Donald Johnston and his Hairy Twin, Donald Trump

Donald Johnston and his Hairy Twin, Donald Trump


Howard Adelman

Donald J. Johnston (2017) Missing the Tide: Global Governments in Retreat, McGill-Queens University Press.

The evening before last, I attended a book launch at Massey College of Donald J. Johnston’s new book chastising the international community for missing the opportunities over the last quarter of a century and for failing to take advantage of unprecedented opportunities to significantly advance both global social and economic progress. The book is a lamentation with a very loud wail. For there were many opportunities, Johnston argued. ALL were missed. It is also a paean, not so much to freedom from the classical laws of economics, but a cri de coeur to impose an ethical regime in control of the economic realm.

That regime required offsetting any rise of a monolithic dominant state in favour of a newborn vision of a balance of power among states using the leverage of international institutions, but without any international agreed-upon economic standard, such as the now ancient international gold standard. The “self-regulating market” with its unprecedented record of wealth creation had to be wedded to national and international political regulation which had produced “unheard-of material welfare.”  Johnston want to update the moral economics of Karl Polanyi, but with a full acceptance of the market without its neo-classical lack of moral boundaries.

For Johnston, global free trade is in retreat and, with it, the chance to extend increased prosperity to the developing world. Further, since both economic growth and social cohesion rest on a foundation of proper respect for mother earth that provides the wherewithal for both prosperity and social cohesion, the failure to adequately reduce the dangers of climate change may be the most serious missed opportunity.

Thus, the wreckage is economic. The wreckage is social. And the wreckage is environmental. But Donald Johnston is both a small “l” and a large “L” liberal and Liberal. If you do not know who he is, chances are that you have not yet reached your sixtieth birthday. In 2008, the Honourable Donald J. Johnston could add OC after his name for he was made an Officer of the Order of Canada, both for his contributions to public service within in Canada and as the first non-European secretary general of the Organization for Economic Cooperation and Development (OECD), a position he held for ten years from 1996 to 2006, just before the great economic crash of 2007-08. He not only played a signal role in those so-called missed opportunities, but had a bird’s eye view of what happened in that fateful decade.

Further, he came to that position with enormous accomplishments behind him – as a gold medalist in law from McGill in 1958, as a founding partner of the legal firm, Heenan Blaikie, in 1964, where he worked alongside my next door neighbour, also a tax and business law specialist. Johnston was first elected to the Canadian Parliament in 1978 and quickly assumed a place in the sun as President of the Treasury Board, Minister of State for Science and Technology and subsequently for Economic and Regional Development. In addition to these positions between 1980 and 1984 in the Trudeau government, he was named Minister of Justice and Attorney General in the short-lived Turner Liberal government. For, if you are old enough, you might best remember him as the candidate who ran third in the leadership race behind John Turner and Jean Chrétien in 1984 and then broke ranks when his friend and colleague, John Turner, then leader of the opposition, opposed Brian Mulroney on free trade, specifically the Canada-U.S. free trade agreement, but supported the PCs on the Meech Lake Accord. Johnston supported free trade and opposed Meech; he resigned from caucus and became an independent Liberal.

However, it is for his term as OECD Secretary-General that he will be best known. What a bird’s eye view! What an opportunity to influence the direction of history! But if you are looking for an account of his failure, forget it. For the failures were not his. They were the international community’s. There was George W. Bush’s misbegotten invasion of Iraq which initiated the undermining of the U.S. as the world’s leader with the initiation of positions and policies that were frugal on truth, disrespectful of science, expansive on pride and hubris, and thoroughly permeated by corruption and a disrespect for the small “l” liberal values of human rights.

From reading Johnston’s book, the politics of salesmanship, once slick versus the current display of vulgarity, the economics of favouring the 1% and ignoring the well-being of the remainder, promoting the military and foreign adventurism while undermining the welfare needed to hold society together, began much earlier than the ascension of Donald Trump as President. If the slick version of chicanery missed the opportunity to make Russia a full partner in liberal progress, the contemporary much crasser version is nostalgic with its outreach to a kleptocratic and autocratic Russia.

