The Great Globalization Disruption: Democracy, Capitalism and Inequality in the Industrialized World

Patrick Diamond

In recent years, globalization has entered a new phase driven by structural shocks from financial crises to the undermining of representative democracy. This is an age of upheaval and disorder epitomized by the rise of Donald Trump to the presidency of the United States, Great Britain’s unanticipated departure from the European Union (EU), and the rapid growth of populist parties in the established democracies of Europe, as well as in the Southern and Eastern periphery. We are living in a new world which makes us, in Margaret Mead’s evocative phrase, ‘immigrants in our own land’ (cited in Hall 2015: 255). The ‘great globalization disruption’ relates to the ongoing integration of capital, labour and product markets alongside structural economic and technological change. Economics and politics are pulling in opposite directions. The logic of market liberalism demands greater openness, free trade and deregulation to sustain global growth and expansion. Yet the politics of Western democracies implore greater national protectionism, using the nation-state to defend citizens from market forces that have little respect for established political bargains and solidarities. The social contract that sustains liberal democracy is under strain.

This volume asks what challenges the ‘great globalization disruption’ will pose for progressive social democratic and liberal politics across Europe and the United States. The first section of the chapter examines the background to the ‘great disruption’, in particular the breakdown of the post-1945 social contract. The chapter then outlines the central themes and core argument of the volume. One of the most remarkable features of the 2008 crisis has been the muted ideological response, particularly on the left. Neo-liberalism has dominated politics for so long it has become almost impossible to envisage credible governing alternatives. The book seeks to understand the new era by bringing together contributions from leading thinkers and scholars who debate the structural causes and political consequences of the ‘great globalization disruption’. The collection aims to forge a compelling response that reunites the imperatives of economic integration, democratic legitimacy and national sovereignty with the goal of a fairer, more equal society, as a generation of progressive leaders achieved so skilfully in the aftermath of World War II.

The debate about globalization is often confused because established scholars are not always clear what they mean by ‘globalization’. In conventional accounts, globalization refers to the integration of capital, product and labour markets across the borders of national politics. Anthony Mcgrew (2010: 16) defines globalization as, ‘a long-term historical process that denotes the growing intensity of worldwide interconnectedness: in short, a “shrinking world” ’. Numerous political controversies are blamed on globalization including the fragmentation of welfare states, the collapse of social democracy, and the growth of popular opposition to immigration. The term has become so ubiquitous that it is used to explain virtually any shift in state-society relations. Writers from the US economist Stephen D. King to The Financial Times commentator Martin Wolf predicted the end of globalization. Yet the pace and scale of global integration has scarcely diminished. Since the early 1990s, trade and foreign direct investment flows have increased from 0.9 to 3.2 per cent of global GDP (OECD 2017: 3).

The expansion of the global economy, trade liberalization, and the shift in the relative power of states – with China rapidly ascending and the west declining – have been felt most acutely in the destruction of industrial and manufacturing employment. During the first decade of the twenty-first century, the UK and the United States, having suffered a major deindustrialization ‘shock’ in the 1980s, both experienced a further dramatic decline in manufacturing, a consequence of China joining the World Trade Organization (WTO), and the accession countries of Central and Eastern Europe entering the European single market (Gamble 2016). Blue-collar industrial workers, once the backbone of the Western economies, were rapidly displaced. The sense of anger and grievance, especially among working class communities, was palpable. Two other factors compounded the impact of deindustrialization on the politics of Western democracies.

The first factor is a general rise in volatility. Instability has increased because financialization and the contagion effects of financial crises have intensified the impact of shocks across the international system. The advance of globalization continued against the backdrop of the 2008 crisis and its aftermath. Western economies have been caught in a ‘deflationary trap’; interest rates are held at historically low levels, as central banks are compelled to print money through ‘Quantitative Easing’ (QE) to inject liquidity into the economy (Gamble 2016). The conundrum for policy-makers is that the policies of QE and bank ‘bail-outs’ designed to support aggregate demand have advantaged existing owners of assets, to the detriment of wage earners. The inequalities created by the neo-liberal policy consensus of the last three decades including weaker collective bargaining, deregulated labour markets, cuts to personal and corporate taxation, and reduced social security entitlements have fuelled the rise of social and economic inequality. The policy response to the 2008 crisis has exacerbated the root causes of inequality.

Nor are the long-term prospects for the global economy especially favourable. Despite some initial ‘green shoots’, we are living in a climate of deflation and ‘secular stagnation’ where growth rates are languishing or even declining. While the 2008 crash destroyed a significant chunk of productive capacity, particularly in countries such as Britain and the United States where the economy is heavily weighted towards financial services, sluggishness in Western countries is the consequence of the fundamental shift in economic power from west to east. There has been much interest in developments such as ‘re-shoring’, where productivity improvements made possible by digital technologies have led to manufacturing capacity returning to industrialized countries. Nevertheless, manufacturing is less important to the world economy as a whole, while future growth is likely to be driven by the expansion of services, particularly in retail, hospitality, health, education, domestic services, personal care, and so on. In this climate it becomes harder to raise productivity and employment; services are, ‘inherently less conducive to productivity growth’ since they are ‘sheltered’ from international trade and less likely to benefit from technological innovation (Iversen and Wren 1998: 512). Meanwhile, manufacturing is contracting in the emerging market countries, and the prospects for long-term global growth appear weak (Rodrik 2012; Gamble 2016).

