Patrick Diamond says globalisation is in retreat but taking a different form
Much contemporary political debate focuses on whether the era of neo-liberal globalisation is coming to an end. The Trump administration is imposing tariffs on imports, attacking the conventional nostrums of free trade. China is placing much less emphasis on export-driven expansion. Meanwhile, Russia’s illegal invasion of Ukraine has deepened its isolation from the liberal international order. The Covid-19 pandemic and the energy price shock fuelled by the Russia-Ukraine war not only disrupted supply-chains, but reminded governments of the importance of resilience in domestic production. Consequently, the 30-year process of western globalisation is believed to be “unravelling”.
Rather than witnessing the “end” of globalisation, it appears that a new phase is emerging, generating potentially greater turbulence and instability. Technology is enabling faster cross-border flows of information and services, accompanied by rapid off-shoring of production. The adoption of artificial intelligence (AI) is predicted to fundamentally reshape the labour market and employment. The physical trade in goods and services may be declining, but the volume of knowledge transacted on a global scale will, in all likelihood, accelerate. Meanwhile, military conflicts, security threats and geo-strategic rivalry are undermining economic integration and the international co-operation required to manage globalisation.
There have always been peaks and troughs in globalisation back to the mid-19th century. The historian Martin Daunton observed that prior to the First World War, there was an acceleration due to increased migration, heightened capital mobility and trade flows. In the inter-war years, globalisation abated as trade tariffs were imposed alongside restrictions on the movement of capital following the 1930-31 financial crisis. Keynes was a strong advocate of capital controls due to the destructive nature of speculative finance. There have been dramatic fluctuations in openness to world trade throughout the last century.
The collapse of the Bretton Woods system and the end of restrictions on exchange rates laid the foundations for the resurgence of globalisation. By the turn of the millennium, the “Washington Consensus” and the commitment to privatisation, liberalisation and free markets became dominant following the collapse of Soviet communism. The European Union duly prioritised the single market in products, capital and labour.
Yet this form of globalisation came under scrutiny as structural changes in the world economy fed into domestic politics. The economist, Dani Rodrik, observed that, “International economic integration seems to have produced domestic disintegration in many countries, deepening the divide between the winners and the losers of exposure to global competition”. The impact of economic interdependence and technological change fuelled increasing dissatisfaction with established political systems, leading to polarisation that exploited the resentments fuelled by the hegemony of economic liberalism.
The shift in politics has been evident in the rise of populist movements on the radical right. It arose in the UK’s decision to vote to leave the European Union in June 2016 and, subsequently, the election of Donald Trump to the presidency of the United States a few months later and again in 2024 for a second term. Trump is asserting a new form of populist “geo-economics” that favours economic nationalism. The consensus for participating in the liberal international order has frayed in a number of countries. Several states in Europe, notably Italy and Hungary, have governments heavily influenced by the populist ideology of the right. Populism is the spectre haunting western liberal democracy.
The rise of populism is explained by the insecurity wrought by globalisation, the belief that the economy is “broken” – no longer providing stable jobs and incomes to the majority of workers – combined with despair that conventional democratic politics is failing. The welfare state that once provided security and protection in Western Europe is similarly in crisis after more than a decade of fiscal austerity.
It is self-evident that parties of the Left have so far failed to formulate a convincing response to the new era of Western globalisation, partly explaining their electoral woes. Many social democratic movements lost their ideological distinctiveness, not only by compromising with market liberalism, embracing overtly neo-liberal policies, but failing to elaborate a credible alternative strategy of equivalent force to the Keynes/Beveridge synthesis in the post-war era that sought to regulate and humanise western capitalism.
Neither outright rejection of globalisation nor unconditional acceptance of its neo-liberal character are likely to remain fruitful strategies for the socialist Left. Instead, social democrats should focus on brokering a political bargain between growth and security, chiefly by rebuilding state capacity, not only in central government, but crucially above and below the nation-state.
Strong regional policies are necessary to protect communities from the adverse effects of globalisation and technological change, while tackling persistent geographical inequalities. In the UK, there is much further to go on political decentralisation alongside the devolution of powers to regional bodies, particularly fiscal powers to tax, spend and borrow, funding public infrastructure for northern regions.
Alongside that, there should be robust co-operation at the international level to protect workers from the egregious effects of global capital flows. That co-operation will take many forms; sooner or later, however, the British Left will be compelled to appraise the case for re-joining the European Union, assuming it can be reshaped into a transnational agent for social justice.
*The Great Unravelling, eds. Patrick Diamond and Ania Skrzype published by Foundation of European Progressive Studies, Brussels.