Globalization and its political backlash
In politics there is turbulence, if not turbulence, almost everywhere in the world. Election results or the results of the referendum are uncertain and unpredictable. People as citizens are frustrated, even alienated, from their governments. This has been the case despite enormous material advances since 1980, probably because of the very unequal distribution of people within countries. And it is political democracy, where it exists, that has enabled people to express their discontent.
This period, which spans a third of a century, is marked by the rise of markets and globalization, which have profoundly affected the well-being and lives of people. For some, globalization has opened the door to opportunity and wealth creation. For many, the unemployment and poverty that previously existed remain, but globalization may have increased marginalization.
There are few winners. There are a lot of losers. Property owners, employees, retirees, educated, mobile and working people are the winners, while the wealthy, wage earners, debtors, uneducated, real estate, semi-skilled and unskilled are losers.
The big winners are the super-rich and ultra-rich everywhere and the middle class in emerging markets. The big losers are the working and lower middle classes in industrialized countries or the poor and marginalized in developing countries.
This has led to a dramatic increase in economic inequality between people within countries. The share of national income of the poorest 50% of the population has shrunk almost everywhere, while the share of the richest 1% has increased rapidly everywhere. Globalization is not the only cause, it is an important underlying factor.
The problem has worsened since the financial crisis. The great recession that followed continues today. Recovery is slow, uneven, and fragile. In some countries where production has recovered, employment has not. Unemployment is high. In the European Union (EU) countries, the average unemployment rate is more than 10% of the labor force, while in Greece and Spain it is more than 20%. The youth unemployment rate, especially newcomers to the labor market, is almost 25%.
Real wages of workers and employees in rich countries stagnated. In the United States, almost 90% of the workforce has not had real wage increases since the early 1970s.
The share of wages in national income has fallen in both rich and poor countries. The quality of employment has also deteriorated as permanent employees become contract workers. There is no job security for such people. In fact, their pension and health benefits provided by employers also no longer apply. The watering down of social protection and the privatization of risk have made them even more vulnerable.
Economic integration with the world has resulted in the internal fragmentation of societies within nations. For more than a decade, some economists, including myself, have warned that such results are ethically unacceptable and politically unsustainable. In fact, I argued that globalization was neither the end of history, as some believed, nor the end of geography, as some hoped. Economies can have become global. But politics is national. And the predictable political backlash is there.
Previous concerns have focused on the exclusion of people, regions and economies in developing countries. But the industrialized world was subject to the same process, because asymmetrical inclusion and exclusion is part of the logic of markets and globalization. In this way, the political consequences of the economic results in connection with markets and globalization have become equally visible in poor and rich countries.
The backlash in politics, on the part of the people, is far more visible in industrial societies. There is disillusionment with mainstream political parties, anger with the establishment, be it the political class or the economic elites, and despair with indiscriminate democracies. Citizens are trying to reclaim from their governments accountability that has been ceded to financial markets or multilateral institutions. Openness in trade, migration and investment is seen as a threat. There is a reassertion of national and cultural identities that has made room for populist movements to take advantage of discontent.
Dissatisfaction is similar, if not exactly the same, in developing countries. However, these are due to unemployment growth, growing inequality and persistent poverty. The political backlash, however, is less evident for three reasons. In emerging economies, rapid economic growth has benefited a rising middle class and reduced absolute poverty. The writers, the influential and the media who have a voice believe in the magic of markets and globalization. Authoritarian regimes still exist in many developing countries, and even where there is political democracy, citizens are not empowered enough. Yet there is a crisis of expectations. The consumption patterns and lifestyles of the rich, which are alive in television advertising, have strong demonstration effects. And dissatisfaction grows.
