The Crisis of Globalization

Patrick Diamond

Introduction

This book’s central claim is that the inability of nation-states to protect citizens from the effects of the ‘great globalization disruption’ and resulting economic turmoil is imperilling the legitimacy of global capitalism and representative democracy. Since the 2008 crisis which led to the most protracted downturn in the history of Western capitalism, global economic performance stagnated as the eurozone countries struggled to cope with an unprecedented sovereign and banking debt crisis. Globalization is perceived to be responsible for rapidly rising inequality, as well as declining living standards for those on middle or low incomes (OECD 2017). Despite the pessimistic mood, it is important to remember globalization has led to impressive levels of growth and productivity across the world economy in recent decades. Millions of people in developing countries have been lifted out of poverty. Yet across the industrialized societies, too few citizens perceive themselves to be beneficiaries of globalization’s great promise.

The political conundrum is that throughout the West, the domestic consent for trade liberalization and economic openness is eroding; anger at the consequences of the free movement of capital and labour across borders has rarely been more explosive, underlying Donald Trump’s rise to the presidency of the United States, Britain’s exit from the European Union (EU), the defeat of Matteo Renzi’s referendum on constitutional reform in Italy, and the emergence of ‘authoritarian populist’ parties in the established democracies of Europe. The growing strength of political populism is both a material reaction against economic distress, as well as a cultural revolt against the politics of identity associated with a rootless, liberal cosmopolitanism (Hall, 2015). The next era of globalization is likely to be more destabilising; digitization and technological change are provoking a further shift in the balance of economic power from west to east. The restructuring of markets leads to the exponential rise of inequality, as incomes are redistributed to the most highly educated. What emerges is the apocalyptic nightmare of a meritocratic society where global elites believe they have earned their extraordinary wealth and good fortune, but that they have few moral obligations to citizens who inhabit particular national communities.

The consequence is the atrophy of Western liberal democracy. The most visceral opponent of liberal democracy is populism. The political scientist Cas Mudde defines the populist appeal as a ‘thin-centred ideology’ that treats society as if it is, ‘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’ (cited in Rodi 2018). The claim of populists on left and right is that globalization is indefensible; the best way to protect citizens is to raise the economic drawbridge, restoring the authority and efficacy of the nation-state.

On the face of it, the populist argument is hardly difficult to refute. Countries that unilaterally retreat from the world economy are likely to experience prolonged and painful stagnation that erodes the material living standards of citizens. The challenge for those political forces committed to liberal democracy is to regain the explicit consent of citizens for economic openness by strengthening the political institutions that help to guarantee security and opportunity. That will only be achieved if economic elites recognize their material and social obligations to the rest of society, as they were compelled to do in the aftermath of World War II when the Beveridge-Keynes settlement was forged. There are a multitude of proposals discussed in this volume that seek to entrench liberal social democracy, notably the reform of labour market institutions to deal more effectively with today’s challenges such as reconciling ‘work’ and ‘care’ across the life-cycle; increasing the bargaining power of workers in insecure employment markets; targeted basic income strategies to alleviate precarity, particularly for younger generations; human capital investment that helps workers through structural economic change; more controversially, the case is presented for a further crackdown on tax avoidance which has insidiously undermined the tax state and the social contract, alongside new wealth and inheritance taxes.

It is clear that the progressive strategies of the 1990s that sought to redistribute the gains of economic growth while improving the distribution of human capital through investment in education and training have run their course. In many industrialized countries, support for fiscal redistribution has fallen, as the financial crisis led to a hardening of attitudes towards the less fortunate. While mainstream economists recommend a response to globalization that is centred on ‘compensating losers’, most workers do not want more social benefits; they aspire to decent jobs through which social standing and respect in their community can be earned (Hall 2015). Communitarians legitimately criticize the liberal egalitarian left for abstracting human relationships while reducing matters of inequality to technocratic calculations and Gini co-efficients. In a ‘moral’ political economy, social ties and mutual obligations matter at least as much as the utilitarian calculus of profit and loss (Rogan 2017). Communitarianism invests hope in the institutions of civil society in affirming the common good. Yet there is still a decisive role for the state in ensuring the plentiful supply of public goods.

