The Crisis of Globalization

Democracy, Capitalism and Inequality in the Twenty-First Century

Patrick Diamond

• Publisher: I.B. Tauris
• Year: 2018
• ISBN:
  9781788316286
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Globalisation
• Index: Politics & International Relations

In recent years, the effects of economic openness and technological change have fuelled dissatisfaction with established political systems and led to new forms of political populism that exploit the economic and political resentment created by globalization. This shift in politics was evident in the decision by UK voters to leave the European Union in June 2016, the November 2016 election of Donald Trump to the presidency of the United States, as well as the rise of populist movements on left and right throughout much of Europe. To many voters, the economy appears to be broken. Conventional politics is failing. Parties of the left and centre-left have struggled to forge a convincing response to this new phase of globalization in the aftermath of the 2008 crisis. This book examines the challenges that the new era of globalization poses for progressive parties and movements across the world. It brings together leading thinkers and experts including Andrew Gamble, Jeffry Frieden and Vivien Schmidt to debate the structural causes and political consequences of this new wave of globalization.

Part I

Taking Stock – the Rise of the New Populism

CHAPTER 1

Globalization and the New Populism

Andrew Gamble

In the last ten years there has been a marked rise in various forms of populism in Western democracies. The question is, why? One explanation is that it is the result of globalization, which has benefited some but not others, causing a backlash among the losers, who now seek to turn back globalization or obstruct its progress. The rise of the new populism is seen to be drawing its strength from those left behind by globalization, particularly the white working class in former heavy manufacturing districts. In this chapter I will examine this argument and its plausibility. One of the difficulties in pinpointing the argument is the vagueness of terms like ‘populism’ and ‘globalization’, and the loose way they are used in political discourse. We will address our understanding of these terms before going on to explore the links between them, in particular the theory of the globalization paradox put forward by Dani Rodrik (Rodrik 2011). Attention will be paid throughout to political context: Globalization means different things in different periods and so does populism. They are not single uniform phenomena, rather there are many ‘globalizations’ and many ‘populisms’ (Berger and Huntington 2002; Canovan 1981; Mudde and Kaltwasser 2017; Muller 2016).

A crucial context for understanding the contemporary interrelationship between these terms is the financial crash of 2008 and its aftermath of relative economic failure. We are still in a period defined by the 2008 financial crash. At the end of 2017, it was already nine years since the financial crash itself, and more than ten years since the start of the 2007 credit crunch. Swift and decisive action by governments on both sides of the Atlantic in 2008 prevented a financial meltdown, but it came at a heavy cost. There was a sharp recession and a very slow recovery, characterized by sluggish growth, stagnant or depressed living standards, and low productivity (Gamble 2016). The failure of Western economies to rebound from the 2009 recession as they had from every previous recession since 1945 perplexed policy-makers, especially since interest rates remained close to zero, the central banks supported banks liquidity with quantitative easing, and private companies had mountains of cash available for investment.

In the second half of 2017 and the start of 2018 the growth prospects of the international economy began to improve. The IMF expected all leading economies, with the exception of the UK, to expand faster in 2018. Stock markets responded by reaching all time highs in the hope that the generalized recovery the world had been waiting for since 2009 was, at last, materialising. The tax cuts announced by the Trump administration were predicted to add a further stimulus to the world economy, even as they pushed the US deficit towards £1 trillion, and the overall debt to $20 trillion, 104 per cent of GDP. Many observers were still cautious about whether a corner had finally been turned. Anxieties about the future of the international economy continued to be voiced. The Bank of International Settlements, and some of its former officials, have drawn attention to the huge debts which still exist in the system and which threaten to explode should the authorities start to raise interest rates to the kind of levels needed for financial health. The flood of money which had been injected into the international economy since 2008 meant that many new forms of shadow banking had emerged, posing grave financial risks if interest rates started rising sharply. Yet interest rates needed to rise sharply to give the financial authorities sufficient room to lower rates again in order to deal with the next downturn. If there is another financial crash and associated economic recession while interest rates are still very low, and QE has not been unwound, then the international economy risks widespread debt defaults and a plunge into a far more serious recession than that of 2008. Central banks have run out of tools to avoid such an outcome (Evans-Pritchard 2018).