In the nineteenth century, the poor were severed both from the land and their access to charity. Trump will strip them of any possibility of realizing the dream of home ownership and, at the same time, of any right to access state welfare while promising the opposite.  In contrast, for Johnston, good governance on both the national and international level was and remains needed as an offset of once vibrant communities of reciprocity.

What happened? The U.S. was only ostensibly a proponent of free trade, but actually promoted bilateral trade and investment agreements, the forerunner of Trump’s policies without his frank openness. Why did this happen? Because the U.S. was a behemoth which operated to promote its own advantage. (p. 11) Why take on the Lilliputians collectively when you could pick them off one at a time? However, if that is the explanation – the inevitability of the exercise of uneven power – why declaim opportunities missed? If that norm was truly a universal law of behaviour, then there were really no opportunities. It was all a chimera.

Therein lies the contradiction. Forces are at work that overwhelm the liberal agenda of uniting economic growth and wealth creation with policies promoting social stability and cohesion through good governance at the top and a respect for nature at the base. The laws of “power corrupts and absolute power corrupts absolutely” were reinforced by national predispositions. “Americans would never (my italics) accept the taxation levels of many European countries where there is a cultural tolerance for higher taxation to support public funding for education, health, and social safety nets.” (p. 14) But that meant the trajectory in the U.S. would always favour the rich at the expense of the middle and under class and would need foreign adventures to distract the populace through patriotic appeals and circuses.

The book is permeated with various versions of this contradiction between the inevitable power of social forces and the faith in choice and taking advantage of opportunities to forge what my son, the Henry Charles Lea Professor of History and Director of the Global History Lab at Princeton University, calls the doctrine of moral economics, which he identifies with Karl Polanyi. (See Jeremy Adelman, “Polanyi, the Failed Prophet of Moral Economics,” Boston Review, 30 May 2017.) The connection need not be inferred. It is totally evident in the accomplishments at the OECD for which Johnston is lauded: establishing the world standard for the Principles of Corporate Governance, the revised Guidelines for Multinational Enterprises enunciating the norms of corporate social responsibility,  correcting harmful international tax practices; the international harmonization of competition policy, fostering sustainable development, and, as well, establishing the Education Directorate and the Program of International Student Assessment (PISA) for assessing educational comparisons. For unlike Karl Polanyi, an intellectual father, Johnston strove to institutionalize morality and not leave it as a moral cloud haunting the economic market.

Without apology or any self-critical analysis, Johnston was and remains a champion of one version of Polanyi’s moral economics and moral norms, that in both their moral and institutionalized iterations proved to be as weak a barrier to the floods produced by raw capitalism as the levees that promised to hold back the waters of the Gulf of Mexico in Hurricane Katrina from drowning New Orleans. For a number of years, I used Karl Polanyi’s classic, The Great Transformation: The Political and Economic Origins of Our Times (1944) in the general education courses that I taught at York University. As it turned out, it was my marked-up copy that Jeremy used in writing his article.

As Jeremy writes, Polanyi’s book is a “sacred text” for liberals unable to stomach the laws of inevitability espoused by both Marxists, on the one hand, and the worshippers of untrammeled markets and the invisible hand, on the other hand. Could liberalism counter “the iron broom of the classical economists”? He wrote a sacred text against a background when capitalism met its most profound economic crisis of the twentieth century, the Great Depression, and its most horrific political crisis, the rise of populist Nazism with its accompanying antisemitism in Europe.

Like Polanyi, Johnston is an “ethical stepchild of nineteenth-century liberalism, quick to condemn its shortfalls and determined to create a new moral order without the odor of Marxist class conflict.” However, unlike Polanyi, Johnston wanted to embed economic moralism in international institutions, for he accepted rather than rejected the globalization of consumption. Polanyi was a Puritan; Johnston is an Anglican or Episcopalian, at least in the secular economic religion. The market was not just a source of plutocratic enrichment at the expense of workers. It was the arena for creating wealth and it had to be tamed by rules and umpires and not treated as a circus for distraction.

