Overcome crisis of globalisation: Redo politics, int'l coop

Overcome crisis of globalisation: Redo politics, int’l coop

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by Ngaire Woods
Recently there’s been a lot of talk about globalisation being pushed back. How would you characterise the situation?
I think there was always a deal that permitted globalisation to go ahead. If you think about the 1950s and ‘60s, governments promised their citizens that they would open up the borders but they would protect their citizens. So you saw trade liberalisation take place, but against a background of some quite strong protections. We’ll make sure you’ve got a house, health, good education for your kids, and we’re going to open up trade and then eventually capital flows as well. And that period was followed by really rapid globalisation, of throwing open the borders, particularly capital and the international monetary system, so that suddenly a lot of societies, a lot of economies, seemed to be either enjoying a flood of money or suffering from an absolute dearth of it. So we started to see more and more financial crises and more and more violent financial crises, if we think about Latin America and East Asia and so forth. And the biggest of all was, of course, the global financial crisis in 2008, which brought globalisation to a stop, and within six months we saw a massive shrinking of global capital flows and a seizure of global trade.
So, to me, that was kind of a stop. It was a crash stop for globalisation, which required everyone to sit back and go, “Well, what is it? What is it and what are its impacts?” And, of course, the costs of the global financial crisis, the sense of injustice and unfairness that it’s wrought in societies around the world, which has partly been about government responses, governments having to bail out the banks but also then having to suffer the consequences of this crash. And that’s taken even the wealthiest countries real effort, and it’s caused real pain, and those people who have suffered that pain have a vote. And now they’re voting for almost anyone that promises to roll back globalisation.
So there has been a financial crisis, there have been costs, but there’s also a cultural dimension to this kind of rejection.
I mean if you look at the policies, say, of Donald Trump or what Brexit promises the UK, it is hardly any improvement for the people who might feel pinched by what happened in the financial crisis. So, on top of what is happening in economic reality, in socio-economic reality, is there also a crisis of a presumption of openness? So that people just feel they don’t want to be open any more, that slogans such as “taking back control” or “America First” truly resonate with these people beyond what their real-life socio-economic grievances might be?
Look, I think people look at governments and see that governments can do things that they themselves have no control over, like trade agreements with other countries, like rules of taxation, like working out whether Google and Starbucks and Amazon are allowed to operate within your boundaries. These are the things that governments do that are a long way away from people, but that people feel their effects.
And in the decade since the global financial crisis, a lot of people have started feeling the negative effects of all of that, of what happens after a crisis, when government spending on things like roads, houses, hospitals start going down, getting ratcheted back. What happens when incomes and certain sectors start declining and jobs become more precarious. Some of its offshoring, some of it’s the introduction of technology.
But people in that anxious place ask in my view one question of the politicians that they have the choice to vote for. They say: “Which one of these guys or women, which one is on my side? Which one is unequivocally on my side?” And I think they’re voting today, whether it’s in Mexico, Brazil, Germany, Italy, Britain, France, they’re voting today on that issue, after 30 years of governments telling them, “Don’t worry. We’re going to manage globalisation inclusively. We’re going to manage globalisation so that it’s safe for all. We’re going to manage globalisation to bring prosperity to everybody.”
There’s been a series of messages. Every G20 has had its own slogan, which is something about managing globalisation to make sure that it delivers something to everybody, and I think mostly everybody feels that their governments have failed. And so to me it’s not so much cultural as saying:, “Who is on my side?” Which one of these politicians are prepared to stand up and say, “No matter what…” For example with Trump, “He’s going to be on my side.”
And Trump did that very effectively in his election campaign. He said: “Multinationals? Don’t worry. I’m going to tell them that if they don’t put the factory in your town, we’re going to do terrible things to them. I’m on your side. I’m going to protect your job. I’m going to use steel and aluminium tariffs to protect your job.” Of course, we know that that’s not without expense – for every job in the steel and aluminium sector he’s protecting there are 16 jobs being lost in the United States in other sectors. We know that, but the message to those workers is unequivocal: I’m on your side. And I think whether it’s in Germany or Brazil or the election that just took place in Mexico, that’s what people are asking.
Do you see any sort of variations in that price of globalisation? I mean you mentioned Germany, for instance. Germany is in my view an interesting case because if you look at the economic data, Germany hasn’t suffered much from the crisis. So there was a sharp fall but a quick recovery, and if you look at all the major indicators, GDP development, unemployment, the country’s never had it so good. But at the same time, the mood is – I wouldn’t say quite rotten, but the mood is very, very bad because there’s a lack of trust in the system.
If you look at certain polls it comes out that people don’t believe in this basic premise that the next generation will be just that slightly bit better off than the previous generation. So the mood, then, even in the countries that haven’t suffered any sort of real cutbacks – I mean in Britain it’s clear there was a long period of austerity, public services cut through the bone, you could understand that. But none of this actually happened in Germany, but at the same time, there’s still the feeling it can only get worse.