Moreover, while there has been a modest upswing in the global economy, it is not easy to see where the next phase of sustainable growth will come from. There is little indication of any imminent return to the multilateral world order once under-written by the United States, which is now being undermined by the ‘America First’ rhetoric of the Trump Administration. The global system since 1945, and especially since 1989 in the aftermath of the collapse of the Berlin wall, relied predominantly on US leadership. But today, open markets and free trade are less acceptable to key sections of the American electorate given their association with economic restructuring and industrial dislocation, which is linked to off-shoring, falling real wages and job losses. The global governance regime of regulations and rules is less stable with greater fragmentation occurring across the regions of the world economy, as national governments attempt to exert greater influence (Rodrik 2012). Neither the United States nor China is able to exercise unqualified global leadership. Against this backdrop, the period of stagnation since the late 2000s promises to make the ‘next phase’ of globalization in the industrialized countries even more politically unsettling.

A second factor compounding the political impact of deindustrialization has been the claim of neo-liberals that nations can prosper only by liberalising their economies and societies. This has led to striking cutbacks in the protective role of the state. In the liberal market regimes such as the UK and the United States during the inter-war years, and even more acutely during the ‘neo-liberal’ era since the late 1970s, domestic political action was restrained in the name of limited government to allow capital and labour to flow more freely throughout the global economy. During this period there was a move towards floating exchange rates, personal and corporate taxation was cut dramatically, and expansionary fiscal policy was largely jettisoned even in times of economic distress, while structural reforms were imposed to free up labour and product markets (Rodrik 2012). Economic openness and market liberalism were believed to be mutually intertwined.

The effect of these policy changes over the last 40 years has been to make economics and politics across the industrialized nations into unnatural bedfellows. According to the logic of neo-liberalism, economic imperatives must prevail over democratic institutions and political decision-making, creating a backlash among disgruntled citizens while explaining the rise in support for populist and challenger forces. Not surprisingly, the process of globalization as well as advancements in technology that pose a threat to jobs and living standards have led to growing dissatisfaction with political outcomes in Western democracies. The fundamental issue with globalization and trade is not that politically potent coalitions of ‘winners’ and ‘losers’ suddenly emerge. As the Harvard economist Dani Rodrik emphasizes, there have always been winners and losers in capitalist economies; market forces lead to patterns of ‘creative destruction’ while technological advancements in domestic markets generate rapid changes in employment alongside rising inequalities in wages and relative living standards. The burning political issue in recent decades has been that the liberalization of trade and economic openness are perceived to produce increasingly unfair results; capital, goods and labour move rapidly across borders with little respect for national political sovereignty; globalization is thus believed to erode domestic political norms, to undermine democratic bargaining, and to threaten long-standing social contracts (Rodrik 2012).

Established parties have struggled to respond to rising dissatisfaction following the breakdown of the social contract. For decades, the prevailing ideology of neo-liberalism emphasized the limited role of governments. Insurgent ‘authoritarian populist’ parties have sought to exploit rising economic and political discontent. These parties are ‘authoritarian’ in three distinct senses: firstly, they exploit voters’ desire for security in the face of disorder relating to terrorism, crime and loss of stable employment; secondly, these parties urge ‘conformity’ to established social norms and moral values; thirdly, populist leaders demand ‘obedience’ to those who offer an image of strong group identity and a coherent sense of loyalty and protection (Norris and Inglehart 2018: 10–11). That vision is based on grievances, including an oversimplified version of reality that harks back to a bygone era which may, or may not, have ever actually existed (Hall 2013).

As a consequence, the next phase of ‘knowledge-driven’ globalization is likely to create new dividing-lines that undermine established party systems, while allowing ‘challenger parties’ to break into the electoral marketplace. The traditional cleavages in European democracies are being replaced by new divisions centred on educational achievement. The ability to access the labour market and to secure a high-wage job in a competitive global economy is now heavily dependent on access to higher education. The fulfilment of the liberal ideal of meritocracy might be considered cause for celebration, but the repercussions are troubling. More fundamentally, the rise of the global elite convinces those who have done well out of globalization that their rewards have been earned, so they owe few obligations to the rest of society (Hall, 2015).

The tectonic shifts in politics that resulted were symptomized by the knife-edge decision of UK voters to leave the EU in June 2016; the November 2016 election of Donald Trump to the presidency of the United States; the defeat of Matteo Renzi’s proposals to change the Italian constitution in a referendum; and the rise of electoral support for populist forces of the left and right throughout Europe. There is a growing sense that the democratic consent for transnational governance, free trade and liberalization is eroding, as politics almost everywhere is deemed to be in a state of unprecedented upheaval. Few established parties have a coherent strategy for breaking out of the impasse.

The root cause of the malaise is that since the financial crisis and Great Recession in the aftermath of the 2008 meltdown, global capitalism no longer appears capable of generating broadly shared prosperity. The ten years since 2008 have witnessed the slowest and most anaemic recovery in the history of Western capitalism. The International Monetary Fund (IMF) revealed the persistent weakness of global productivity in goods and services, particularly in Europe which has been adversely affected by an unprecedented debt crisis (Arias and Wen 2015). Serious recessions usually have long-term ‘scarring’ effects. The 2008 crash altered the regional and sectoral composition of globalization, strengthening emerging market countries relative to the advanced economies. This shift will have serious repercussions for the future legitimacy of global capitalism. If the next phase of globalization and the anticipated ‘great disruption’ lead to an acceleration of economic influence to the east, given that economic crises often produce a ‘rebalancing of power’ between states, the domestic political consent for openness in the industrialized economies is likely to be further eroded.