There are more optimistic views about the immediate prospects for the international economy, but there is general agreement that the structural problems highlighted in 2008 and the period which followed have not yet been solved. The issues of new governance arrangements for the international economy to reflect the shifting balance of power, the obstacles to raising growth rates and productivity and to finding profitable investment outlets, the mountain of debt – public and private – which still hang over the international economy, and the erosion of legitimacy and trust in those governing it, were all mostly unresolved in 2018. There was still a political impasse, and it was unclear what political forces could break the logjam. The ability of government to just about manage meant that although incumbents were frequently ousted, they were replaced by other incumbents, sometimes centre-left but mostly centre-right, who continued the broad international consensus on appropriate policy priorities and policy instruments. Many governments adopted austerity programmes in the expectation that shifting the burden of adjustment on to public services and private households would facilitate a strong recovery. But the austerity programmes dragged on endlessly without stimulating recovery or eliminating the deficit or the accumulated public debt which, in many countries including the United States and the UK, continued to rise. Some of the deepest austerity was experienced in the eurozone, because of its sovereign debt crisis in 2010–12. It was temporarily solved by the European Central Bank finding its way to act as other Central Banks and beginning its own programme of quantitative easing (QE). It is against this background of national economies, still functioning but failing to bounce back, that the rise of populism needs to be understood.

Populism

Populism is not a very precise term, at least in the way it is often used in media and political discourse. It has been ascribed to parties of both the right and the left, as well as to individual politicians. The term is vague because there is an inherently ‘populist’ element to modern democracies. Politicians gain power by making pitches to the people for their support. The legitimacy of modern democracy depends on their ability to appeal to voters’ values, their identities or their material interests, and often all three. All democratic politics is ‘populist’ in this sense, but to be characterized as a populist party or politician requires additional criteria to be met. Populists are distinct from other politicians because they are anti-system and anti-establishment. They typically counterpose ‘the people’ to ‘the elite’, and blame the elite for all the problems, suffering and oppression of the people. Elites are corrupt, they do not listen, they are insulated from the people, and no longer represent their concerns or their interests. Such populist discourses flourish in authoritarian regimes, often covertly. But they are also an inherent feature of democracies. Populist parties in democracies are natural parties of opposition, sometimes permanent opposition. Problems arise if they win office. As anti-system parties they are dedicated to overthrowing or at least radically overhauling the system, displacing the existing elites and remaking the state and its relationship to the people. They are not expected by their followers to become part of the elite itself as soon as they win power. If they are not absorbed by the existing elite and the ‘deep state’ they must become the new establishment, which generally means moving in an authoritarian direction, restricting democracy, as in Turkey, Poland and Hungary.

Many of the populisms which have attracted attention in the last decade, such as the Front National in France, are not newcomers. They are long-established anti-system parties which have benefited from the political conditions since the financial crash and increased their support, although so far without managing a breakthrough. Other parties, such as the AfD in Germany or the Five Star movement in Italy are new parties which have grown very rapidly. Other parties will not work with them, which means they will find it hard to enter government unless they can win a majority on their own, but in the case of Italy, at least, it is no longer unthinkable that this could happen. In some of Europe’s new democracies, such as Poland and Hungary, national populist parties have won power and are threatening the fragile institutions of liberal democracy, particularly the rule of law and human rights, which were established after the collapse of communist rule. In other democracies, such as Austria, national populist parties have entered government as a coalition partner. There is now a national populist presence in the politics of almost every Western democracy, including Sweden and the Netherlands. Almost all these parties are on the right. There are very few left populist parties, apart from Syriza in Greece and Podemos in Spain. What unites the national populist parties is their opposition to the EU and to globalization. Many advocate referendums to pull their countries out of the euro and out of the EU altogether. Brexit has many admirers on the national populist right in Europe, none on the centre right. The European elite is seen as a unified bloc which has taken away national sovereignty and undermined national identity. The peoples of Europe have to escape its yoke.

