Former UK Defence Secretary Dr Liam Fox MP has delivered a speech on the ‘weakness of the West’ at the Heritage Foundation today, during which he addressed global economics, the threat posed by Vladimir Putin’s Russia, and of course, ISIS.
Dr Fox is often regarded as being on the right of Britain’s Conservative Party, and has previously been tipped to lead the organisation after David Cameron finishes his stint as prime minister.
He told an anecdote of a recent visit to Washington, D.C. during which a senior politician, who remains unnamed, claimed that the United States could run up 300 percent debt-to-GDP ratios simply because the U.S. dollar is the world’s reserve currency. Fox claims that he shot back: “At this point, I reminded him that the British pound sterling was once, too, the reserve currency and that things can turn around very quickly when the tide of sentiment turns.”
Fox, referring to government debt as “deferred taxation”, said: “All this is a result of two separate but related problems. The first, I believe, dates back to the decision by President Nixon in 1971 to decouple the dollar from the gold standard. As a consequence of this decision, there was no need to possess an amount of gold equal to the dollars outstanding. This opened the door to the perpetual growth of credit which has continued since that time, with periodic bursting bubbles, the largest of which, to date, was the 2008 banking crisis.
“The second problem is the simple unwillingness of both politicians and private citizens to live within their means. While in the personal sector this has resulted in massive household debts, the temptation has been even greater for the politicians who, with the decoupling of the dollar and gold, had no need to scrutinise the budget to the previous degree. This has meant that they have been free to embark upon the most grotesque pork barrel politics, simply passing the burden on to future generations.”
Fox slammed President Obama’s work as that of a classic European socialist. He said: “I have heard, from my Republican friends, a number of colourful reasons to explain the economic behaviour of the current Obama administration. But let me give you a simple one. This is not the behaviour of a political outlier, but fits perfectly with the pattern of European social democracy,” before moving on to Russia and ISIS.
“What we seem to lack in response to the Putin threat is to reduce the problem to its first principles. When we do then we see that in two clear areas we have world views that are incompatible. Putin still believes in the old Soviet view that Russia should have a sphere of influence – in other words, a veto on the policy decisions of its near neighbours,” he said.
Dr Fox complained about the approach by the West towards ISIS, noting: “ISIS are well organised, well funded and have a sophisticated communications strategy. In due course we will have to ask questions about how they managed to develop to this level. Did we know the capabilities that they were developing, yet fail to stop them or did we lack the intelligence to understand the level of threat that they were likely to pose? Either way, we deserve some answers.”
The speech ended with the stark warning: “And let us not also forget that left alone, they will become the University of jihad, ready and willing to export their graduates to wherever they can do the greatest damage.”
You can read the full text of the speech, below:
It is an easy picture to paint for those who wish to persuade us that the world is on fire. The Russia, which many had convinced themselves to be fundamentally different from its history, has annexed the Crimea and is engaged in military conflict on the edge of Europe. Chemical weapons had been used again, this time on the civilian population of Syria, despite an avowed international policy to prevent their use and red lines being drawn by the United States. The rise of Isis has brought new levels of barbarity to the Sunni – Shia struggle and the Yemen looks close to reigniting. Pakistan continues its history of chronic instability while on the other side of the world, and increasingly self-confident China threatens its neighbours, while the state from hell, North Korea, operates internal repression that would have made Genghis Khan blush and poses a nuclear threat to its near neighbours.
It is a world where the political, economic and potentially, military, centres of gravity have moved from West to East. This is not to fall into the trap of Western Vanity that believes that when things go right in the world it is a result of our successes and when things go wrong in the world that it is a result of our failures. But it requires an understanding that in the globalised era, our ability to shape the world in the ways and timescales that we want are, at worst, much more limited and, at best, require greater subtlety and sophistication. The real question, that I think we need to confront, is whether this relative decline in influence is the unavoidable consequence of the forces of globalisation, or whether it is the result of an absolute decline of the West. If the answer is in whole, or part, the latter, what, if anything, can be done about it?
I want, today, to look at three elements of Western political health and to assess what can be done to improve them. They are, firstly, our economic strength, second, our military capability and foreign policy objectives and, third, the state of our political values. I realise that in these three very complex areas, these can be little more than thumbnail sketches, but I hope they can give some useful pointers to our current state of affairs.
When I was in Washington recently I had a very interesting discussion with a senior political figure who had better remain anonymous. We had been talking about America’s debt and debt interest and I was expressing concern at the level of debt to GDP ratio. “Nevermind”, I was told, “we are the world’s reserve currency, and could run up 300% debt to GDP ratio if we wanted. All we have to do is print more money and there is nothing that anyone can do about it.” It is an argument that many here today will be familiar with, but I’m afraid that it is one with which I profoundly disagree.