The manifestations of political backlash in rich countries are making headlines. In the US presidential campaign, left-wing extremist Bernie Sanders almost wrested the nomination from center-right Hillary Clinton, who is supported by the Democratic Party establishment. But it was the far-right Donald Trump who not only defeated the Republican Party establishment by winning the nomination, but also defeated the entire American establishment by winning the elections. This result, which I absolutely dislike, confirms the hypothesis of anger among people with mainstream politics and the ability of the populist-nationalist extreme right to capitalize on that sentiment.
In the referendum on whether the UK should remain in the EU or leave the EU, people who believed they were the losers in integration into the EU voted for Brexit. In retrospect, this was a sign of the future.
The discontent in continental Europe was also evident in his politics. In France, the socialists stare at the defeat in the 2017 presidential election and have to decide whether to vote for a Conservative to stop the far-right Marie Le Pen. The right-wing extremist nationalist-populist political parties emerge as a significant force in Austria, Denmark, Germany, Finland, the Netherlands and Sweden.
Latin America offers an interesting contrast. The early 2000s saw extraordinary changes when 10 countries elected left-wing governments. It happened because the adoption of neoliberal economic rules in the 1980s and 1990s placed real hardships on people – higher unemployment, lower incomes, increasing inequality. These governments were recently overthrown in Argentina, Brazil, Chile, Gautemala and Venezuela because of corruption or economic mismanagement. In Bolivia, Ecuador, Nicaragua and Uruguay, however, center-left governments continue to receive support.
It would appear that the political parties of the right and the far right are occupying the space created by the uneven economic outcomes associated with markets and globalization. They have taken advantage of the failure of the mainstream political parties and people’s resentment against the establishment. Their political mobilization of economic dissatisfaction is based on opportunism and populism.
In the US and Europe, trade and immigration are rallying points that exploit concerns about employment and wages. Cultural identity is cleverly woven into a tirade against immigration, while religious conservatism is invoked to fuel anti-Islamic sentiments.
The result is paradoxical. In this situation there was both opportunity and space for left-of-center politics. But it’s not even on the horizon.
Social democracy began throughout Europe at the end of the 19th century with the aim of correcting the excesses of markets and capitalism in order to protect the working class. It was reinvented in 1945 to counter possible Soviet influence. It did this by introducing universal suffrage for adults in democracy, accepting the beginnings of decolonization, developing the welfare state, and emphasizing the pursuit of full employment. From around 1980, however, the social democratic parties forgot their raison d’etre and were gradually co-opted by markets and globalization. They moved into the center of politics so that their ideology was no longer a point of reference. It is no surprise that there has been continued erosion of their constituencies in politics.
The communist parties or their descendants on the left did not survive the collapse of communism in the USSR and Eastern Europe. It dealt a severe blow to their credibility, legitimacy, and identity. Their reluctance to invoke nationalism against markets and globalization was understandable. But neither were they able to break away from their belief systems anchored in the past. Unsurprisingly, the Orthodox left was unwilling and unable to reinvent itself in a completely changed world.
Nevertheless, a left has emerged. Podemos in Spain and Syriza in Greece are newcomers to mainstream politics. Bernie Sanders held that seat in the US Democratic Party for a while in the primaries, while Jeremy Corbyn leads the Labor Party in the UK with little parliamentary support. The new left radicalism is inclusive, secular and egalitarian. But it is at best a critique of neoliberalism and a symbol of revolt, with a repetition of yesterday’s leftist beliefs. It has not yet provided an alternative political manifesto or economic thinking to point a way forward.
The irony is striking. Political democracies need the left to ensure controls and balances. The far right can only divide fragmented societies further, while parties of the center-left, even in the opposition, can reconcile, if not bridge, such gaps. Right-wing extremists would erect barriers at national borders, while left-of-center parties would try to regulate markets and steer globalization in the interests of the people.
When ideologies in politics are cyclical, there is reason for hope.
Deepak Nayyar is Professor Emeritus of Economics at Jawaharlal Nehru University in New Delhi. From 1989 to 1991 he was Senior Economic Advisor to the Government of India and from 2000 to 2005 Vice Chancellor of Delhi University.
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