War For The World

Global business concept. Multiple exposure of group of businessperson and modern cityscape.

Liberals once believed that the retreat of globalisation would be akin to water flowing uphill. When asked in 2007 which US presidential candidate he was supporting in the forthcoming election, Alan Greenspan, the former Federal Reserve chair, remarked: “We are fortunate that, thanks to globalisation, policy decisions in the US have been largely replaced by global market forces. National security aside, it hardly makes any difference who will be the next president. The world is governed by market forces.”

History, globalisation’s supporters assumed, was irrevocably on their side. The world would ceaselessly become more politically, economically and culturally integrated. In his 2005 Labour Party conference speech, Tony Blair declared: “I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer.”

But globalisation’s apparent triumph was more fragile than it appeared. In the years since the 2008 financial crisis – an event that Greenspan and others deemed impossible – multiple threats have emerged.

In the US, president Donald Trump has defined himself in opposition to free trade, multilateralism and the international rules-based order. The US has imposed new tariffs on Europe, China, Canada and Mexico, withdrawn from the Paris Climate Change Agreement, cut UN funding by $285m, threatened to leave NATO and abandoned the Iran nuclear deal (a retreat labelled “Amerexit” by the historian Nigel Hamilton). Rather than hailing the benefits of global co-operation, Trump views the world as a zero-sum game in which there are unambiguous winners and losers.

The US, the chief architect of the post-war order, has become one of its greatest challengers. In Europe, the UK has become the first country to vote to leave the European Union, a rebuke to a project that has long prided itself on perpetual integration. But this is merely one of the challenges facing the EU. Hungary and Poland are defying democratic norms such as judicial independence, press freedom and migrant rights. Italy’s new government, comprised of the populist Five Star Movement and the far-right Lega (formerly known as the Northern League), has rejected EU demands to adopt more austere economic plans in order to reduce its budget deficit. Meanwhile, the rise of nationalist parties in Germany (Alternative für Deutschland) and elsewhere has made it even harder to reach agreement on French president Emmanuel Macron’s proposal of a common Eurozone budget, finance minister and parliament.

Beyond the West, a revanchist Russia is seen as undermining democracy at home and abroad, while China’s Xi Jinping has adopted an increasingly nationalistic approach. Emerging economies such as India and Turkey are led by authoritarian populists (Narendra Modi and Recep Tayyip Erdoğan), while Brazil has elected Jair Bolsonaro, a far-right defender of military dictatorship. Yet just at the moment that global co-operation is fracturing, the need for it is growing. After a long economic expansion since 2010, the threat of a new recession is rising. Eurozone growth in the third quarter was the weakest since the second quarter of 2014, with the German and Italian economies contracting. Growth in China – the powerhouse of the global economy – has slowed since the second half of 2017.

The US, by contrast, has grown at its fastest pace since 2014, but only by means of an unsustainable fiscal stimulus: Trump’s exorbitant tax cuts. In 2008, a second Great Depression was prevented through globally co-ordinated fiscal and monetary stimulus. But in an era of ultra-low interest rates and high debt, states have less ammunition to deploy even before national divisions are accounted for. Meanwhile, more than 25 years after the first UN climate change conference in Rio de Janeiro, the possibility of preventing irreversible harm to the planet is fading. The past four years, according to the World Meteorological Organisation, have been the warmest on record and global temperatures could potentially rise by 3C to 5C by 2100, far in excess of the globally-agreed target of 1.5C.

“We are facing a man-made disaster of global scale, our greatest threat in thousands of years: climate change,” Sir David Attenborough warned at the UN climate change summit on 3 December. “If we don’t take action, the collapse of our civilisations and the extinction of much of the natural world is on the horizon.” In multiple other areas – migration, natural disasters, nuclear proliferation, financial regulation, social media – global co-operation is essential.

Yet national divisions are hindering and even thwarting such action. What caused such fractures and can they be repaired? Just over a quarter of a century ago, liberalism appeared to have triumphed. After decades of division, the Cold War officially ended. In Europe, a dozen countries founded the European Union through the Maastricht Treaty. In the US, after 12 years of Republican rule, Bill Clinton was elected president.

“What we may be witnessing,” wrote Francis Fukuyama in The End of History and the Last Man, “[is] the end point of mankind’s ideological evolution and the universalisation of Western liberal democracy as the final form of human government.” When I recently interviewed Fukuyama about his new book Identity: The Demand for Dignity and the Politics of Resentment, he emphasised the caveats he previously inserted. “What I said back then [1992] is that one of the problems with modern democracy is that it provides peace and prosperity but people want more than that… liberal democracies don’t even try to define what a good life is, it’s left up to individuals, who feel alienated, without purpose, and that’s why joining these identity groups gives them some sense of community.”