Thus, Johnston’s book is timely and is part of a revivalist movement to beat back “the era of walls, visas, Eurofatigue, and slumping global trade.” He offers a moral counterpoint. Johnston writes about using good (my italics) governance to ensure the transfer of the benefits of growth to society as a whole. Could the OECD serve as an offset to the cult of stable money which was administered by states under a doctrine of state sovereignty, but where the forces at work lay “outside national boundaries, beyond the reach of community regulators”? Polanyi argued that markets had to be “embedded” within social norms to ensure the benefits served communal purposes.

I have written previously about the role of assimilated Jews who tried to address current economic and political issues with the moral lessons of the Torah, but where the Torah was only a silken thread connecting these modern “protestants” to their historic roots. Today is Shavuot that celebrates God’s giving of the Torah on Mount Sinai. Since I did not stay up this year to study Torah all night, it is convenient to refer to Julie Nathan’s essay, “The Gift of the Law: Civilisation, Shavuot and the Hatred of the Jews” (Religion and Ethics, 29 May 2017) Nathan wrote that the Jewish nation, which has had a lasting influence and impact on the human heart and mind rather than its institutions, unlike the great civilizations of the ancient world that grew up along major waterways,  “did not develop along a major river or amid lush vegetation, but was born in an arid desert, in a no-man’s land, and was founded not by kings and conquerors but by pastoral nomads and runaway slaves.” Polanyi may have left his shtetl Judaism behind, but he carried forward its emphasis on ideas, on values, on ethics and on laws to serve as a vision for humanity, but in a Christian form.

Look at Polanyi’s norms: human brotherhood, the sanctity of life, respect for individual dignity, the role of conscience, the upholding of social responsibility, respect for human rights, equality before the law, and a vision of the world guided by justice in pursuit of peace. Jeremy was named after Jeremiah, the prophet of peace.  Nations “shall beat their swords into ploughshares and their spears into pruning hooks. Nation shall not take up sword against nation. They shall never again know war” (Isaiah 2:4). More generally, “Justice, justice shall you pursue” (Deuteronomy 16:20) and, “Love your neighbour [and] the stranger as yourself” (Leviticus 19:18, 19:34)

These were the values of Karl Polanyi. These remain the basic values of Donald Johnston. For Nathan, “Jews are targeted because they are the bearers of these values, the living affirmation of a universal message of a humanitarian and ethical world. Will Donald Johnston also be reproved for trying to revive this ancient message? Or will he be ignored and his analysis relegated to the dust heap of history because it fails to engage self-critically to truly understand why those norms could not succeed against the forces of Mammon?

Assimilated Jews cast adrift from their moral bearings, tried to resurrect and concretize them in international institutions. Donald Johnston, an archetypal WASP and visionary Canadian, emerges as an honorary Jew. As Larry Zolf used to say, “When you are in love, the whole world is Jewish.” Alternatively, one could be Jewish like Polanyi who eschewed knowledge of his origins and opted for resurrection without history. Polanyi claimed that Jews “were guilty, not for the death of Jesus, but for ‘rejecting the teachings of 4520885018036092Jesus, which are superior’.” Polanyi championed a new Christian unity superimposed on free markets and expressing the importance of a political balance, in the Aristotelian sense, set in place by these overarching values.

This is self-evidently a romantic view of Judaism and of the world. Polanyi was an heir to that romanticism. Whereas, both are proselytizers of a sacred secular economic and political religion wherein liberals in a confessional mode flagellate themselves for the failures of their liberalism, Johnston is an Orthodox rabbi in comparison. But both were blind to the real dangers of populist nationalism. “Now, will the Trump administration correct this crumbling once-great democracy or will it, like others, be seduced by the extraordinary wealth of some Americans instead of being motivated to address the poverty and disillusionment of millions who supported Trump?” (p. 16) To even pose this as a question, to even ask whether Trump and Trumpism will be seduced by money, to even hold out the possibility that Trump will convert to the religion of economic moralism, is to expose the emptiness of this economic dream world and suggest why it stood powerless in the face of opposing forces.