Well, except that in Germany’s election a majority of people were still voting for the establishment political parties. There’s always been a minority of ardent nationalists and a minority of ardent communists or ardent left-wingers, but if you ask the question: “Are most people voting for establishment parties?” that’s truer still for Germany than it is in any of Europe’s recent elections.
In Italy, there were very small votes for establishment parties. In France, if you look at the main centre left, centre right, it got, what? 10% or less of the vote. So I think you’re right about Germany, and I think that’s why, as it were, the establishment might have lost trust, but it’s still holding on.
Yes, although the direction of travel, unfortunately, is the same. I mean if you look at the last results, the SPD, the Social Democratic Party, it had the worst result ever. The recent polling also for the conservatives after recent rows about immigration, is also quite poor… I mean Germany is maybe a specific case because of the specific history as well, but the direction of travel seems to be similar.
But, given this sort of pushback that we’re experiencing, what kind of effects are you seeing? What do you think are short-term effects and the long-term effects, if you can’t actually change the direction of travel?
Well, I would go right to ask what’s the essence of this moment that we’re living through? Because I think there’s a bigger shift that this is part of. I think that Western Europe, the United States, Britain, the sort of Western capitalist economies are being led by people whose mindset is fixed on an idea of free market completion. And they are now finding themselves having to share power at the global level with countries, not just China but Russia and countries in the Gulf, whose mindset is commerce, but much more robustly mercantilist, long-term, strategic commerce. And I think those two views have not yet found a comfortable accommodation.
So I think that in the United States at the moment we’re watching some US policymakers arguing vigorously that China should not be permitted to invest in the tech sector in the United States. And one could ask: “Can American investors invest in the tech sector in China?” Or during the Eurozone crisis, European countries, Portugal sold its electricity grid to China. Greece leased in a long-term way one of Europe’s largest ports, Piraeus port, to a Chinese para-statal.
Would European companies and European governments have been permitted to purchase China’s ports, or China’s electricity grid, or infrastructure? I think the answer is no, and I don’t say that critically, I just say in a world where the new patterns of investment and trade are going to be quite powerfully mercantilist and based on long-term strategic interests, how long are we going to have to wait before Europeans and Americans change their mindset to understand that, and start accommodating in sensible ways? I think what we’re seeing is the sharp end of the mindset change in the United States, which is saying: “Hold on. This isn’t right. Actually, we’re being taken for a ride here.”
What we need to see the United States do instead of shooting from the hip is to say: “Well, where do our long-term strategic interests lie, and then how can we forge an accommodation with China, for example, that is good for both countries?” Because they do have long-term interests, but at the moment there’s a real risk that they will clash over short-term interests, and that both the United States and Europeans will see this as a clash of values, whereas actually, in my view, it’s a clash of short-term interests.
So, if I understand you correctly it is basically a crisis of Anglo-Saxon capitalism because suddenly there’s a realisation ownership really matters. Because for a long time in publicly traded companies, whatever, people did not care very much who were the actual owners. That was again slightly different in Rhenish capitalism countries. I mean, Volkswagen in Germany, for instance, there’s even a law protecting ownership, right? And also, different forms of corporate governance are also ways to protect against that.
So, as you rightly said, Trump is now at the very sharp end, because suddenly even cars are about national security. So the argument is just basically: we take control of how it’s being managed because in a given framework the only level that I know is about national security. But do you think there’s a general shift that because of the necessity for more long-term strategy and more long-term strategic thinking about where an economy is moving towards, that this sort of realisation comes that now ownership and governance and such things matter much more than we gave credit for?
Yes, I think there’s a huge correction going on in capitalism, that if we look at the deepest thinkers about capitalism, whether it was Adam Smith or anyone after that, none of them was blind believers in simply leaving everything to the market. And I think the world went too far that way, and so the excesses of capitalism, which were so exposed with the global financial crisis, the excessive cost to the public purse and the general population of permitting a small group to gamble and leverage against an implicit public guarantee, that’s all been exposed.
And so too the short-termism of capitalism, which even the world’s great capitalist institutions are now rallying to say: “Hey, capitalism’s become too short-term. It does matter who owns and who takes long-term decisions.” Because if you’ve got CEOs with very short tenure, less than four years, shares which are being traded several times a day, boards which are playing a sort of token function, then actually the governance of some of the world’s largest companies do not look strategic or long-term or robust.
So I think capitalism has got its own crisis, and then alongside that, it’s now competing with a very different model of prosperity, of economic growth and of international relations. And so, if we look at the Chinese model of investment and infrastructure building, what we can see emerging is a new silk road, which runs roughly from Egypt right down to Indonesia. And it’s a silk road which is built not on free trade agreements, it’s not built on IPOs and shared share markets, it’s built on real roads, dams, electricity grids, industrial policy mixing with huge infrastructure investments, which are permitting a really tight new trend bloc to emerge.
