Ill Fares the Land (18 page)

—DOMINIQUE STRAUSS-KAHN

 

 

 

 

I
n the famous opening paragraph of his
18th Brumaire of Louis Bonaparte
, Karl Marx observes that all facts and personages of importance in world history occur twice: the first time as tragedy, the second as farce. There is much to be said for this view, but it does not exclude the possibility that even tragedies may repeat themselves. Western commentators who celebrated the defeat of Communism confidently anticipated an era of peace and freedom. We should have known better.

—THOMAS MALTHUS

 

 

 

 

E
ven economies have histories. The last great era of internationalization—‘globalization’
avant le mot
—took place in the imperial decades preceding World War I. It was broadly assumed at the time, much as it is today, that ‘we’ (Great Britain, Western Europe, the United States) were poised on the threshold of an unprecedented age of growth and stability. International war appeared quite literally unthinkable. Not only did the great powers have every interest in the preservation of peace; war, after decades of industrialization and great advances in armaments technology, would be unspeakably destructive and intolerably expensive. No rational state or politician could possibly desire it.

Moreover, by 1914—thanks to new forms of communication, transport and exchange -the petty national quarrels and boundary disputes of empires and aspirant nations appeared absurd and anachronistic. It made no economic sense to speak of breaking up the Austrian Empire, for example: with its industrial heartland in Bohemia, its capital in Vienna and its labor force drawing on immigrants from all over central and southeastern Europe, the Empire was living evidence of the internationalization of modern economic life. No one, surely, would wish to impoverish all the constituent parts of such a natural unit merely in the name of nationalist dogma. International markets had displaced the nation-state as the primary units of human activity.

Anyone seeking an account of the tremendous self-confidence of the men of pre-1914 Europe can do no better than read Keynes’s
Economic Consequences of the Peace
: a summary of the illusions of a world on the edge of catastrophe, written in the aftermath of the war that was to put an end to all such irenic fancies for the next fifty years. As Keynes reminds us, “. . . the internationalisation [of social and economic life] was nearly complete in practice.”
²⁹
To invoke a term not yet in use, the world seemed flat.

This precedent should make us cautious. The first age of globalization came to a shuddering halt. Thanks to the Great War and its aftermath, economic growth in Europe would not recover its 1913 levels until well into the 1950s. The apparently unstoppable logic of economics was trumped by the rise of new nation-states, mutually antagonistic and politically unstable. Great empires—the Russian, the Austrian, the Turkish, the German and eventually the British—all collapsed. Only the United States stood to gain from this international cataclysm: and even the US did not profit from its newfound hegemony until nearly thirty years after the end of the war that brought it about.

The optimism of the Edwardians was replaced by an enduring and gnawing insecurity. The gap between the illusions of the Gilded Age and the realities of the next four decades was filled by economic retrenchment, political demagogy and unbroken international conflict. By 1945, there was a universal “craving for security” (Keynes), addressed by the provision of public services and social safety nets incorporated into postwar systems of governance from Washington to Prague. The very term “social security”—adapted by Keynes from its new American usage—became a universal shorthand for prophylactic institutions designed to avert any return to the interwar catastrophe.

Today, it is as though the 20th century never happened. We have been swept up into a new master narrative of “integrated global capitalism”, economic growth and indefinite productivity gains. Like earlier narratives of endless improvement, the story of globalization combines an evaluative mantra (“growth is good”) with the presumption of inevitability: globalization is with us to stay, a natural process rather than a human choice. The ineluctable dynamic of global economic competition and integration has become the illusion of the age. As Margaret Thatcher once put it: There Is No Alternative.

We should be wary of such claims. ‘Globalization’ is an updating of the high modernist faith in technology and rational management which marked the enthusiasms of the postwar decades. Like them, it implicitly excludes politics as an arena of choice: systems of economic relationships are, as the 18th century physiocrats used to assert, laid down by nature. Once they have been identified and correctly understood, it remains to us only to live according to their laws.

However, it is not true that an increasingly globalized economy tends to the equalization of wealth—a defense of globalization offered by its more liberal admirers. While inequalities do indeed become less marked
between
countries, disparities of wealth and poverty
within
countries actually increased. Moreover, sustained economic expansion in itself guarantees neither equality nor prosperity; it is not even a reliable source of economic development.

After decades of rapid growth, India’s per capita GDP in 2006 ($728) remained only slightly above that of sub-Saharan Africa, while on the UN Human Development Index—an aggregate calculus of social and economic indicators—the country ranked some seventy places below Cuba and Mexico, not to speak of fully developed economies. As for modernization: despite its enthusiastic and much-touted participation in the globalized economy of high technology industry and services, just 1.3 million of India’s 400 million workers had jobs in the ‘new economy’. To say the least, the benefits of globalization take an extraordinarily long time to trickle down.
³⁰

Moreover, we have no good reason to suppose that economic globalization translates smoothly into political freedom. The opening up of China and other Asian economies has merely shifted industrial production from high wage to low wage regions. Furthermore, China (like many other developing countries) is not just a low wage country—it is also and above all a ‘low rights’ country. And it is the absence of rights which keeps wages down and will continue to do so for some time—meanwhile depressing the rights of workers in countries with which China competes. Chinese capitalism, far from liberalizing the condition of the masses, further contributes to their repression.

