The gap between “image” and “reality”

It is worthwhile to spend some time on the question how policy makers should deal with strong and irreversible changes like we face at present and what role do narratives play in this context.

Handling this topic – and the linked issues of, for instance, social inequality, falling living standards, sustainability, inclusion as well as globalization versus regionalization – has been made much more difficult not only by the economic fall-out from the global financial crisis and the current pandemic but also by the policy response to it.

Conventional political debate around policy preferences and the subsequent vacuum has been displaced in recent times by short term actions and has allowed promoting simplistic (and often populistic) alternative strategies. 

As we have seen, these strategies tend to portray economic and political choices as a zero-sum game, with a focus on achieving economic security through creating barriers – for example, to trade (protectionism), transparently backwards thinking intended to preserve the status quo, or to diversity. All these measures have a strong short-term symbolism. 

This has led in many societies both to a widening perceived economic gap between the global elite and local populations but also a widening emotional gap as elitist politicians are seen as failing to understand “everyday” concerns. This leads to fragmented parliaments, a difficult reform process and as a result to fewer reforms – thus, in a destructive circle, the further widening of the initial perceived gaps. 

But societies and particularly Governments have tools to anticipate and engineer solutions to these problems in order to regain credibility – and we would call this narrative based “anticipative” economic policy – in simple words. They first have to spell out a long-term vision of where we go from here. This vision should be based on socio-economic values and beliefs – linked to a narrative. Then they have to win broad-based popular support for this vision, putting sustainable national prosperity above client relationships with individual interest groups.

Spelling out this vision is the (relatively) easy part – getting, and sustaining, broad-based popular support for this vision is likely to be more of a challenge. This requires closer and constant communication between the parties, so the population feels that its concerns are understood.

As we know, however, the economic and social situation is always changing. And, if a government needs to take detours on its route towards stated goals, a country’s population needs to remain convinced that the long-term targets are still appropriate and achievable – based on objective facts.

Changing the policy “road map” clearly also poses risks. At some point, such adjustments can create a turning point which leads to a political conflict. Instead of holding on to the old “road map” for too long, political leaders should focus on the smallest commonalities, continuously reappraising the changed situation. This should provide a basis for a sequence of small steps to address the new environment, rather than a single sharp change of direction. 

Establishing such commonalities can be difficult. There is a general perception that, in the modern world, not just policy makers but also voters must assess a situation of unprecedented complexity. To cope with such perceived complexity, policy makers (political leaders) start to create a “picture” of reality to make it understandable. But over time, this “picture” gets further simplified. In reducing complexity, interdependencies are lost with a widening gap over time between “image" and “reality". 

When the gap between “image” and “reality” gets too wide to ignore – for example, after an extreme external shock (e.g. Great Depression, GFC etc.), the justifications for current policy can change.

The “elite”/“leader” group tends to pursue dogmatic arguments/explanations to justify their claim to leadership and stick to old patterns. “Right” and “wrong” (the logical dimension) become, due to this dogmatism, "good" and "evil" the (moral dimension). The governed population is perhaps encouraged to feel "disconnected" and increasingly questions elements of policy which can then be "morally" condemned (although they are logically correct).            

To return to where this chain of thoughts started, narratives based on shared values and beliefs can play an important role in determining whether societies have a tendency to preserve what they have achieved, rather than adjusting to new or potential new realities. Narratives are a perceived reality and create a connection between the individual and the narrative. Dispersion within the collective is then increased by peer effects. Information becomes emotionally charged and tangible, creating a sense of ?community“.

Therefore, shared narratives represent a shared reality.

Encouraging an open-minded continuous reappraisal of facts, followed by “baby steps” (in the Anglo Saxon idiom) justified by close and transparent communication between the government, elites and the public – I would call it leadership – is key to encouraging an effective narrative process – and with it more trust in policy, governments and change – which is inevitable to support prosperity of societies! 

Disclaimer: I work at Deutsche Bank. All views and recommendations in this article are solely my personal opinion. They can or cannot coincide with company opinion but should never be interpreted as Deutsche Bank statements.