And on top of that, it’s going to see that the most dynamic parts of the economy, especially technology, obviously they’re even suffering from a lack of competition because they have a tendency towards monopoly. And then maybe the strategic decisions are not being taken at all by governments because monopoly companies have such a big power, and they can basically determine which direction they want to take a whole sector.
I think that poses another challenge. I think in the technology sector there are tons of start-ups and they’re doing really innovative work, and there’s lots of competition. I think the point that you’re making is actually about control of data, and that what we’re seeing is a kind of monopolistic ownership of data at the very top of the tech business system, and that is of concern.
So all businesses are now relying on data and technology, and in Europe, they’re relying pretty much on Google, Amazon, Microsoft, Apple, on four tech giants that are American. And if they want an alternative to that then it’s Alibaba, Tencent, so it’s China. If you talk to Google, every top engineer they recruit gets a competing offer from Alibaba. Europe’s not there in that competition, so we should step back and say: “Is that a strategic sector?” I would argue it is a strategic sector. We should be thinking about what the European long-term strategy is, for Britain, for Europe, for other countries. And certainly, the data regulation that the European Union is bringing in is one step towards that. I think that issue needs a lot more thought.
And it’s interesting, especially in start-ups, it seems to me that a lot of founders, especially with traditional sort of VC, angel Investments, VC-funded enterprise, the exit strategy has been thought right at the beginning. So if you’re one of the big fours you just basically see what is happening there, and if you see any sort of competition that could be a meaningful competition you should buy the company and swallow it up so they’re basically shoring up your market position. But you’re obviously right that in every part, Spotify, whatever it is, there is no European major player in this.
Okay, let’s come to potential solutions. So we’ve talked a lot about how capitalism is changing, and obviously being able to stabilise political systems, regaining trust in existing political systems, will to a large extent also depend on how policymakers will be able to manage these transitions. So from a European point of view, where would, your key priorities lie? You already mentioned that there is a need for much more strategic economic policymaking. So how would you start going about this?
Well, I would actually start with the politics. Why are people so disenchanted with their political establishment? Why is it that they will vote for those who promise to smash it rather than those who promise to do better within it? Because that’s a kind of first order point because if you can’t get to that point you’re not going to be able to do anything. And to me that requires coming right back to basics.
So we’re sitting in Britain and, if you ask, “Well, what are the real concerns of most voters?” there are some pretty core concerns. First would be housing, and the lack of housing that’s affordable and that’s decent. Most of the population is forced into a rental sector, which is really, really sub-standard accommodation, and that’s of real concern to people. Housing, health, education, jobs. Perhaps jobs I would put up there with housing. Jobs that are decently paid, that permit you to work hard and make more money so your kids can have a better education and a better house than you had. That’s what most people want, and I think governments have to come back to that.
Now, I think governments are starting to recognise that, so last year if you looked at what Theresa May and Jeremy Corbyn were each advocating, both were advocating a huge increase in house building in Britain. Both were advocating going after and regulating utilities better, like starting to recognise that it’s these day to day things that really matter to people, and that we really need a refurb, a reset.
Just after the second world war Britain was building a couple of hundred thousand houses a year, and ensuring that every British family had a decent house. That’s long since stopped, and there’s now a very serious housing crisis that’s been in the making for about 20 years. So they have to start there. There aren’t magic bullets to this. Governments have to get some basics right, and to me, that starts with thinking about how to respond to the basic needs of their own population, and that might mean politically, that might mean going quite local. And I do think that the new politics is going to be a politics which is more local because that’s the level at which people engage and trust more.
And do you think – obviously in Britain, this sort of housing strategy has been tried for 20 years, and it’s obviously the temptation with the long-term investment if there are budgetary pressures, It’s easier to kick those kinds of investments into the long grass than anything else? So it seems to me that even in Germany where the economic policy fetish is the ‘black zero’ (balanced budget), even though the capital stock, the public capital stock, is depreciating. So there needs to be some rethinking of what economic policy is really for.
And do you think that if you really were able to address these underlying issues, that other issues that are on the agenda might be proxy issues, such as migration? So would, for instance, the opinion polls identify changes in attitude towards migration, in your view, if there was an effective strategy to address some of the more underlying socio-economic grievances?
I think there are both things at play. I think most humans are suspicious of people different to them, and that’s true throughout history. If you look at America and each wave of immigrants, each wave of immigrants had a huge discrimination against them. The Polish, the Italians, the Irish, the Chinese – as they arrived there would be a wave of discrimination and then they would become the second generation and be discriminating against the next wave of immigrants. And I think we’ve got to recognise that people are suspicious of people they don’t know, but that there’s lots of ways that societies can bridge, can shorten the time that that suspicion lasts.