The legitimacy of globalization is diminishing because, for many voters, the economy appears broken and politics is palpably failing them. Wages and living standards have been falling for 30 years in the face of declining productivity and the long-term shift in bargaining-power from labour to capital. In the context of globalization, workers may have benefited from gaining access to cheaper consumer goods, but the benefits have been outweighed by the persistent decline of real wages. According to the Organization for Economic Co-operation and Development (OECD), the proportion of national income allocated to wages has fallen in almost all of the industrialized nations since the 1970s (OECD 2012). Economic insecurity is rising, fuelling popular discontent with public bureaucracy and representative democracy, particularly at the EU level (Hall 2013). The ‘blue collar’ working-class has become contemptuous of the political establishment, which increases the salience of attacks on technocratic expertise and privilege, adding ballast to populist voices and sentiments. The new divide in European politics is between those who live in places that are connected to new sources of global growth, and those who reside outside the zones of economic expansion; dynamic urban, cosmopolitan centres are increasingly divorced from suburban towns and rural communities where more conservative and socially authoritarian values prevail (Jennings and Stoker 2017). Geographical polarization is heightened by the rise of the ‘intangible economy’ which creates more socially disruptive forms of inequality (Haskell and Westlake 2017). As a consequence, the central pillars of representative democracy are under unprecedented attack.

The ‘Trilemma’ of Globalization

This chapter maintains that we need to better understand why ‘the great globalization disruption’ is posing acute problems for democratic politics. Dani Rodrik argued that the three fundamental goals of post-war liberal democratic societies – global economic integration, national sovereignty, and political democracy – are becoming detached from one another. There is a fierce political reaction against globalization leading to demands for protective action that safeguards worker’s livelihoods within the nation-state. Liberal democracy is under unprecedented assault. The backlash against free trade and open markets undermined the legitimacy of liberal political economy, and the associated ideas of Western liberalism centred on freedom and prosperity. More worryingly, liberal political institutions lost credibility and trust amid declining popular faith in democratic politics. The progressive tradition that linked the reforming radicalism of Franklin Roosevelt and Clement Attlee with the contemporary third way of Bill Clinton and Tony Blair lies in tatters. Clinton and Blair’s refusal to confront the polarising forces of unfettered global capitalism is one of many reasons for the contemporary obsolescence of the progressive tradition. We are thus living in a ‘post-liberal’ age.

The political climate of turmoil and the eclipsing of liberalism have evidently thrown the post-war project of European integration into doubt. Rodrik claims the launch of the euro and European monetary integration are problematic for member-states; it is questionable whether the eurozone can survive in the long-term. The single currency requires nation-states to surrender economic sovereignty to institutions such as the European Central Bank in Frankfurt that have no democratic mandate. Deregulation associated with the single market has been even more politically disruptive since liberalization ‘redistributes resources across sectors and social groups so profoundly that it creates deep distributive dilemmas to which there is no technocratic solution’ (Hall 2013: 439). The consolidation of the European market leads to growing inequality within and between member-states. Yet because the EU is not a fully constituted polity, there are relatively few instruments in place to produce a fairer distribution of the gains from growth. The EU’s impotence is an important explanation for rising political discontent, including the decision of UK citizens to vote narrowly to leave the EU in 2016.

This volume’s purpose is to address the most important debates about the relationship between politics and economics during the next phase of globalization. The authors assess the impact of globalization and deindustrialization on both Brexit and the US Presidential results. They consider the extent to which deindustrialization and globalization are responsible for inflicting the political shocks of Brexit and the Trump presidency. Was Brexit merely a reaction by the so-called ‘losers’ of globalization against austerity and market restructuring? What are the implications of Brexit for other EU member-states and the long-term prospects of the Union? What are the similarities between the Brexit ‘shock’ and the Trump victory, and how is this akin to political turbulence in other parts of the Western world? The introductory chapter takes stock of the debates underlying the political and economic shockwaves of recent times.

Globalization and the Post-War Social Contract

Despite a wave of contemporary interest, there is nothing especially ‘new’ or innovative about the internationalization or globalization of Western economies. Globalization has been underway since the early twentieth century, as Keynes observed. More importantly, globalization has gone through many cycles and periods of reversal. Economic integration was undermined by two world wars, alongside the sporadic return to protectionism among national elites that occurred in Britain following the abandonment of the Gold Standard in 1931 (Gamble 2016). After 1945, there was a managed process of global integration where exposure to free trade was counter-balanced by rights of economic and social citizenship that were enshrined in institutions such as the welfare state, giving global capitalism ‘a human face’. By the late 1990s, globalization was in the ascendency. There was euphoria about the potential of economic integration and technological change to drive unending growth, epitomized by the rapid expansion of the Internet. The rationale was that states which did not liberalize their economies to become the beneficiaries of market-led globalization would stagnate, falling behind in the global race, becoming the victims of relative decline.

Much of the jubilation about globalization’s potential that characterized the two decades prior to the 2008 financial crisis has waned. The evidence is that globalization has entered a protracted phase of instability which has seen lower growth accompanied by economic and technological disruption. The situation results not merely from the integration of the global economy, but related structural changes that include: the impact of technological change, digitization and automation; the long-term effects of climate change for sustainability and competitiveness; the rise of economic and social inequality; the impact of changing demography and the ageing society. New technologies have been significant in shaping the reaction against economic and industrial change. The reaction is not merely to do with automation or ‘robots’ destroying industrial and service sector jobs. The diffusion of Information and Communication Technology (ICT) has made the world immeasurably better connected, but the effects are not always benign. ICT created the infrastructure for the complex financial trading that led to the 2008 crash. Moreover, financialization and globalization were important factors in sweeping away barriers to the free movement of capital. They led to the erosion of the tax state’s legitimacy, epitomized by the growth of large-scale tax avoidance captured in the ‘Panama’ and ‘Paradise’ papers in 2016–17, which weakened the social contract that has underpinned modern capitalism since World War II (CNBC 2017). These political forces combine with the integration of capital, product and labour markets to shape a new era labelled ‘the great globalization disruption’. The long-term consequences are far from predictable. As the legitimacy of markets and representative democracy has been undermined, economics and politics have moved in opposite directions.

