The Crises of Globalization: Understanding the Crisis of Globalization (2)

Reviewed by: Alula Berhe Kidani

Skeptics North/ South

In a recent book Euroscepticism and the Future of European Integration, the author showed that the recent rise in Euroscepticism and in support for Eurosceptic parties is largely a response to both developments. He suggest that the way people view the EU is intrinsically linked to the national conditions in which they find themselves, as well as their comparison of these conditions with those at the EU level. Euroscepticism is on the rise in Europe albeit for very different reasons. While skeptics in the North demand less intra-EU migration, those in the South wish to see more economic investment and employment programs, and again others in the East wish to see less interference of the EU in minority rights.
These differentiated patterns in Euroscepticism are the result of the fact that the financial crisis has exacerbated structural imbalances within the EU, and the refugee crisis has affected certain member states more than others. As a result, the experiences with the EU have become more distinct and varied than ever before. Therefore, coming up with a joint EU response to these challenges have proven so difficult.
This European experience demonstrates clearly that framing economic grievances and cultural concerns as opposing explanations is not fruitful. When we continue to frame the debate as either/or, we are missing out. We need to understand how economic and cultural explanations of recent developments shape both political demand and supply. Work by Italo Colantone and Pietro Stanig has started to do so by showing that exposure to rising levels of Chinese imports increases extreme right vote shares and anti-immigration sentiment.
Could exposure to economic hardship, such as job loss, lead to a higher demand for extreme right or socially conservative policies? And if so, does economic dislocation have these effects? Is it due to a loss of social status or an increase in envy, or something else? When it comes to supply, political parties may also drive people to demand more extreme right or socially conservative policies. Governments facing an economic crisis may shift their attention to values or identity-related matters to divert popular attention away from deteriorating economic conditions.
Work by Margit Tavits and Joshua Potter suggests that parties on the right may have a specific interest in diverting attention to cultural issues with rising inequality. Rising levels of inequality shrink the constituency favoring less government intervention in the economy, policies traditionally at the core of right-wing platforms, while expanding the share of voters who wish more government regulation and who could thus be receptive to the economic message of left-wing parties. In these circumstances right-wing parties have been shown to shift their emphasis to cultural values to keep their electorate intact.
Although current societal and academic debates are mostly framed in either economic or cultural terms, it is important to realize that these types of explanations are not mutually exclusive. We should focus more of our efforts on trying to understand how cultural and economic fears interact and fuel the recent popular backlash against globalization. It is important to remember that globalization, like European integration, is an inherently complex phenomenon embracing economic, political, social and cultural
aspects that bring about tensions. In his seminal book on the topic, Dani Rodrik for example notes that globalization represents a “trilemma” for societies. They cannot be fully internationally integrated, completely sovereign, and democratically responsive all at the same time. Societies will need to make trade-offs, for example in Europe one can think of the trade-off of being part of the single market, but having to follow the jurisdiction of the European court or accepting free movement of people. Much of the current polarization is about differing views about how to make exactly such trade-offs. Therefore, it is crucial for academics, policy makers and journalists alike to understand better how people make them and how parties shape their thinking.
Capitalism
Mark Blyth, thank you very much for joining me today to discuss the crisis of globalization 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 globalization? And if there is one, in your opinion, what are its main characteristics?
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.
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 globalization is basically just a political expression of that crisis of capitalism?
Yes, but there’s also something specific about globalization. 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 liberalize, integrate, privatize, 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 labor’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 labor’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 are 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 pushing 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 characterize a world we haven’t been in before, and the consequences of thinking through that world are quite profound.

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