Public spaces are incredibly important. Public housing is incredibly important. Singapore does a really interesting thing of housing people in mixed communities, so they get to know each other and their fear of each other lessens, and they become a more cohesive society. So we can think proactively about how people mix in our societies, but I think there is a tipping point. If a society becomes overwhelmed by people who have different rules, a different culture, different behaviour, they will want to reject that group.
There’s a different phenomenon, though, that I think we’ve seen in Europe in the last couple of years, which is that at just the time that public sector budgets have been cut, and so people are feeling that the schools are overcrowded, that housing is more of a problem, that they’re waiting longer for a hospital appointment, that that makes them very easy targets for politicians who want to say: “The reason you’re suffering all those things is because immigrants are taking your jobs, your houses, your hospital places and your school places.”
And we’ve done some research in the School. We had a researcher looking at accident and emergency wards, just looking at whether it was true that a larger number of immigrants increased the wait in A&E, and there was absolutely no correlation. But of course, the facts on the ground are not always what shapes the popular perception. Politicians play a huge role in framing the narrative that people either pick up or don’t.
So for me it’s two things. People, communities, will always be made more vulnerable to anti-immigrant rhetoric if they themselves are feeling as though they’re losing out. But even in situations where they’re not losing out, there’s always a human element – it takes time for human beings to accept things that are different to them.
Yes, and if you finish at the European level, the crisis of the acceptance of European integration is interesting in a sense, because it’s based on different ideas in different areas. I mean in the North it’s the wrong but wider perception that there’s a profligate South that’s living off the North. And in the South it’s the opposite, that they’re being basically eroded; the democratic system is being eroded because basically policy is decided elsewhere for them. And in Eastern Europe, particularly in areas that haven’t seen much immigration in recent decades, people are struggling to accept the idea that has been more widespread in other countries that societies are becoming multi-cultural, and more diverse.
And we’re having European elections next year, so policymakers trying to figure out a policy agenda for how to improve things in the European Union in the next five-year term. So where would you basically start from a European level? I mean going along with the local, hopefully.
Yes. So I think there’s a core of European integrationists who have a strong set of values and who believe that the path forward is more and more integration, and that if they just preach their values more strongly that others will be changed by those values and come to accept them, and also accept with that a rationale for deeper integration. And I respect the view. I think that European integration from Monnet forwards has been an extraordinary thing, and I respect the values those people have. But I just do not think that that’s the way that the world is moving, and therefore I think that it’s dangerous to hold fast to that approach to the European Union.
I think that Europe is really struggling with deep fault lines at the moment. So there’s the creditor versus debtor fault line, the wealthy North and the indebted South. The indebted South, many of whom have sold their national treasures after the global financial crisis, which in their view was not a crisis of their own making, so that’s really one huge division. I think there’s a real division emerging between as it were the East and West of Europe on values, and where at the core, in France and Germany, people believe that Poland, Hungary, probably Austria are now way off track on the Acquis Communautaire; they’re way off track on the core European values. Which poses a question of what those values mean, like is there a European Union founded on a common set of values or have we now seen that break apart?
I think there are other divides across Europe, countries struggling with the immigration crisis, and they’re all at different levels on that. So some are really feeling it sharply and others not so sharply, and there’s an inability to come to a common agreement on it. So in my view, the future for Europe means that actually there’s the saying that you have to reculer pour mieux sauter, you’ve got to step back in order to jump forwards. And I actually think Europe’s there. Europe’s going to have to step back a little bit to gain the trust of its citizens. Each government in Europe is going to have to regain the trust of their citizens in order for the European project to be able to move forward with trusted governments taking the European project forward.
So I think we’re moving into a phase where every European democracy has to consolidate and reinvent itself, and on those terms has to re-imagine, again, what the European Union community might look like.
So your answer to how to address the crisis of globalisation would be rebuilt politics from the bottom up?
It’s two things. Rebuild politics from the bottom up, and rethink international cooperation in terms of long-term strategic interests instead of values. Since the 1940s Europe and others have preached the values of liberal democracy and said: “The whole world will cooperate when the whole world is liberal democratic.” That hasn’t worked. They haven’t persuaded other countries to adopt their own model, and I don’t think they will. So now we have to move into a different model, which is mutual accommodation, and that means Europe needs a much clearer sense of its long-term, shared strategic interests. It needs to pursue those together vis-à-vis the rest of the world and finally to reach an accommodation. And in the meantime, each European government has to restore its own trust and governability within its own borders.
That’s a clear direction. Ngaire Woods, thank you very much.
This is the eighth in a Social Europe series on the Crisis of Globalisation sponsored by the Friedrich-Ebert and Hans-Boeckler Foundations.- Social Europe

 

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