Today, US government debt is running at around 100% debt to GDP ratio. While higher than countries like the UK at around 80%, it is certainly less than countries like Japan, which holds the top spot with 227%. But it is not simply the total debts that matters and, as I pointed out to my American political colleague, not only does the debt eventually have to be repaid, but the interest on the debt has to be paid at the expense of other spending choices or reductions in taxes. In 1998 the annual US debt interest repayment was $241 billion. This year it will be $411 billion – and that is in an era of historically low interest rates. If you make assumptions that the current debt projections are correct, and history would accept that this is one for the strictly overoptimistic, then it is easy to project what the annual debt interest repayment would be at a range of interest rates. At 3% interest rates, by 2020, the cost would have risen to $668 billion a year. At 4% that would be a staggering $1 trillion and at 5% an eye watering $1.285 trillion. These are terrifying numbers, yet there is little sign of any radical proposals to reduce or eliminate the deficit to a meaningful degree.
All this is a result of two separate but related problems. The first, I believe, dates back to the decision by President Nixon in 1971 to decouple the dollar from the gold standard. As a consequence of this decision, there was no need to possess an amount of gold equal to the dollars outstanding. This opened the door to the perpetual growth of credit which has continued since that time, with periodic bursting bubbles, the largest of which, to date, was the 2008 banking crisis.
The second problem is the simple unwillingness of both politicians and private citizens to live within their means. While in the personal sector this has resulted in massive household debts, the temptation has been even greater for the politicians who, with the decoupling of the dollar and gold, had no need to scrutinise the budget to the previous degree. This has meant that they have been free to embark upon the most grotesque pork barrel politics, simply passing the burden on to future generations.
Incidentally, I think it is time that we stopped talking about government debt and called it for what it really is – deferred taxation. Only when confronted with the grossly immoral concept of enjoying spending today and passing the burden of taxation on to our children can reality be brought into our economic discourse. Fortunately, here in the United States, the good news is that the Federal Reserve believes that deficits will continue to be reduced until around 2020. Unfortunately, after that period, as a result of the ageing population and the consequent increases in entitlement spending, the deficits will once again rise and there will be a reacceleration of debt – our deferred taxation. These arguments cut no ice with my American political colleague who argued that, even if the US continued printing money at historically high levels, other nations would simply have to swallow it, because of the US dollar’s reserve currency status. At this point, I reminded him that the British pound sterling was once, too, the reserve currency and that things can turn around very quickly when the tide of sentiment turns. There is also a fundamental financial issue – who would continue to lend to a country who purposely set out to devalue the assets held by their creditor? And what creditor would not demand a much bigger return on investment? In other words, if Western countries like the UK and the US continue to live beyond their means, at the same time that the Asian financial surplus is beginning to come down, are likely to have to pay a hefty interest rate premium as a consequence.
I have spoken often in the past about how debt quickly becomes a strategic issue and how regimes have fallen when their debt interest becomes so cripplingly high that they cannot afford to pay for the essentials such as internal and external security. Doesn’t it seem ironic that Western countries, including the United States, are cutting back on defence spending so that they can afford to pay their debt interests to countries such as Russia and China?
And exactly what sort of expenditure is resulting in this adverse picture? Across the Western world, we have seen huge increases in the provision of government funded public services. These vary widely from country to country, but generally show an incremental increase in welfare and entitlement budgets as well as expenditure on health and education.
There is no doubt that properly targeted welfare that includes incentives and discourages dependency can play a major role in both poverty reduction and ultimately in wealth creation. We need, however, to ask whether specific programmes are necessary in an indebted economy, whether the same effect could be created in another way and whether the government is best placed to be the provider of these services.
I have heard, from my Republican friends, a number of colourful reasons to explain the economic behaviour of the current Obama administration. But let me give you a simple one. This is not the behaviour of a political outlier, but fits perfectly with the pattern of European social democracy. The triumph of this political approach lies in the fact that the European Union now represents 7% of the global population, 25% of global GDP and a stunning 50% of global social spending. The utterly unsustainable nature of this predicament is truly nightmare in character. Our utter unwillingness to live within our means has meant that we are losing global competitiveness and potentially building up strategic weakness. Welfarism has done more to humble us than communism ever did in the Cold War. The economic vulnerability that our spend now pay later behaviour is creating will be a major weakness in the future if left unchecked.
The second area that I want to look at is how decisions taken for political reasons at home can have implications for both our own reputations and wider global security. There are many to choose from. The decision taken by Chancellor Schroeder of Germany to effectively make his country more dependent on Russian fossil fuels (for which he received a very nice job on the board of Gazprom) altered the whole dynamic of energy security in Europe. The later decision of Germany to abstain alongside Russia and China at the United Nations during the Libya crisis and the attitude towards sanctions over the Ukraine has raised further questions about Berlin’s closeness to Moscow. The mistaken decision of the British Parliament not to implement international law over the use of chemical weapons in Syria resulted in the American government having an excellent excuse to do the same and has weakened Britain’s credibility in dealing with the current multiple crises in the Middle East. Politicians must remember that it is not only their domestic electorates who listen to what they have to say. Not only does appeasement have a very bad track record, but we have allowed wishful thinking to take the place of critical analysis in far too many situations in recent years, particularly in our dealings with Russia.