The consequence of the erosion of basic democratic bargains is to widen the divide between the so-called ‘winners’ and ‘losers’ of globalization, exacerbating inequalities and provoking a collapse of confidence in economic and political elites. Of course, there is no straightforward division between globalization’s ‘winners’ and globalization’s ‘losers’. The apparent split between ‘cosmopolitan’ and ‘communitarian’ voters is one-dimensional (Goodhart 2017). Scholars such as Mike Savage and Fiona Devine have charted a markedly diverse and variegated class structure. In Britain, a structural divide can be observed within the working-class between older working-class voters who inhabit declining industrial towns, and the ‘new working-class’ employed in precarious service sector jobs with few adequate sources of income maintenance or social protection (Jennings and Stoker 2017). The advanced capitalist countries have witnessed the growth of precarious employment including ‘zero hours’ contracts, freelancing, enforced consultancy contracts, outsourcing, and the associated ‘opportunities’ of the so-called ‘gig economy’. As a consequence, employment rates have remained relatively stable, but there has been persistent downward pressure on real wages. Falling tax revenues have added to the structural pressures on the financing of welfare states. These changes have fuelled the rise of discontent among the new working-class, whose members increasingly see politics as providing few solutions to the problems they endure.

Progressive Movements and Forces

Liberalism, the doctrine that emphasizes freedom and democracy which defined mainstream Western political thought throughout the twentieth century, has atrophied as the political forces of the democratic left have struggled to forge a convincing response to the new phase of globalization. Social democratic leaders in Western Europe and the United States memorably embraced globalization in the 1990s with remarkably few caveats or qualifications. If the world was witnessing the ‘end of history’, as was famously proclaimed by Francis Fukuyama, and the experiments in economic planning in the Soviet Union had ended disastrously, there was little alternative but to embrace global capitalism. The core assumption of progressive politics in the 1990s was that there was now a consensus about the goal of combining a ‘dynamic’ open economy with active government to ameliorate social injustice. It was widely believed that Western societies had learned to embrace globalized capitalism, albeit modified capitalism ‘with a human face’. This worldview mirrored the debates of the 1960s about ‘the end of ideology’ popularized by the American sociologist, Daniel Bell. Bell insisted that the only issues for debate in the United States were essentially technocratic, since Western capitalism was universally accepted as the most superior model of political and social organization. Then as now, such judgements proved to be premature. The survival of liberal globalized capitalism in Western countries cannot be taken for granted.

The centre-left argument 20 years ago was that government investment in education would improve the supply of human capital, ensuring a ‘social minimum’ that enabled everyone to benefit from global integration. Today, that spirit of optimism has been upended. It is evident that globalization is working less well for those on low to middle-incomes. The rise of globalization is associated with, ‘the stagnation of the well-being of many in the lower half of the income distribution in a number of OECD countries’ (OECD 2017: 3). Many citizens are in work but wages are stagnating and only government subsidies in the form of tax credits and state benefits make employment viable. The social status of work has declined, particularly in the low-waged service sectors, amid concerns about the erosion of dignity, the associated growth of worker surveillance in call-centres and production plants, and the insidious rise of precarious employment. Many workers no long feel that centre-left parties are willing to protect them from the adversities of market capitalism, and their emotional connection with progressive movements has inevitably been strained. The long-term consequence is a crisis of confidence in mainstream social democracy.

Chapters

Section I: Taking Stock – the Rise of the New Populism

The first section of the book sets the scene by addressing what is currently meant in political and scholarly discourse by ‘globalization’ and ‘populism’. The chapters then consider the impact of these forces on the societies and economies of the advanced capitalist states.

In a synoptic opening chapter on ‘Globalization and the New Populism’, Andrew Gamble considers the factors that produced the dramatic rise in electoral support for populism. Relative economic decline has been an important factor in the development of democratic discontent and declining political legitimacy across the Western world. The crisis first struck almost a decade ago, yet despite the efforts of policy-makers to bail-out the financial sector and support the economy through Quantitative Easing (QE), few countries have been able to escape the spiral of low growth, falling productivity and stagnating living standards – Canada and Australia standing apart as notable exceptions. The mood of popular disillusionment with global capitalism has been exploited by ‘anti-system’ parties such as the Alternative for Germany (AfD), the Italian Five Star movement, and the People’s Party in Denmark who share a deep antagonism to the EU, immigration and economic openness. Trump’s victory in the 2016 presidential election is perhaps the most puzzling manifestation of the populist surge and voter disaffection. Trump’s arrival in the White House and his mantra of ‘Making America Great Again’ threatens to unravel the liberal world order. The problem for global capitalism is not simply that globalization creates ‘losers’ and new political dividing lines that populist forces can exploit. Globalization has encouraged the ascendency of economic and political elites who have paid less and less attention to the price that domestic electorates are prepared to pay for integration into the international economy. As a consequence, the social contract that made economic integration acceptable to the mass of working people has been undermined.

Yet as Gamble writes, ‘The causes of the new populism are much more deep-rooted than just a reaction to the austerity after the financial crash’. The populist ‘backlash’ has been driven by antipathy towards liberalized international economies, marked not only by rising economic inequalities, but the decline of traditional industries, the disappearance of class structures and of moral norms that are centred on solidarity and community, and growing resentment against the wealthy who appear to owe no allegiance to any particular country or group of citizens. The politicization of national identity occurred as a reaction against the spread of a virulent strain of rootless, itinerant, even immoral global capitalism. The 2008 crash was thus the catalyst for populist movements to exploit a wide array of cultural as well as economic and political grievances.

