Harry Garretsen: ‘We need a strong government, particularly now’

The fifth floor of the Duisenberg Building on the Zernike Campus is the home of Harry Garretsen, Professor of International Economics and Business. Garretsen has a keen interest in the interaction between economics, politics and leadership. Together with Prof. Janka Stoker, he runs the ‘In the LEAD’ research institute. Their new book ‘Goede leiders zweven niet’ (True Leaders Are Never Adrift) will appear in October.

^{Text: Martin Althof / Photos: Elmer Spaargaren}

Garretsen notes that the economy in our part of the world seems to be in good shape at first glance: the economic crisis is behind us, investments are picking up, purchasing power is stable and there is no mass unemployment. At the same time, however, something is brewing. Garretsen: ‘Whether we are doing well depends entirely on who you ask. While the economic figures are positive, our times are characterized by many insecurities: Brexit, Trump, trade wars, pressure on the EU, migration, Greece and Italy. Apparently there is widespread unease, discontent and insecurity in Europe and the United States, which is reflected in the election of parties and politicians who address these concerns.

Why Brexit and Trump?

Garretsen states that the abolition of borders and the promotion of free trade have also produced losers, for instance in the old industrial regions in the United States and the United Kingdom. ‘We have ignored them for too long. Brussels and the EU were blamed for the economic problems in the UK, which led to Brexit. Many people felt insecure and still feel insecure; they are worried about losing their jobs and thus control over their own existence. In that sense, the Brexit slogan was no coincidence: “Let’s take back control.”’

Middle-class insecurity

Unemployment and economic crises are not new phenomena. They were limited, however, to certain regions and economic sectors and typically affected low-skilled workers, a group that traditionally votes less or doesn’t vote at all. Garretsen: ‘We are now seeing this insecurity reach parts of the middle class. It is creeping into the heart of society, affecting people who do actually vote. These people also fear for their jobs, their future and their children’s future. Their numbers are growing, and they are becoming floating voters, looking for answers. Traditional politics is not providing these answers at the moment, or at least not sufficiently.’

Is there an answer?

Populist parties are currently making great strides. Part of the government in many countries, they are no longer sidelined and are helping shape policy. Garretsen: ‘While Trump and populists in countries such as Italy and Austria are definitely voicing existing social concerns, their solutions are flawed. At the same time, the response from traditional political parties is completely inadequate too, amounting to “free trade; open borders; we’ll explain it to you once more; please believe us, things will be fine”.‘ But what could be the answer? Harry Garretsen believes that we need a strong government, particularly now. A government that will assume a larger role than it does today: ‘A government that truly takes concerns seriously and shows understanding for people who lose their jobs. A government that truly invests in education and further training. People must feel supported by their government. No, I don’t see the contours of such a government yet. Politicians of the mainstream parties are facing great challenges. You can see how they are struggling. They are having a hard time because radical stories are easier to tell and simple solutions often seem more attractive.’

A world of open borders

People always say that the Netherlands benefits from free trade and a world of open borders. Is that true? Garretsen: ‘Yes, in principle it is. But it doesn’t stop there. Having a free trade system does not mean that the government can lean back and watch the free economic forces at play. Regulation is necessary, including at EU level. We need to recognize that certain matters can be better realized in a European context. Even Mark Rutte clearly stated this recently. There are multiple flavours to choose from; the menu may be much more varied than many people think. Compare, for example, the economies of Sweden and the United States. Both are based on free trade, but the models are very different when it comes to taxation, income distribution, freedom of the individual, social security and the role of the government. Economists need politicians who have the ability and courage to tell this story.

Emotion and reason

Garretsen sees a struggle between emotion and reason, with emotion apparently gaining the upper hand in places. Garretsen: ‘Trump is brilliant at playing on people’s emotions, saying things like: “Believe me”. He responds emotionally and rapidly via tweets that are not based on thorough analysis. The United Kingdom cast an emotional vote when it decided to leave the EU. Strikingly, these are precisely the regions that are highly dependent on trade with Europe. It was clearly an anti-Brussels vote, although a large proportion of those who did not vote two years ago now regrets this. Had these people voted then, the “remain” camp would have won. Italy is nostalgic for the Lire, that is pure emotion. Italy’s debts are in Euros, however. If it had to repay those debts in Lires, the country would go bankrupt.’

Offering a better explanation and exerting influence

Garretsen’s conclusion is that facts don’t always convince people – apparently that requires more than a bare presentation of the facts: ‘For a long time, economists thought that we performed the analyses and politics made the decisions. Of course this is still the case, but we nevertheless need to approach our tasks more broadly; merely performing an intelligent analysis is not sufficient. We need to better explain matters and exert more influence, thus bridging the gap between political leadership and the economy.’