Universal Basic Services

The big idea in the next phase of ‘knowledge-driven’ globalization ought to be the construction of an infrastructure of Universal Basic Services (UBS) that provide the ‘essentials of modern life’ – food, shelter, housing, transport, digital access – to every citizen alongside the core services of health and education. Basic services do not replace jobs but are intended to support citizens in navigating the labour market and finding decent work. These community-based institutions can be a source of high-skilled, fulfilling employment. They need not be provided directly by the state but through a variety of employee and community-owned mutual associations. Services do not only meet material needs but enable citizens to participate more fully in the life of their community. The proposal for Universal Basic Services pioneered by Professor Henrietta Moore at University College, London is compatible with an era of fiscal and budgetary restraint. The infrastructure is funded by fair progressive taxation including a Financial Transactions Tax operating at the European level. Taxation of financial markets is but one example of where the pooling of sovereignty can create more powerful national governments. Property taxes and levies on large inheritances are well suited to an era in which capital flows easily across national jurisdictions. Across the Organization for Economic Co-operation and Development (OECD) countries, wealth taxes account for less than 1 per cent of total tax revenues, yet wealth taxes are critical for reducing inequalities, and for encouraging assets to be used more productively (CHASM 2013).

The Universal Basic Services strategy addresses the vulnerabilities of the ‘social investment’ paradigm that dominated the debate about social policy in the EU from the late 1990s. Social investment was an influential approach in European social policy. But social investment overemphasizes human capital at the expense of services that guarantee dignity to all citizens, especially those vulnerable to economic dislocation in an era of rapid digitization and global economic integration. The EU should promote a pan-European approach to Universal Basic Services. There would be discernible political gains from, ‘blunting the image of the EU as an institution focused mainly on market competition by taking action to address contemporary concerns about social cohesion’ (Hall 2013: 437). The most pernicious feature of the politics of globalization over the last 20 years has been the claim that in the face of structural transformation, governments can do little to protect citizens from the forces of change; lower taxes, a race to the bottom, deindustrialization, rising inequality are all accepted as inevitable, a fact of life and a force of nature. Progressive parties must first and foremost revive the basic ideal that there are choices to be made, and that states have the power to act where they have democratic legitimacy. A European infrastructure of Universal Basic Services would serve to underpin the claim of political and social citizenship.

Embedding social and political citizenship requires progressive egalitarians to abandon the ‘growth first, distribute later’ strategy of the last three decades of economic and social policy in the advanced capitalist states. It will be necessary to actively intervene in markets to promote more equal outcomes while strengthening the bargaining power and agency of workers. So-called ‘predistributive’ policies focus on regulatory interventions that are designed to transform the rules of the game in which markets operate. It is as Jacob Hacker (2015: xxi) maintains, ‘A focus on market outcomes that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits’. Measures are required to raise and enforce national minimum wages, to encourage flexibility for workers not only firms, to design public sector procurement to ensure fair employment, and to promote moral norms that outlaw excessive pay and promote fair wages. Workers should have a voice in the management of firms through reformed corporate governance structures. Progressives must confront unequal labour, product and capital markets to attack the root causes of social injustice in post-industrial societies.

Conclusion

Ensuring that each citizen can access the services necessary to lead a flourishing life is consistent with Amartya Sen’s view of ‘capabilities’, where the role of the state is not merely to distribute resources, but to ensure a wide distribution of opportunities, enabling all citizens to participate in their societies regardless of their access to wealth or power. To respond credibly to globalization, progressives need a political approach that does not jettison the individualism that is integral to post-industrial societies, but seeks to cultivate strong forms of solidarity and collectivism. An open, liberal world economy has to be counter-balanced by a vigorous nation-state and national communities that retain the capacity for domestic action to reassure anxious voters. Sen’s work has been crucial in emphasising the central importance of personal freedom and need for intervention by the state to ensure that citizens have the ‘capabilities’ to lead rich and meaningful lives. Progressive liberal egalitarians need a moral vision of social justice that can counter the resentments and insecurities stirred up by populist forces, grounded not only in the essential belief that everyone is entitled to the opportunities of a fair society, but that there must be a ‘civic minimum’ of basic decency in living standards and well-being beneath which no citizen should be allowed to fall.

References

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Hacker, J. ‘The Promise of Predistribution’ in Diamond, P. and Chwalisz, C. The Predistribution Agenda: Tackling Inequality and Supporting Sustainable Growth (London: I.B.Tauris 2015) pp. xxi–1.

Hall, P. ‘The Future of the Welfare State’ in Diamond, P. and Chwalisz, C. The Predistribution Agenda: Tackling Inequality and Supporting Sustainable Growth (London: I.B.Tauris 2015) pp. 241–53.

Hall, P. ‘Democracy in the European Union: The Problem of Political Capacity’ on Armingeon, K. (ed.). Staatstatigkeiten, Parteien und Demokratie (Berlin, Verlag fur Sozialwissenschaften 2013) pp. 429–41.

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