In his chapter on ‘The Backlash Against Globalization’, Jeffry Frieden takes up the theme of the relationship between the economy, cultural change and political instability. He observes that recent events, notably the UK’s decision to withdraw from the EU and the election of Trump to the US Presidency, alongside the emergence of increasingly successful populist parties, called into question the sustainability of the international economic order that emerged from the Bretton Woods agreement. Trump’s programme is focused on undermining the international system by eschewing free trade, pulling out of accords such as the Paris agreement on climate change, and questioning America’s long-term support for the North Atlantic Treaty Organization (NATO). Over the next decade, the author foresees the fragmentation of trade, investment and finance into separate regions of the world economy. In this vision, the barriers between regional trading blocs are likely to grow, while the economic processes of globalization may be halted.

It appears that, ‘The political revolution of 2016 has already set in motion processes that may be impossible to reverse’, as US governments are more willing to engage in trade conflicts and protectionism to appease their domestic electorates. Frieden contends that the ‘mechanisms’ in place to support those most ‘harmed by globalization’ are inadequate; states have struggled to shield citizens from social and economic aftershocks. Progressive movements across countries need to identify programmes that prepare young people for the next phase of ‘knowledge-based globalization’, while ‘protecting’ older voters who have struggled to adapt as, ‘a compelling alternative to populism and economic nationalism’.

In defining the nature of populism in the advanced economies, Patricia Rodi addresses the question of whether populist appeals are filtering into the policy programmes of ‘mainstream’ parties in Western Europe, focusing on styles of political communication and rhetoric. She draws on the work of Cas Mudde to define populism as a ‘thin-centred ideology’ which considers society, ‘to be ultimately separated into two homogenous and antagonistic groups, “the pure people” versus “the corrupt elite”, [arguing] that politics should be an expression of the general will of the people’. Centre-left parties struggle to resist the populist tide as the transformation of capitalism over the last three decades undermined traditional social democratic institutions and policies.

Rodi then traces the influence of political populism on social democratic parties in two Northern European countries, namely Britain and Sweden. She finds that the British Labour party, when confronted by the growing threat of the UK Independence Party (UKIP) and three successive election defeats, has been increasingly influenced by the rhetoric of populism, especially in portraying their opponents, as ‘corrupt and unresponsive to the people’. Such effects were less marked among the Swedish social democrats who have been in power since 2014, despite the presence of an increasingly successful radical right party. The chapter maintains that to undermine the populist threat, social democrats have to engage citizens by adopting ‘language and policies’ that matter to voters, where necessary anchored in the politics of solidarity and class.

Drawing on a wide range of empirical data, Silvia Merler examines the attitude among European citizens to the impact of globalization. The EU was intended to be the ‘filter’ that ensured the goals of economic growth, democratic legitimacy and social cohesion remained compatible and mutually reinforcing, despite economic integration. ‘Managed globalization’, which has been the centrepiece of the EU’s approach since the 1950s, eschewed ‘old-style’ protectionism and state interventionism while rejecting the deregulatory liberalism of the free market. Not surprisingly, the 2008 crisis has eroded confidence in the global economy among all sections of society. Yet the author finds there are inevitably divergent attitudes. Women and older people are increasingly sceptical of economic integration, as are those living in towns and rural areas. Citizens in periphery countries in the eurozone were more apprehensive than citizens in the core Western European states.

Merler finds that in member-states where national economic performance relative to other EU countries is weak, not surprisingly there are growing doubts about economic integration. Similarly, Will Jennings and Gerry Stoker (2017) claim that UK voters living in places that have experienced relative economic decline were more likely to vote to leave the EU. Thus, Merler argues that political change is driven by economic and industrial adjustment, not merely by culture or values. After the 2008 crisis, EU institutions were guided by neo-liberal ideas that appeared oblivious to, or uninterested in, the social and economic repercussions of structural change and austerity for ordinary voters. The chapter argues EU policy-makers should promote structural convergence across the Union. Initiatives such as the ‘EU Invest Plan’ and the ‘Youth Guarantee’ are important, but bolder proposals are needed to reverse the populist tide.

Manuel de la Rocha focuses on the impact of the 2008 financial crisis on social democracy in the Southern European countries most afflicted by fiscal austerity. The centre-left in Italy, Greece and Spain similarly embarked on the third way approach pioneered by Tony Blair in the UK and Gerhard Schroeder in Germany. The third way eschewed the traditional critique of free markets associated with social democracy and embraced globalization, financialization, and the internationalization of economies. In so doing, however, centre-left parties neglected their core constituency of working people. These voters feared that they would be displaced by technological change, remained anxious about the downward pressure on wages and living standards, and worried that the welfare state was no longer an adequate shelter for ‘the new hard times’.

De la Rocha contends that by vacating the political space traditionally colonized by social democrats, centre-left parties allowed populist forces in European politics to displace them. These populist movements ostensibly offer security and protection in a world of change. To restore their electoral and political strength, social democratic parties have to offer a convincing critique of markets, and be prepared to update and modernize the proudest achievement of post-war social democracy in Europe – the national welfare states vital to sheltering citizens from the unpredictable effects of globalization. At the same time, it is important to be aware of the limits of pursuing social democracy in one country. Many of the challenges thrown-up by globalization can only be addressed by national governments working together, particularly through the auspices of the EU. De la Rocha emphasizes that the answer is to reform, not abandon the European project.