As to the delusion that globalization will undercut governments, facilitating the rise of corporatist market states where massive international corporations dominate international economic policy-making: the crisis of 2008 revealed this for a mirage. When banks fail, when unemployment rises dramatically, when large-scale corrective action is called for, there is no ‘corporatist market state’. There is just the state as we have known it since the 18th century. That is all we have.

After decades of relative eclipse, nation-states are poised to reassert their dominant role in international affairs. Populations experiencing increased economic and physical insecurity will retreat to the political symbols, legal resources, and physical barriers that only a territorial state can provide. This is already happening in many countries: note the rising attraction of protectionism in American politics, the appeal of “anti-immigrant” parties across Western Europe, the ubiquitous calls for ‘walls’, ‘barriers’, and ‘tests’.

International capital flows continue to elude domestic political regulation. But wages, hours, pensions and everything that matters to the working population of a country are still negotiated—and contested—locally. With the strains born of globalization and its attendant crises, the state will be called upon with mounting insistence to resolve the tensions that result. As the only institution standing between individuals and non-state actors like banks or international corporations; as the sole regulatory unit occupying the space between transnational agencies and local interests, the territorial state is likely to grow in political significance. It is revealing that in Germany, Angela Merkel’s Christian Democrats have quietly retreated from their brief market enthusiasms to a popular identification with the social market state as an insurance against the excesses of globalized finance.

This may appear counterintuitive. Surely the promise of globalization—and more generally, of the internationalization of laws and regulations over the past half century—lay in the prospect of
transcending
the conventional state? We were supposed to be moving towards a cooperative trans-state era in which the conflicts inherent in territorially-defined political units would be consigned to history.

But just as the intermediate institutions of society—political parties, trade unions, constitutions and laws—impeded the powers of kings and tyrants, so the state itself may now be the primary ‘intermediate institution’: standing between powerless, insecure citizens and unresponsive, unaccountable corporations or international agencies. And the state—or at least the democratic state—retains a unique legitimacy in the eyes of its citizens. It alone answers to them, and they to it.

None of this would matter very much if the contradictions of globalization were merely passing: if we were living in a transitional moment between the twilight years of the nation-state and the new dawn of global governance. But are we so sure that globalization is here to stay? That economic internationalization carries in its wake the eclipse of national politics? It would not be the first time that we made a mistake on this count. We should by now have learned that politics remains national, even if economics does not: the history of the 20th century offers copious evidence that even in healthy democracies, bad political choices usually trump ‘rational’ economic calculations.

—JOHN MAYNARD KEYNES

 

 

 

 

I
f we are indeed going to witness a return of the state, an enhanced need for the security and resources that only a government can provide, then we should be paying greater attention to the things states can do. The success of the mixed economies of the past half century has led a younger generation to take stability for granted and demand the elimination of the “impediment” of the taxing, regulating, and generally interfering state. This discounting of the public sector has become the default political language in much of the developed world.

But only a government can respond on the requisite scale to the dilemmas posed by globalized competition. These are not challenges that can be grasped, much less addressed and resolved, by any one private employer or industry. The most that can be expected of the private sector is short-term lobbying in defense of particular jobs or protection for favored sectors—a recipe for just those pathologies and inefficiencies normally associated with public ownership.

Late-Victorian reformers and their 20th century liberal successors turned to the state to address the shortcomings of the market. What could not be expected to happen ‘naturally’—quite the contrary, since it was the natural workings of the market that created the ‘social question’ in the first place—would have to be planned, administered and, if necessary, enforced from above.

We face a similar dilemma today. Having reduced the scale of public ownership and intervention over the course of the past thirty years, we now find ourselves embracing
de facto
state action on a scale last seen in the Depression. The reaction against unrestrained financial markets—and the grotesquely disproportionate gains of a few contrasted with the losses of so many—has obliged the state to step in everywhere. But since 1989 we have been congratulating ourselves on the final defeat of the over-mighty state and are thus ill-positioned to explain to ourselves just why we need intervention and to what end.

We need to learn to
think
the state again. After all, it has always been with us. In the United States of America, the country most given to disparaging the role of government in the affairs of men, Washington has supported and even subsidized selected market actors: railway barons, wheat farmers, car manufacturers, the aircraft industry, steel works and others besides. Whatever Americans fondly believe, their government has always had its fingers in the economic pie. What distinguishes the USA from every other developed country has been the widespread belief to the contrary.

Instead, the state has been vilified as the source of economic dysfunction. By the 1990s, this rhetorical trope was widely imitated in Ireland, Poland and parts of Latin America, as well as the United Kingdom: conventional opinion was for confining the public sector, wherever possible, to administrative and security functions. In a delicious irony, the ideological enemies of the state, from Margaret Thatcher to the contemporary Republican Party, thus effectively adopted the view of Sidney Webb, the founder of Fabian Socialism, who never tired of asserting that “[t]he future belong[s] to the great administrative nations, where the officials govern and the police keep order.”