The politics of many European democracies are being remade by the advance of national populism, but its most dramatic recent manifestations have come in two of the oldest and traditionally most secure Western democracies – Britain and the United States. In Britain, the populist UK Independence Party campaigned successfully for a referendum on Britain’s membership of the EU, and then was part of the Leave Coalition that delivered a narrow vote for Brexit in the referendum on 23 June 2016. UKIP managed to do so without ever having more than two MPs in the Westminster Parliament (both of them defections from the Conservatives), even though it won four million votes in 2015 and had achieved significant representation in the European Parliament. Being on the winning side of the Brexit vote did not benefit UKIP: The party has been consumed by in-fighting, losing most of its votes and its Westminster representation in the general election in 2017. But despite this, the result of the referendum was a signal victory for the populist anti-system politics which was at the core of UKIP’s appeal. It was predictable that no sooner had the vote been won than the party quickly turned to warning that the vote would be betrayed. The elites would cheat the people of what they had voted for. The populists had won the vote but it was still Establishment Conservatives, most of whom had voted Remain, who dominated the government and parliament. More than two thirds of MPs had voted for Remain. It was an even higher percentage for members of the House of Lords.

There was a different situation in the United States, where an outsider, Donald Trump, first won the Republican nomination (although he was doubtfully a Republican and in the past had funded the Democrats) and then went on to defeat Hillary Clinton in the electoral college in the presidential campaign of 2016. Trump was not a professional politician. He was a property developer and a TV reality show host. He drew support from populist groups like the Tea Party and the far right fringe of US politics, and built a campaign around outlandish populist claims (about his opponents) and populist commitments (such as building a wall on the southern border to keep out Mexican immigrants). His tactic was always to pitch himself and the people against Washington and the elites. Washington was the swamp which had to be drained. In many ways this was an old trope in US politics; the importance of state politics in the United States meant that generations of politicians had run against Washington, but Trump took it to a new level.

Having won power on an economic nationalist, anti-immigrant, anti-globalization platform, the question became how far he would seek to deliver it. Would he really attempt to drain the swamp, and change the principles, the procedures and the personnel of US Government? At the beginning he had radicals on his staff like Steve Bannon, who wanted to do exactly that. But Trump also surrounded himself with representatives of the US military and the US financial and business elites, as well as by the Republican party political elite. The policies he enacted in his first year were mostly through administrative orders, aimed in particular at scrapping government regulation of business. His one big legislative achievement was his tax package, crafted by Republicans and passed at the end of 2017, and which disproportionately favoured the wealthy elite, including Trump himself, but which was sold as benefiting the American middle class. Trump disengaged the United States from the rest of the world as much as he could, cancelling US involvement in the Trans-Pacific Partnership (TPP) and the Paris agreement on climate change, but he was more cautious in delivering on his promises to fight a trade war with China or to pull out of the WTO or NATO.

The victory of Donald Trump in 2016 was the most important breakthrough made by national populists in the ten years following the financial crash. To win the presidency in the most powerful state in the international order, by threatening to overturn many of the institutions and principles which had built and sustained this order since 1945, was a shock. If it could happen in the United States it could happen anywhere, and even if it was not repeated elsewhere, the victory of populists in the United States could start to unravel the networks, alliances and institutions which had maintained and deepened international cooperation. Trump’s long-standing economic nationalism (Laderman and Simms 2017) and his crude America First slogan, an echo of the America First movement of the 1930s which sympathized with Hitler and opposed entering the war on the side of the democracies, alarmed many of its allies, who had been used to the United States pursuing its own interests, but not at the same time disengaging from active leadership of the international order.

It is unclear at the moment whether the Trump phenomenon is a passing spasm which will soon be forgotten under a more traditional president, or whether it betokens a lasting shift in international politics. If the United States continues to be openly contemptuous of many of the institutions which it worked so hard to establish to project US power and influence, and a...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Contributors
• List of Figures
• Preface
• Introduction
• Part I: Taking Stock – the Rise of the New Populism
• Part II: Brexit, Populism and the Future of the European Union
• Part III: What is to be Done? Domestic and International Policies to Deal with Globalization
• Postscript