Section II: Brexit, Populism and the Future of the European Union

The second section of the book addresses the UK citizenry’s decision to exit the EU in June 2016 by a narrow majority.

Loukas Tsoukalis analyses the drivers of the UK’s negative verdict on 40 years of EU membership. The roots of Britain’s discomfort with the European project lie deep; they did not arise only in the last decade as a response to the backlash against globalization. As Tsoukalis states, Britain’s view of Europe is captured in Winston Churchill’s famous declaration: ‘We are with Europe but not of it. We are linked but not comprised. We are interested and associated, but not absorbed.’ When Britain joined the European Economic Community (the forerunner to the EU) in the early 1970s, the UK quickly exercised influence over trade, budgetary arrangements, financial services, regulation, enlargement, as well as foreign and security policy. But the British political class remained ambivalent about European integration. Even an ostensibly pro-European Prime Minister such as Tony Blair was unable to unify the country behind the European project. The Labour Government’s decision to allow the free movement of workers from the accession countries into the UK without a transition period, and its alleged indifference to the impact of global markets on livelihoods and living standards among British workers, fanned the flames of Euroscepticism prior to the 2016 referendum.

What exactly drove the Brexit decision is unclear. As Tsoukalis emphasizes, the result was less the revolt of the so-called ‘left behinds’ than ‘an unholy alliance between members of golf clubs in the English countryside and the “sans culottes” of globalization in the decaying heartlands of British manufacturing industry’. Rather, Tsoukalis argues, the liberalization of the British economy over the preceding three decades created new dividing lines in British politics between ‘nationalists’ and ‘cosmopolitans’, and between ‘social conservatives’ and ‘liberals’ which destabilized the established party system. Europe itself has experienced a succession of crises over the last ten years, and at times, the EU looked like ‘an ungovernable post-modern empire’ which hardly endeared the project to the UK electorate. Nonetheless, the political cohesion of Europe is likely to persist for the foreseeable future.

In his chapter on ‘The EU in Crises’, Dimitris Tsarouhas examines how the issue of Brexit was propelled to the top of the UK’s political agenda. The chapter contends that Brexit is ‘the symptom, not the cause’ of the EU’s current malaise. The EU faces multiple crises, notably sovereign debt, mass migration, Russian military adventurism, and the rise of populism and Euroscepticism. It would be naïve to assume that the victory of pro-European forces encompassed in Emmanuel Macron’s presidential victory in France means populism in Europe has been defeated. The EU is continuing to suffer the aftershocks of the financial and fiscal crises of 2008 despite a superficial improvement in economic performance, with citizens on the periphery of the eurozone hit hardest.

The coherence of the EU has been further eroded by the advance of political populism and the growth of ‘increasingly authoritarian tendencies’ in Eastern Europe, particularly in Hungry and Poland. The root causes of the migration and refugee crises that struck Europe have not abated given the ongoing political and human security catastrophes in the Middle East. The future stability of the EU will be secured only where there is a willingness to enact bold reforms that entrench a robust pillar of social rights promoting convergence between member-states and solidarity between citizens.

The final chapter in this section by Roger Liddle provides a further perspective on the Brexit crisis, seen as the defining event in contemporary British politics. Liddle claims that the socio-economic drivers of insecurity that led UK voters to vote to leave the EU can also be found elsewhere in Europe. The labour market has been hollowed out while low-skilled, non-unionized employment in the service sector has increased. There is a growing risk that the low-skilled with few formal educational qualifications will be permanently marginalized. Meanwhile, trade unions and collective pay bargaining are in long-term decline, and gender inequalities have persisted, which exposes increasing numbers of families and individuals to the risk of poverty. The weakness of the EU as a political actor meant there has been no effective response to the social and economic grievances commonly associated with the rise of globalization.

The chapter contends the watershed decision of British voters to leave the EU in 2016 was not inevitable. The campaign for Britain to remain an EU member led by senior Conservative Ministers (with the Labour party largely absent from the debate) was ineffective. The campaign made a series of exaggerated claims about the impact of Britain’s departure on the living-standards of British voters, who were encouraged to disregard the advice of experts. Nor did advocates of Remain effectively confront the central issue in the British debate about Europe, namely immigration. Too many voters believed UK governments were powerless to act given the principle of free movement, which they felt was widely abused and out of control in the aftermath of the Europe-wide refugee crisis. At the same time, the issue of Britain’s relationship with Europe has been unresolved for four decades. Both the Conservatives and the Labour party have historically been divided on membership, and were unable to reconcile themselves to a European future. Ironically, the ‘Global Britain’ vision of Brexit supporters is for the UK to be even more exposed to globalization, operating as a deregulated, free market ‘mid-Atlantic tax haven’, trading freely with the rest of the world.

Section III: What is to be Done? Domestic and International Policies to Deal with Globalization

The third section of the book assesses the efficacy of the policy response to political polarization and rising inequality in the face of the ‘Great Globalization Disruption’.

The chapters ask what policy options are available to progressive policy-makers at the domestic and international level in dealing with the disruptive effects of globalization, as well as the long-term fall-out from the crisis. What can we learn from successes and failures so far? How damaging has fiscal austerity been to support for incumbent progressive governments? Was a ‘quasi-Keynesian’ strategy feasible after 2008 given the mounting debt crisis? How should nation-states negotiate the dilemma of whether to raise barriers that limit access to global markets and weaken growth; should they accept the removal of national regulations which promote prosperity, but in turn compromise their policy autonomy, exposing citizens to greater insecurity?