Further, there is a failure to grasp Trump’s policies of railing against currency manipulation, implicitly favouring managed currencies, his national protectionism opposed to globalized economic forces, and make-work in industries such as coal mining. All these policies merely demonstrate that Trump, rather than Johnston, was not the usurper of Johnston’s birthright, but rather the true wished-for heir of the small “l” liberal tradition, Jacob (Johnston) longed to steal the birthright of Esau (Bush/Trump), but without Jacob’s mother’s wile. Polanyi was Johnston’s intellectual father, but Trump was the natural heir, not moral economic globalism embedded in institutions.

Johnston ends with this assertion, “I think it will happen.” It reveals the triumph of hope over reality, belief over facts, faith over skepticism, in fact, the very same foundation of charlatan Trumpism’s cynical evangelism based on faith rather than truth, founded on a lavish lifestyle, the Benny Hinn of American secularism. As Jeremy asked, is the search for the middle but a cover for the intellectual, economic and political misery of a muddle?

Lamentations focus on the gore of history. Charlatans nostalgically appeal to past glory. But both were conceived in the same womb.

To be continued.

With the help of Alex Zisman



The Budget Challenge for Israel.02.04.13

The Budget Challenge for Israel 02.04.13


Howard Adelman

Yair Laipid as Finance Minister has stated his priorities on his Facebook page:

1. Reduce the cost of living by every means at its disposal (part of the coalition agreement);

2. Enhance free market competition and reduce the concentration of power;

3. Reduce economic disparities and launch a fight against poverty.

Yesh Atid controls four other ministries that have a significant impact on the economy: the Education Ministry headed by Rabbi Shay Piron; the Health Ministry headed by Yael German; the Social Affairs Ministry headed by Meir Cohen; and the Science Ministry headed by Jacob Perry. Further, except on the issue of whether housing needs to be expanded in the settlements on the West Bank or within the State of Israel, Lapid and Naftali Bennett share the same perspective on the economy. Bennett is Minister of Economy and Trade and his party controls the Housing Ministry. So Lapid has the political resources to get a radical economic package through the Knesset. There have been a lot of rumours that Netanyahu gave Lapid the economic ministry to allow him to fall flat on his face and destroy both himself and Yesh Atid as a political force. But the result would be that Netanyahu will also go down with the ship. They not only have an agreement to work together but common interests.

However, Netanyahu comes from the George W. Bush fiscal school for whom it is anathema to raise taxes. On the other hand, Netanyahu oversaw tax increases that came into effect in January. Lapid in the election campaign railed against those tax increases in his famous line: “The Israeli middle class has turned into [Prime Minister Binyamin] Netanyahu’s ATM.” However, as I will later show, Israeli direct income taxes and indirect value added taxes now offer few incentives for any increase. More importantly, there are more than sufficient revenues available by simply closing what in North America are called loopholes and in Israel are called incentives. I will deal with sources for increased revenue in the blog on the day after tomorrow.

If Lapid tries to cut out incentives, he will be subject to immense pressures from outside. If he tries to cut from ministries, he will face opposition from within, and the most formidable will be the Department of Defense. One is wary of trusting his toughness given how poorly he did in the bargaining over ministries but mostly over other positions in the government. But so far he is talking tough. And saying No is relatively easier than getting someone else to say Yes.

The greatest challenge Lapid faces will not be those who pressure him both from within and outside government but from those who are indifferent to the size of the deficit and, in any case, cynical about the possibility of structural changes. After all, in a budget of NIS 350 billion largely locked into a third for interest payments on debt, another third for salaries and the other third with little room for flexibility, how can any finance minister come up with NIS 15 billion in cuts and additional revenues of about NIS 30 billion?

