Towards the end of 2018, Henning Meyer, editor-in-chief of*Social*Europe, spoke to the expert on international political economy Mark Blyth, about the crisis of globalisation, populism,*Brexit and other political disasters waiting to happen. This is an abridged version of their exchange.
A:Henning Meyer: Mark Blyth, thank you very much for joining me today to discuss the crisis of globalisation and what political and economic consequences it might have. Let me ask you the first question. Basically, do you think there is a crisis of globalisation? And if there is one, in your opinion, what are its main characteristics?
B:Mark Blyth: It’s always a tough one. I hate using the word ‘crisis’, because I’ve been doing this stuff for about 30 years now, and when I went to graduate school I read books about crisis. Then we had a crisis. Then we had another crisis. A crisis of this and a crisis of that. There’s a danger that the term becomes meaningless. So I will try and put it in a slightly different cast.
Capitalism itself is usually quite a robust system. That is to say, it can not only deal with shocks—it can sometimes benefit from shocks, depending on the type of shock. What’s happened since 2008 is not the type of shocks that you’re robust to, nor do you benefit from. You have a giant real-estate bust, which tends to then accumulate, through the banking sector and the bail-out of the banking sector, into a series of public debt bail-outs, which then leads to greater fragility on that side.
The entire financial sector on the private side, whether it was corporates through corporate debt markets or whether it was consumers through consumer debt, are extremely levered. Wages aren’t growing, which is the real big problem. Inequality has literally never been higher in many cases. And we’re finally waking up to the fact that there’s an environmental crisis that is very, very serious and is going to hit us much sooner than we thought.
I look at it this way. We have 15 years to solve and really make a dent in a joint crisis. That joint crisis is one of the environment and one of inequality. And the two of them are linked. If we do that then we could be in a much better place. If we don’t do that, this is the [most] serious challenge that capitalism as a model has faced since its inception.
Q: What you’re saying is there has been, obviously, some very severe instability at the heart of the capitalist system, and what is described as a crisis of globalisation is basically just a political expression of that crisis of capitalism? Yes, but there’s also something specific about globalisation. Earlier in my career I spent a long time thinking about economic ideas and how they spread. I’m hardly the only person that’s puzzled over the spread of neoliberalism, but the more that I think about it now the less that I think about neoliberalism as a set of ideas and more of a set of practices. Those practices are to liberalise, integrate, privatise, otherwise knock down barriers to competition, etc.
When you do this with what were essentially national labour markets and national financial markets that were relatively closed—let’s say homogenous states that looked the same, made the same stuff and occasionally traded with each other but kept their finances separate—once you change that, through the practices of neoliberalism, and you become one big market in the [Polanyian] sense of integrated finance and capital movements etc, a couple of interesting things begin to happen.
The first one is labour’s ability to command its share of the surplus declines to zero. The strike becomes a meaningless weapon. Strikes decline to function—like to zero—in the western world. And you get prolonged wage stagnation, because essentially all the surplus goes to capital. There’s no reason for it not to. So labour’s ability to push up wages goes to zero.
But there’s also something interesting that’s happening in financial markets and product markets at the same time. It’s like the second-order effect of neoliberalism. Which is the following. We dumped about 17 trillion dollars—yen, euros and everything else we could get our hands on—and we’re continuing to do so in Europe through QE-type programmes, through central banks, because of the financial crisis. And the weird thing is there’s no inflation anywhere. In fact, Europe is still deflating. It hasn’t hit its 2 per cent target in almost a decade. So there’s no [structural] inflation, despite a massive, absolutely unprecedented monetary injection. That’s also weird.
Then think about the third section, which is competitive product markets. Think about the price of a computer. Think about the price competition going on in all sectors. If you look at words called ‘mark-up’ and ‘margin data’ across firms, what you find, particularly in the US but not exclusively, is that if you’re a digital monopoly you’re making 50 per cent to 60 per cent profits. If you’re a small or medium-sized firm and you’re in global competition, your margins are tiny, your profits are tiny and you’re very resistant to push[ing] up wages, because that literally could drive you out of business.
Add this all together and you’ve got a very, very strange world that we haven’t experienced before. One in which you’re going to have [structurally] low interest rates because there’s no inflation to combat. Then you’ve got a world in which labour markets [can have] full employment but it does nothing for wages, which means sustaining and perhaps making worse the inequalities that are already there. Then in product markets you have a winner-takes-all dynamic, whereby quasi-monopolists get monopoly rents and everybody else [gets to return to perfect] competition.
That seems, in a very abstract sense but in a very real sense, to characterise a world we haven’t been in before, and the consequences of thinking through that world are quite profound.