Even before the 2008 financial crisis, nationalism was resurging in Europe and elsewhere (Italy’s Silvio Berlusconi, Austria’s Jörg Haider, France’s Jean-Marie Le Pen) as income inequality rose, unemployment remained high and ethnic tensions grew. Similarly, US unilateralism did not originate with Trump. As president, George W Bush invaded Iraq without a UN mandate, imposed tariffs on steel imports, withdrew the US from the Kyoto Protocol on climate change, and refused to ratify the International Criminal Court treaty.

But the crash, which disproved the belief that markets only self-correct and never self-destruct, further weakened trust in established political institutions. Though global co-operation prevented a new depression, voters have since endured the slowest economic recovery in history, with living standards in many cases still below their pre-crisis peak. Trevor Williams, the former chief economist of Lloyds Commercial Banking and a member of the economia Editorial Advisory Board, observes: “There was far too much incestousness between some aspects of business and government. There was no protection for someone who defaulted on their mortgage: their assets were seized, they were made bankrupt. But there was protection for firms who lent the money, they never lost a dime. In fact, they made money.”

Richard Spencer, head of sustainability at ICAEW, says: “Until the 1970s, the idea of democracy was that it contained the power to act and the power to decide. But since the mid-1970s, the neoliberal experiment has forced a divorce of these. Governments have the power to decide but the power to act has largely accrue to business. Governments are really more like administrators, which has fed a lot of the feeling that somehow the 1%, the rich, big business hold the power, they’re seen as being unaccountable and not interested in ordinary people’s small lives.”

A solely materialist analysis, however, ignores the other factors driving the rise of populism: automation and the loss of traditional employment, the transformation of mono-ethnic countries into multi-ethnic ones, and the rise of social media, which has gifted political insurgents a new means of communication. All of these factors contributed to the Brexit vote of 2016 and Trump’s election, events which the political mainstream had deemed impossible.

The risk is that the world becomes locked in a vicious cycle of nationalist reprisals and beggar-thy-neighbour economic policies. But the retreat of globalisation and the shift in public attitudes should not be overstated. Trade has continued to grow as a share of global GDP, while a recent Pew Research poll of 27 major countries found that a median of 85% of citizens view trade and business ties with other countries as “a good thing”.

However, significant minorities believe trade “destroys jobs” (24%), “decreases wages” (21%) and “increases prices” (42%). In spite of this, the populist revolt has not extended as far as some anticipated. When the UK voted to leave the EU in 2016, Brexiteers confidently predicted that this would trigger a “chain reaction” of departures (just as the Bolsheviks hoped that the Russian Revolution would inspire further Communist victories).

But far from collapsing, support for EU membership has increased across the continent. The 2018 Eurobarometer found that backing for the EU had risen in 26 of the 28 member states (the exceptions being Germany and the UK, which recorded 2% declines in support). Though support for Germany’s AfD, France’s Marine Le Pen and Italy’s Lega has risen, not one of these parties is proposing EU withdrawal. Indeed, Le Pen and the Lega leader Matteo Salvini have reassured voters that they would no longer even seek to leave the European single currency.

In the US, the election of a Democratic House of Representatives will act as a crucial check on Trump. And the president cannot single-handedly reverse globalisation. When Trump announced the withdrawal of the US from the Paris Climate Change Agreement, the governors of California, New York and Washington responded by announcing that their states (which account for around a fifth of the US population and GDP) would continue to meet the agreed environmental targets.

Perhaps most significantly, China, the chief counter-hegemon to the US, has affirmed its faith in globalisation. As Xi Jinping declared in his landmark address to the 2017 World Economic Forum: “There was a time when China also had doubts about economic globalisation, and was not sure whether it should join the World Trade Organisation. But we came to the conclusion that integration into the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market.”

Rather than the reversal of globalisation, what we are witnessing is its rebalancing. Having been progressively marginalised since the 1980s, the nation state has reasserted its primacy. Multilateral organisations will endure but they will have to take greater account of their members’ interests. History, however, shows how destructive the forces of nationalism can be once unleashed. Though the will for global co-operation is fading, the necessity for it is not. The institutions that now define the international order – the UN, the EU, the WTO – were born of the fraught experience of war and economic depression. Unless a new settlement between the global and the national can be reached, the world may be forced to learn this lesson once more.

This article was first published by ICAEW Economia website. To visit the original story, click here