Part of the answer lies in the power of the Finance Ministry as every Canadian knows who watched Paul Martin in the Chretien Canadian Liberal government and Jim Flaherty in the Tory Harper government work their budgets to ensure Canada was not dragged down in the whirlpool of gross indebtedness. The Finance Minister is not just a traffic cop who turns lights red for ceasing expenditures and green for resuming them. First of all, he has a powerful influence on the amount of traffic. Secondly, the Finance Ministry is not just a set of stop lights but a detailed manager of the economy with veto power over every expenditure as well as responsibility for setting the overall budget for each ministry.

I will try to answer the question of how I think Lapid will approach the problem by future blogs under the following planned headings:

1. Israeli Economics – A New Dawn (yesterday)

2. The Budget Challenge for Israel (today)

3. Current State of the Israeli Economy (tomorrow)


4. Tamar and Leviathan

5. Tax Loopholes and Privatization

6. Monopolies and the Tycoons

7. Technology


8. Housing

9. Military

10. Disparities – Haredi and Arab Israelis

11. Education

12. Health

I will try to wrap the whole discussion up by evaluating whether such changes will make Israeli a fairer and more equitable society while, at the same time, increasing both opportunities and incentives. Will it be more humane as well as more competitive or will one objective be at the expense of the other? Everyone might expect me to write on these questions, but on the economy? In undertaking these series of blogs, I will have the benefit of world class economists both in Israel and abroad who have contemplated these issues, written on them and undoubtedly some of them will have influenced both Lapid and Bennett in their political platforms.

These experts include: Professor Avi Ben-Passat, a former Director-General of the Finance Ministry (1999-2001), a Senior Fellow at the Israel Democracy Institute (IDI) and a Professor at Hebrew University; his colleague and collaborator, Momi Dahan, at the same institute, Head of the Federmann School of Public Policy & Government at Hebrew University and an expert on macroeconomics and finance as well as economic inequality; Mordechai Kremnitzer who is a Professor Emeritus from Hebrew University, a former Dean of the Law Faculty and currently ice-President of Research at IDI where he heads the Constitutional Principles, National Security and Democracy as well as the Arab-Jewish Relations projects.

Below I have provided a selection of some of the economists whom I will cite with respect to the various topics I plan to cover. I list them to ask you to submit other experts whom I should read in preparing my blogs.

Energy Resources: Tamar and Leviathan (04.04.13)

Philip Hemmings, OECD

Dr. Michael Gardosh, Geophysical Institute of Israel,

Dr. Yehezkel Druckman

Tax Loopholes and Privatization (07.04.13)

Fudim Shrem Kelner, Professor of Finance, IDC, Israel

Daniel Czamanski Technion

Monopolies and the Tycoons (08.04.13)

Oded Sarig, Treasury Commissioner for Capital Markets

Arik Peretz

Yoav Bar-On

Fudim Shrem

Daniel Tsiddon Staggering and Synchronization in Price-Setting

Technology (09.04.13)

Daniel Tsiddon Leapfrogging

Manuel Trajtenberg – Product Innovation and Patents

David Shamah

Shlomo Gradman, Chairman of the Israeli High Tech CEO Forum

Housing (10.04.13)

Manuel Trajtenberg

Daniel Tsiddon

Hosny Zoabi

Z. Eckstein

Yosef Mealam

Military (14.04.13)

Shmuel Even

Yaakov Lefshitz

Disparities – Haredi and Arab Israelis (15.04.13)

Eran Yashiv

Daniel Tsiddon

Manuel Trajtenberg

Health (17.04.13)

Neil Gandal

Tomorrow I will discuss the Current State of the Israeli Economy to show why new sources of revenue must be found as well as cuts made on the expenditure side to meet a target, not of a balanced budget – there are no Tea Partiers in power in Israel – but of a deficit of 3% of the gross national product. The deficit ran at over 4% during 2012 and perhaps even exceeded that amount in the first quarter of 2013.

The Budget Challenge for Israel.02.04.13.doc