Q: You’re basically straddling the Atlantic. Do you see any significant differences in how this pans out in the United States and how it pans out in Europe? What would you say is maybe specifically characteristic of the United States and what is a European thing?
A: Well, let’s start with the fact that Europe still has significant welfare states and welfare transfer. If you look at Ireland, for example, which is a very small unrepresentative country admittedly—because it basically lives off American FDI stocks and them being a trans-shipment point into Europe—but Ireland has a very high pre-tax Gini [inequality] coefficient [yet comes] amongst the lowest when they do post-taxes. So government policy matters and Europe still has policies. It actually wants to do something on climate change. It’s finding out the distributional politics of that: [in] France in particular [they] are more tough than we thought. But there’s effective governance and an attempt to basically deal with these agendas.
In the United States you have a governing class which is utterly in denial about the challenges that it faces. So in a sense what you see in the United States is the most accelerated version of these pathologies. If you don’t even accept that global warming and the consequences of climate change are real, it’s very hard to do anything about it. That’s a big difference that we have at the moment between America and Europe. But at the same time 30 per cent, I believe, of Germany’s electricity is still produced by coal. Poland is somewhere around the 60 per cent mark. We’re all talking a good game, but very few of us are walking a good game.
Q: You also mentioned some of the big tech companies. As these tech giants spread they are using, basically, their quasi-monopoly power in one sector to muscle into another. In the United States there’s a discussion about what big-tech company is going to disrupt healthcare next year, because that’s a big share of GDP that is utterly inefficient in the United States. Market segmentations that used to shield or at least structure competition seem to be disappearing. At the same time you have the user-network effect, that gives these tech giants a big advantage to use these disappearing boundaries to go after all sorts of different market segments—or what used to be market segments. The inequality tendencies that are not least the result of this, are they likely to get worse before it gets better? Or what kind of policies do you think need to be implemented in order to address these issues?
A: Well, this is where Europe once again has disappointed, unfortunately. The whole point of [the General Data Protection Regulation] (GDPR) wasn’t about data protection. It was essentially scaring Facebook and Apple and the rest of them into paying some taxes—basically saying: ‘If every time that you switch on your platform you have to click through 12 screens of approval you know you’re going to lose 80 per cent of your users. Most of your business is data accumulation from your users.’ Particularly on the Amazon and Facebook side of things. ‘So you really need to wise up and play ball.’ It seems that, with the intervention of the Dutch and the Estonians and a few others who love tech, that’s gone by the wayside. We’re going to have some nominal taxation and they’re going to be able to continue doing what they want.
The truly damaging thing here with these companies is what they do to innovation. If you’re running a start-up company here—I was talking to someone yesterday about exactly this—the ambition for their company is to be annoying enough to be bought by Amazon. Then Amazon will do what they did in the 1930s with critical technology, such as beryllium and others at that point in time for steel. Which is you simply put them on the shelf and you don’t roll them out, because you don’t want the competition to ever [get an edge].
This is all market preservation and killing innovation by buying it and putting it on the shelf. This is exactly what monopolists do. Now, we’re meant to know what to do with this. It’s called bust them up. But there seems to be no political will to do this. I heard a very good presentation by an economist the other day, who came up with a theory. The question is: what is the difference, say, between the current crop of internet or technology giants and the first ones? After all, Facebook wasn’t the first social network; Google wasn’t the first search engine—nobody talks about AltaVista anymore. He came up with the idea that the difference is not just user-network effects but the underlying data. Basically, if you’re just sitting on the biggest pile of data the marginal costs of innovation are actually reduced by such an extent that it becomes completely inefficient and demoralising for your competitors to even think about competing. That then stifles innovation, because it’s concentrated in the monopoly power.
I would agree with that. I would go [further]. What exactly is the fuel for these corporates? It’s our data. And we give it up for free because their platform is free, so we use their platform. Very simple then. Charge for the platform. Make them charge for the platform and then watch their users drop off. Or have a free version versus a pay version. Alternatively, even better, get people to individually license the use of their data to these firms. We auction off the digital spectrum to telephone companies. Why don’t we auction off our personal data? Basically give the data on a ten-year lease that’s revocable.
There are lots of things we could do. We just simply choose not to. There’s the real commonality just now in governance. This is the bit that’s truly disappointing. The quality of political capital of the governing classes has just been eroded, and it’s very clear to see why. There’s no money in it. What you do is you jump into a party. You become well known for a couple of years. You then get some expertise. You parlay that [into a] selling opportunity with the private sector. Then you jump ship and work with the private sector. So there’s a huge governance failure, which I think is to do really with the quality of politicians that we have.
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