Crisis of Globalisation: From Its Causes to Emancipation

June 8, 2018

The assumption that we can continue with the current institutions of the world economy – leaving all the most important global problems and contradictions unresolved – seems hopelessly utopian. [This is the sixth in the series of Social Europe on the Crisis of Globalisation, following the contributions of Dani Rodrik, James K.Galbraith, Robert Kuttner and others. It was originally published on 6 June 2018 here and other contributions can be found here and here.]

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The dynamics of the capitalist world economy have been mystified as globalisation. In its technical sense, globalisation refers to the possibility that social relations can be maintained with increasing ease and intensity across time and space. As a political project, however, globalisation is based on a conviction that competitive, self-regulating markets, or their administrative simulation within organizations, are the best guarantees of efficiency, freedom, justice, or all of these. Exaggerated claims about globalisation in the technical sense have been used to obscure the dynamics that have led to the triumphant rise of globalisation as a specific project. The project of neoliberal globalisation is now facing a backlash.

Many scholars and pundits have concluded that it suffices to reveal the myths of globalisation and expose the ways in which they have been mobilised for specific political purposes. A careful look at recent developments shows that there is in fact a variety of capitalisms that can be successful. We need smart globalisation, not hyper-globalisation. The state can be reclaimed and the social-democratic project resuscitated. The state is more autonomous than is usually assumed, although the full realisation of its sovereignty may require institutional changes (e.g. exit from the euro). We need to get rid of the prevailing false consciousness.

This is an appealing story and, like many good stories, it is not without its merits. Human actions involve the possibility of doing otherwise. States have arranged and approved many of the constraints on economic and social policies. If there is political will, the same states can in principle remove these constraints and realise alternative possibilities for economic and social policy.

The origins of globalisation

A key problem of the state-centric story is that it omits the deep historical roots of globalisation. Paul Hirst and Grahame Thompson published a book called Globalization in Question in 1996, arguing that most indicators suggest that the capitalist world economy was more integrated at the end of the 19th century than it was at the end of the 20th century. They maintained that claims about globalisation were drastically overstated. An alternative reading is that the processes of globalisation are much more deep-seated historically than they considered possible.

Roland Robertson, who introduced the term ‘globalisation’ in 1985 (almost parallel with Theodore Levitt), distinguishes between three consecutive waves of globalization that have radically transformed human societies and their economic activities during the past 500 years. Already Marx and Engels discussed the nature of globalisation in the opening pages of the Communist Manifesto (1848). Starting their historical account with the conquest of the Americas and the rounding of the Cape, they argued that “the East-Indian and Chinese markets, the colonisation of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known, and thereby, to the revolutionary element in the tottering feudal society, a rapid development”.

The industrial revolution speeded up these developments. “The need of a constantly expanding market for its products chases the bourgeoisie over the entire surface of the globe”. “The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country.”

The pre-1914 cosmopolitan world economy was based on competitive, self-regulating markets and the Gold Standard. This world was twice disrupted by the catastrophes of the 20th century. The 1920s attempts to restore the 19th century order failed with shattering consequences, resulting in the Great Depression and WWII. It was under these highly exceptional circumstances that the Bretton Woods system was created in 1944, enabling the building of democratic welfare states after the war.

The causes of the rise of neoliberal globalisation

Living standards rose and socio-economic inequalities went down under the post-war settlement. However, the Anglo-American agreements of 1944 created only a limited capacity for global regulation and governance. Territorial states remained the main locus of regulation and the sole locus for tax-and-transfer policies.

At the same time, the rules and principles of the post-war system – including the free trade orientated General Agreement on Tariffs and Trade (GATT) – ensured gradual liberalisation and reintegration of the world economy after the crises and wars of 1914-45. The rapid expansion of world trade was a key source of economic growth during the “Golden Era of Capitalism”, especially for industrialised states. An open world economy had diverse consequences. By the early 1960s, this reintegration of the world economy had already opened opportunities for some actors to resolve their day-to-day problems through spatial relocation, e.g. through the use of tax havens.

The decisive structural condition explaining the shift from social-democracy to neoliberalism is the discrepancy between the limited reach of territorial states and an increasingly open liberal world economy. The origins of neoliberalization lie in the struggles over income distribution, competitiveness and power within this growing discrepancy. Actors make history, but not under the circumstances of their own making. The decisive choice was made by President Richard Nixon in 1971. His decision to delink the dollar from gold was ultimately about unilateralism versus further development of multilateralism and common institutions. Ethical and political ideas associated with neoliberalism entered the public political stage only after this nodal point in the early 1970s. However, once neoliberalism gained ascendancy, it started to have its own effects, propelling a self-reinforcing dynamic.

The field of economic liberalism in an open world economy involves positive feedback loops through the realization of its preferred institutional arrangements which, in turn, tend to strengthen its potential force. For instance, freely convertible currencies, financial deregulation and the principle of national treatment imply more exit options for capital. The dynamics of this self-reinforcing process, characterised by feedback that is positive from the point of view of some or many of the key actors, has had the power to support and institutionalize the chosen arrangement.

From causes to emancipation

No self-reinforcing process can continue boundlessly without countervailing forces coming into effect. The process of neoliberalization has slowed down economic growth, especially in the OECD world. It has increased inequalities and insecurities and led to the rise of nationalistic and xenophobic movements. What is noteworthy, however, is that most of these movements and parties have adopted market fundamentalism as part of their platform. Ambiguity has increased but neoliberalism remains the prevalent ideology as far as economic policy is concerned.

The state-centric story of the emancipatory left is premised on the assumption that current conditions and contradictions can be overcome and the social-democratic project revived without global changes and worldwide collective actions to revise or establish new common institutions. This not only overlooks the current degree of institutionalisation of transnational practices and relations, but it also ignores the underlying tendency of the capitalist market economy to expand in space (nowadays also into planetary orbit and to other parts of the solar system).

Moreover, to the extent that particular state-actors see things only from their own limited point of view, they are liable to resort to contradictory actions – for instance via the fallacy of composition. The fallacy typically arises from the assumption that what is possible for one actor at a given moment must be possible for all (or many) of them simultaneously. If the economic policies of different states are contradictory, for instance if states simultaneously attempt to transfer their economic difficulties abroad by increasing their exports relative to imports, the end result can be damaging for many countries, or for all. Our fates are irrevocably interconnected.

Unrecognised contradictions tend to have negative unintended consequences, which easily amount to vicious circles stemming from increasingly self-regarding and myopic perspectives. The recognition of contradictions takes time and requires learning, involving shifts toward more holistic and solidaristic modes of consciousness and building collective agency. Contradictions can be best overcome by means of collective action and by revising old or building new institutions.

There is no shortage of good ideas about better global institutions. As the prevailing political imaginaries and institutions remain national, many of these ideas may seem far-fetched, if not utopian. From my point of view, however, the supposition that we can continue with the current institutions of the world economy – leaving all the most important global problems and contradictions unresolved – seems hopelessly utopian.

The real choice is between learning & collective action and a catastrophe. The best hope to emancipate ourselves from the current unnecessary, unwanted and unneeded sources of determination is by way of building better global institutions.

Heikki Patomäki