Martin Wolf argues if democratic legitimacy for globalization is to be restored, ‘economic policy must be orientated towards promoting the interests of the many, not the few … the marriage of liberal democracy with capitalism needs some nurturing’ (Wolf 2016). The question remains how far policy-makers can prevent insular nationalism and liberal globalization from colliding through effective governance and activist public policies? How should progressive forces in Europe and the United States respond to the dilemmas raised by the ‘next phase’ of globalization? How should democratic left parties relate to more polarized and anxious electorates? How do centre-left parties campaign in an environment where faith in technocratic expertise has been undermined? Where might the next generation of social democratic governing ideas and programmes come from? These questions are addressed painstakingly by each contributor.

Vivien A. Schmidt highlights that most EU member-states have struggled to produce a convincing response to recent crises against the backdrop of declining legitimacy at the supranational and nation-state level. Populists have adeptly exploited the current malaise. Progressive voices sound less confident in the face of rising inequality, against the anger of the ‘left behind’, and amidst the growth of the new politics of socio-cultural identity. Contemporary discontents are, at root, the consequence of political ideas that enlarged inequality and insecurity. Market liberalism promoted an ethic of ‘individualism’ and the ‘limited state’ which perceptibly undermined protection against economic and social risks. Social liberalism then promoted political and social values derived from cosmopolitanism and multiculturalism that prompted a ‘cultural backlash’ among certain voters, leading to a marked rise in incivility and political mistrust. At the EU level, the policy mix of ordo-liberal fiscal orthodoxy and austerity alongside neo-liberal structural reforms led to the rise of youth unemployment, the decline of productivity, and reduced economic growth in many eurozone economies. All of these forces have electoral salience and political currency, as citizens are exposed to new insecurities and feel increasingly disengaged from the democratic process.

Schmidt emphasizes that in this climate, progressive ideas come not only from governing elites, but a wide array of ‘ideational agents’, including social movements, advocacy coalitions of civil society actors and policy-makers, policy entrepreneurs, and the ‘epistemic communities’ of economists and political thinkers – who come together to construct new ideas. The chapter reflects that historically, progressive agendas were not fully formed when a bold leader such as Franklin Roosevelt came to office in the 1930s. It took time for the battle of ideas to be won, and for ideas to be translated into actionable proposals. The chapter insists that to counter the ‘populist upsurge’, progressives must focus their energies on the ‘in-betweens’ who have neither benefited from the ‘boom at the top’ enjoyed by the wealthy, nor the programmes that provide ‘welfare for the bottom’. Above all, leaders must convey ideas in ‘uplifting ways’, offering attractive visions of the future, an alternative to the siren voices of populism.

Lorenza Antonucci takes up the challenge by contesting the widely held assumption that the populations of advanced capitalist states can be neatly divided into globalization ‘winners’ and globalization ‘losers’. She attests that a large section of Western societies has been adversely affected by growing precariousness and mounting inequality in the distribution of material incomes. Today, not only are the former industrial working-class who inhabit the relatively low growth regions of national economies vulnerable to periods of economic marginalization and income stagnation, but highly educated younger workers face similar challenges. Policy strategies that rely on narrow tools of human capital investment – notably the expansion of higher education – alongside the increasing residualization of the welfare state and the growth of means-testing, have thus far proved ineffective in tackling the root causes of precarity.

Antonucci proposes a three-pronged framework for action at the national and European level. Firstly, there is the need to rekindle the universalism of welfare states by introducing a basic income guarantee for targeted sections of the population, especially young people most at risk of growing precariousness. Secondly, labour market protection must be updated to address the challenges of today’s society, for example reconciling paid employment and caring responsibilities for men and women of working age. Thirdly, national reforms ought to be accompanied by the revitalization of EU social policies, using devices such as the European Semester and benchmarking to promote convergence in social standards. These reforms allow national governments and EU actors to mount a concerted offensive against rising inequality in the face of continuing fiscal and budgetary constraints.

In a subsequent chapter, Anton Hemerijck and Robin Huguenot-Noel make the case for a radical approach to European social investment. The social investment strategy was conceived by the Swedish sociologist, Gosta Esping-Andersen. Esping-Andersen rejected the neo-liberal axiom that public expenditure is detrimental to economic efficiency, and criticized the dominant welfare state model that prevailed in much of Western Europe, ‘the male-breadwinner, pension-heavy and insider-biased welfare provision’, which led to ‘stagnant employment and long-term unemployment, in-work poverty, labour market exclusion, family instability, high dependency ratios and below-replacement fertility rates’. The aim of social policy was to smooth transition-points in the ‘work-family life-course’. The authors report that spending on social investment across EU member states has been cut in the aftermath of the 2008 crisis, despite the fact lower spending does not lead to any discernible improvement in economic performance. The highest spending countries in Europe, notably Sweden, Finland, the Netherlands and Austria are among the strongest growth economies. The authors claim major criticisms of the social investment paradigm in the academic literature, in particular the assertion that social investment does not have any discernible impact on employment and that spending disproportionately benefits the middle class, have been over-stated.

The ambition of the social investment approach was to entrench a common strategy for the development of the European social model and welfare systems across member-states. Hemerijck and Huguenot-Noel argue that the strategic failing of centre-left parties over the last 20 years has been their reluctance to lay claim to the social investment agenda, which has been seized by Christian Democratic, Liberal and Green parties who claimed credit for the expansion of childcare provision and active labour market policies to the detriment of social democracy. To succeed in the future, centre-left parties should stop treating social investment as a strategy suited to periods of economic prosperity and embrace the potential of social investment as a ‘counter-cyclical’ measure during hard times of crisis and recession, ‘when social needs are most acute’. The chapter articulates a vision of ‘capacitating’ social justice influenced by Amartya Sen’s view of ‘capabilities’ where citizens are equipped with the means to lead flourishing lives.

