The long lines of people waiting hours to vote in Florida and many other places ended that narrow-minded complacency.

Of course the Republican party does not altogether turn its back on this new America. But the harshness of its policy on immigration is a slow-drip suicide for the Republicans, reducing them to becoming the Party of the confederacy and the mountain states of guns and God.

The mere fact of Mr Obama’s re-election ought, if the Republicans have an eye for their long-term preservation, give them pause before venturing on the usual manic conspiracy theories or denouncing their nominee for being insufficiently conservative. But you might also hope they listened to his victory speech, which was, for a candidate who has at times been startlingly disengaged from the persuading element of the presidency, one of the great moments in his political career. For after generously thanking two generations of Romneys for public service, Mr Obama went on to defend democracy itself on one of its climactic days: not in the airy philosophical terms to which he often resorts, but by painting a picture of ordinary people ennobled by the democratic process. In vivid words he painted a picture of countless people knocking on doors, queueing to vote notwithstanding all the obstacles placed in their way by institutions or Mother Nature; living their American identity through these acts of engagement. Politics, the President said, can sometimes seem, small or “silly” (amen to that) before insisting that in the majesty of the multitudes it was as big as anything can get. Then he sounded a theme that has been too often muted in his first term: that the US is a republic in which mutual obligations matter as much as the assertion of rights. And where did America’s true exceptionalism lie? In its unique diversity, which his own person embodies and which might at last be seen as the sign not of its enervation but of its rejuvenated redemption.

The writer is an FT contributing editor

What ought to pain Republicans most about Barack Obama’s victory is that 2012 was entirely winnable for them. In European elections over the past few years, voters have thrown out leaders who were in charge during the worst of the financial crisis, whether those leaders deserved the blame or not.

Macroeconomic indicators in the United States, where an unemployment rate of 8 per cent is highly correlated with defeat for the incumbent party, pointed in the same direction. Mr Obama himself had proven a disappointment to many of his former supporters, going from a beloved symbol of generational and social change in 2008 to a detached and remote figure, with limited ability to touch an emotional chord in the electorate.

That Mitt Romney lost nonetheless is in part a tribute to his own weaknesses as a candidate. The Obama campaign put Mr Romney on the defensive early about his work at Bain Capital, and left him there. The Republican nominee made any number of horrendous gaffes. He ran a disastrous Republican convention. He never found a way to talk about himself or his agenda that middle-class voters could relate to. Continue reading »

There is nothing better than the widespread perception of a close election for the full spectrum of “experts” to get carried away with what might occur under alternative outcomes. And carried away they were.

Many argued that the two presidential candidates would implement meaningfully different economic policies and, thus, trigger different market reactions. But now that the election outcome is known, it will soon become apparent that the main risk is that investors’ prospects remain hostage to the same issues that existed long before the election. Continue reading »

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