Again, during my last visit to Washington, a rather worried congressman shook his head and told me that he was afraid that President Putin had mis-read the signals from the West. I’m afraid nothing could be further from the truth. Russia launched a cyber attack on Estonia and we did nothing. They cut off the gas to Ukraine in direct contravention of the NATO Russia treaty and we did nothing. They invaded Georgia and occupied part of their sovereign territory to this day, yet we have done very little. Misread the signals? They couldn’t have been clearer. When we drew red lines over the use of chemical weapons in Syria and then abandoned them unceremoniously Mr Putin had a very good idea what our response would be to the annexation of the Crimea.
What we seem to lack in response to the Putin threat is to reduce the problem to its first principles. When we do then we see that in two clear areas we have world views that are incompatible. Putin still believes in the old Soviet view that Russia should have a sphere of influence – in other words, a veto on the policy decisions of its near neighbours. We take a completely different view and believe that sovereign nations have a complete right to self determination. Putin also believes that the protection of ethnic Russians lies not with the laws, constitutions or governments under which they live, but with an external power ie Russia. This drives a coach and horses through our very notion of international law. Until both these doctrines are changed it is impossible to see how relations between Russia and the rest of the international community can be normalised. We, for our part, have to stop making excuses for Russian behaviour and resist the temptation to see events from the perspective of short term tactical advantage rather than principle.
Equally, we must see the conflict with ISIS in the middle east as the fundamental challenge that it poses to peace, stability and human decency in the region and beyond. ISIS are well organised, well funded and have a sophisticated communications strategy. In due course we will have to ask questions about how they managed to develop to this level. Did we know the capabilities that they were developing, yet fail to stop them or did we lack the intelligence to understand the level of threat that they were likely to pose? Either way, we deserve some answers. In the meantime, however, we need to take whatever actions are required – politically, financially and militarily – to ensure that the threat spreads no further. ISIS pose an immediate threat to the populations that fall under their control and we have seen the unspeakable acts of brutality that they will perpetrate without a second thought. They also pose a risk of further destabilising the region and potentially taking us to the edge of a Sunni- Shia conflict that threatens to ignite the whole of the Middle East and the Gulf, with devastating consequences. And let us not also forget that left alone, they will become the University of jihad, ready and willing to export their graduates to wherever they can do the greatest damage. The real failure of the West has not been our inability to stop the rise of ISIS or even our unforgivably slow reaction to the humanitarian and security disaster that they bring in their wake but a failure to understand their psychology and belief system. Everything we stand for – our desire to see equal rights across race gender and religion, our quest for developing democracies, a secular rule of law, free markets and shared prosperity – all these things are an existential threat to their mediaeval, misogynistic and barbaric values set. And it is against this that we must recognise what Western liberals seem to find so hard to understand – that there are those out there who hate us, not because of what we do, but because of what we are. They hate our history, our secular law and our values. Only one of us can triumph and must not be them.
And all this brings me to what I believe is the greatest weakness of the West, and that is a crisis of self-confidence, a crisis of values.
In my book, “Rising Tides”, I wrote the following:
“I vividly remember a conversation I had in the Elysée Palace with a senior member of President Sarkozy’s government. I was talking about how we had won the Cold War not just because of our military and economic superiority but because we also had a moral superiority and belief in our own values. I asked why it was that we had been so willing to use the word ‘better’ then (democracy was better than dictatorship; freedom was better than oppression; capitalism was better than communism) but seemed so afraid to use it now. Surely in relation to Islamist views our ways are better – better to have religious tolerance than violently imposed orthodoxy, better to have a concept of universal human rights than not, better to have societies in which women play a full and equal role with men? The answer was depressing: ‘I don’t think we can really say “better” nowadays, only “different”.’ If this is what we really believe, we are in deep trouble. Has the concept of moral equivalence become so prevalent that it has diminished our belief in what has made us who we are? If we do not believe that our values are better than the alternatives, and worth defending, then why should anyone else listen to us. Liberty, equality and the rule of law are better than the alternatives. We need more ‘better’ and less ‘different’ or we risk losing the battle of ideas and ideals for the future. That would be an unforgivable betrayal of those who sacrificed so much for what we too often seem to take for granted.”
Let me be blunt. I believe that the moral relativism which emerged post-war has morphed into something much worse – what we may call intellectual relativism. It is a state of affairs where people seem to believe that the validity of their views is determined by the strength by which they hold them, not by any reference to empiricism. It is verging on an anti-Enlightenment culture.
To tolerate is to treat with indulgence, liberality and forbearance. But tolerance is not the same as surrender. Because we tolerate the views and ideas of others does not mean acquiescence to them or the glib acceptance of the creed of inevitable moral equivalence. It is true at an individual and societal level, as it is internationally.
The values, freedoms, prosperity that we in the West take for granted, did not come about by accident. They came about because of the conscious choices made by those who came before us. We must make our own choices today and those choices will have their own consequences for the future. Either we defend the values and institutions that we hold dear or they will be lost. We are not passengers in our own future, but the arbiters and owners of our destiny. We can shape a better future. It is time we started to believe it once again.”
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