Frank Vandenbroucke continues this line of inquiry examining the interface between Europeanization, globalization, and inequality, all concepts conflated in mainstream literature and commentary. He argues that different states have markedly divergent experiences of globalization; as a consequence, there are noticeable differences in patterns of economic inequality across countries. Vandenbroucke confronts deterministic accounts that imply EU member-states are moving ineluctably towards market liberalization and rising inequality. The challenge for EU countries is to embed social cohesion in state and society, mobilising ‘a variety of policy instruments’ to safeguard national welfare states.

The strategic priorities highlighted in Vandenbroucke’s chapter include investment in education to narrow the disparities in human capital, as well as advancing the notion of a ‘European Social Union’ that ensures those moving across borders are economically active and ‘earn’ access to social benefits. The author contends that nationality should determine which member-state is ‘first and foremost responsible’ for each citizen’s welfare; national institutions and policies need to be allowed to function effectively in order to tackle the underlying drivers of inequality.

Finally, Jane Gringrich’s chapter restates an important paradox; why, given the support in public attitudes surveys for classically ‘left’ positions on economic policy, do social democratic parties not perform better? The author reveals the electoral environment confronting centre-left parties has become less hospitable in the face of rapidly changing class structures and political realignments, as well as structural pressures in advanced market economies that mainstream politicians and parties are struggling to confront. Social democrats have been accused of neglecting their main political constituency among the organized working-class. The strategy of investment in higher education and the human capital of the highly skilled does precious little to help former industrial workers who feel marginalized by economic change. Across the developed economies, the subjective status of ‘non-college’ educated men has been in decline (Hall 2015). Particular regions have been hard-hit by the scale and pace of industrial degeneration over the last four decades.

Gringrich examines how social democratic governments in Europe have responded to structural change, and presents an ‘Anglo-approach’, a ‘Continental path’, and a Scandinavian model. Gingrich demonstrates that the Nordic countries have been able to entrench egalitarian labour markets through long-term investment in skills, alongside workplace agreements between employers and trade unions. The chapter emphasizes centre-left parties are not doomed to lose elections while there is significant demand among voters for ‘left policies’. Recent history tells us that rather than looking for the most technically efficient options such as earned income tax credits or measures that drive behavioural change in the welfare state, social democrats have to think about the visibility and political impact of their policies to secure the long-term allegiance of voters.

Conclusion

An effective and credible response to globalization requires a political vision that does not jettison the individualism which is inherent to modern societies, but cultivates new forms of collectivism and solidarity. This chapter’s contention is that to reshape the ‘great globalization disruption’, it will be necessary to reawaken the tradition of ‘liberal egalitarianism’ which has come under sustained attack from the reactionary forces of populism. Liberal egalitarianism necessitates a commitment to greater equality and social cohesion tempered by the belief in economic openness and liberty rooted in aversion to bureaucratic statism.

Despite its association with rootless cosmopolitanism, the progressive tradition has resonance that goes well beyond the urban enclaves of metropolitan liberalism with connections stretching back to the radical and rumbustious working-class political and social movements of the late nineteenth and early twentieth centuries. The radical liberal socialism of this period elaborated by disparate figures from Leonard Hobhouse in Britain to Eduard Bernstein in Germany constituted a powerful attack on the prevailing ethic of the limited state, reductionist individualism, and laissez-faire doctrines. Moreover, the distinction between ‘negative’ and ‘positive’ liberty in political discourse legitimized the role of active government, laying the foundations for the progressive social reforms at the turn of the century in Germany, the United States and the UK.

In the immediate aftermath of World War II, universal welfare states emerged accompanied by the Keynesian method of macro-economic demand management that sought to eliminate the damaging cycles of boom and slump. The socialist tradition was an important influence on radical liberal egalitarianism, although socialists were reluctant to confront the critique of state bureaucracies and central planning that emerged in the wake of the failed experiment in the Soviet Union. Liberal egalitarianism posited that markets had to be reconciled with social justice through the active role of government.

During the final decades of the twentieth century, liberal egalitarians explored how to utilize the capacities of the state to increase equality of opportunity while strengthening human self-fulfilment. Under the influence of American scholars, notably John Rawls, egalitarians in Europe shaped strategies to achieve distributive justice, although this led to a critique from Michael Sandel and the communitarian left. The criticisms of liberal egalitarianism highlight the importance of relationships at the heart of the ‘moral’ economy, insisting that economic life cannot be judged by the utilitarian calculus of profit and loss alone (Rogan 2017). The work of Amartya Sen has been crucial in emphasising the central importance of personal freedom and the need for involvement by the state to ensure that citizens are equipped with the ‘capabilities’ to lead rich and meaningful lives. More practically, the next generation of liberal egalitarian thinking has to abandon the ‘growth first, distribute later’ strategy of the last three decades of economic and social policy, actively intervening in markets to promote more equal outcomes while strengthening the bargaining power and economic agency of workers.

The radical egalitarian tradition should be re-discovered by progressives as they confront a more closely integrated international economic system driven by the next phase of globalization, digitization and technological disruption. There has to be a balance between an open, integrated economy and a dynamic nation-state that retains the scope for domestic action to maintain the allegiance of voters (Rodrik 2012). Liberal egalitarianism seeks to forge more equal societies underpinned by universal civil, political and social rights. The ambition is to guarantee the economic and social inclusion of all citizens in order to fulfil the aims of progressive politics as defined by the Polish philosopher, Leszek Kołakowski (1982: 11): ‘An obstinate will to erode by inches the conditions which produce avoidable suffering, oppression, hunger, wars, racial and national hatred, insatiable greed and vindictive envy’.

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