From Money and Government (Robert Skidelsky, 2018) p311-4
In the early 1990s it was usual to say that the world economy was ‘reglobalizing’, or returning to its pre-1914 condition after a seventy-year protectionist detour. Three developments have shattered this optimistic prognosis. The first was the unexpected financial meltdown in East Asia in 1997-8, which, following the Mexican peso crisis of 1995, highlighted the instability of global financial markets and the inadequacy of the world’s financial architecture. Second, were the mass protests in Geneva in 1998 and Seattle in 1999 against the setting up of the World Trade Organization (WTO). These marked the start of a popular insurrection against globalization. Insofar as the loose coalition of economic nationalists, anti-capitalists, environmentalists, anarchists and trade unionists had a coherent message, it was that the WTO transferred power from elected governments to multinational corporations. It was a predominantly rich country protest against free trade, though often couched in terms of Western big business exploiting poor countries.* The third event was the even more unexpected collapse of the developed world’s ‘mature’ financial system in 2008, This sharpened the sense that globalization was harmful to rich countries. Since the Great Recession of 2008-9, these anti-globalist stirrings have splintered and morphed into populist movements of both right and left. Globalization has, in reaction, created global populism. Our political language finds it hard to keep up. There is still a political divide between right and left, but it is increasingly overshadowed by one between nationalism and globalism.
Twenty years or so ago it was usual to think of globalization as a unified process involving not just economic/technical but also political/cultural transformation. The internet was conceived as the decisive game-changer in both spheres. By changing the technical means by which people communicated with each other it would change the way they related to each other. Now it is increasingly recognized that economic/technical change has been racing ahead of political/cultural change. This explains the upsurge of old-fashioned nationalism.
The globalist typically wants culture to adapt to the imperatives of economic interdependence, and is surprised and disappointed when it hits back in discordant, often ugly ways. France’s President Emmanuel Macron has described populism as the politics of those ‘left behind’. This is right, as long as it is recognized that the feeling of being left behind is not just economic, but also cultural. At heart the globalist thinks of anti-globalist feeling as a social pathology, which needs to be explained, rather than as a reasonable response to what, for many, are distressing events. Globalists demand that people adapt to seemingly irreversible economic changes, without understanding that it is a mutual adaptation which is needed. Societies have very strong adaptive capacities, but they are not infinitely malleable, like bits of putty.
Thus it would be wrong to see anti-globalization as just fuelled by economic discontent. Sociology, anthropology and history have been undermining the economist’s understanding of human nature. Homo economicus, the man who lives for bread alone, has given way to a more complex understanding of the human as a social animal for whom belonging and eating are interconnected elements of being. Hence the rise of identity politics is not just a protest against job losses, declining wages and rising inequality but — just as importantly — a protest against cultural changes which are robbing people of their need for the familiar and normal. An economics which both minimizes the possibility of non-material forms of flourishing and fails to deliver its own promised goods is ripe for populist demolition.
Donald Trump is the most important populist to have won high office so far (Viktor Orban, prime minister of Hungary, is the most important European populist in power), but popular opposition to the free movement of goods, capital and labour has stopped globalization in its tracks. Trade and capital flows have recovered from the 2008~9 crisis at about the same pace as output, but no faster. There has been no multilateral trade agreement since 1993; instead there has been a proliferation of bilateral deals. Trump promises to scrap the North American Free Trade Agreement of 1992, and the Trans-Atlantic and Trans-Pacific trade treaties conjured up by President Obama. He announced tariffs on imports from China and the EU in what could well be the opening shots of a new trade war. Capital movements are being restricted de facto on security grounds. Free movement of labour is curtailed in North America and Europe. The most astounding reversion to national economics was the British vote in 2016 to leave the European Union.
The kernel of the problem is that the market system lives by generating systemic upheaval, not just in economic but in social relations, as Marx recognized. Out of the upheaval comes a better life — or so it is claimed. But along the way there is a great deal of human breakage, and in the short-run many losers. That is why a market system, to be generally acceptable, requires a state to curb its excesses, distribute its fruits in an equitable way, and mitigate its hardships. National states were created to do this; they in turn created and enabled unified domestic markets. We have been trying to create a unified global market by diminishing national states without setting up a global state, or even recognizing the need for one. No wonder there has been an explosion of popular resistance.
Karl Polanyi brilliantly analysed the emergence, in the nineteenth century, of the simultaneous double movement towards greater marketization and state protection against its consequences, the numerous Factory Acts of the early industrial revolution, to protect children and limit hours of work being one of his main examples. The first great age of globalization in the late 1800s saw the extension of this double movement: the growth of the international market led to the birth of welfare states, the restoration of protective tariffs, and the establishment of central banks to minimize financial crises.
However, such national defences against the consequences of globalization were never incorporated into a rule-based international order. Its absence brought the first age of globalization crashing down in 1914. Following the disintegration of the world economy in the 19308, Allied victory in the Second World War led to the setting up of a more robust set of international institutions and rules, the socalled Bretton Woods system, to underpin a revived liberal market order. Significantly, it allowed, while seeking to relax, the protective national controls over the transnational movement of trade, capital and people left over from the 1930s. What was set up was an ‘embedded’ liberal trading system as an international counterpart to post-1945 Keynesian social democracy in domestic politics. It fell far short of providing an economic government of the world, however, just as the United Nations failed to provide a political government. In practice, the United States acted as a kind of surrogate government for the free world in both economics and politics (just as the Soviet Union did for its own sphere). The surrogate was more or less legitimate because US hegemony was partly disguised and America provided services deemed indispensable by its beneficiaries. This liberal mix of national leadership, international institutions and markets, backed by hard power where necessary, provided a solidenough basis for peace and prosperity for thirty years.
The unrepentant resurgence of globalization was made possible by capitalism’s triumph over communism. Although in the 1990s the Soviet Union failed to match the economic performance of the capitalist West, for many years the appeal of communism checked the power of the business class. But, since 1990 neo-liberal statecraft has been unchallenged. It scrapped or emasculated the protectionist features of the post-war order which made it politically acceptable. Enslaved by utopian theories and ignorant of history, the ideologues of the free market have been preparing the ground for the Apocalypse.
Di/Trilemma
The conflict between cross-border economic integration and national systems of politics is at the heart of Dani Rodrik’s intriguing notion of the ‘impossible trinity’. He contends that democracy, national sovereignty and economic integration are mutually incompatible: we can have any two of them, but not the three together. National sovereignty can be combined with economic integration if there is no democracy – as happened in the nineteenth century because there were too few voters to protest against it. We can have national sovereignty and democracy at the expense of economic integration. Or we can have economic integration and democracy together, provided we have democratically accountable supra-national institutions. The argument is over-stylized because at all times rulers have had to pay attention to their people, and most nineteenth-century states were protectionist. The value of Rodrik’s exercise is to challenge the conventional wisdom that economic integration is irreversible. His trilemma offers an explanation of why the first wave of globalization was rolled back in 1914, and warns of disaster if we persist in global fantasies that are not anchored in the realities of nation states and their voters. Economics has gone global but politics remains national. The contradiction between the two domains of action explains the rise of populism. Either we create an international social contract or nationalist economics will return.
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