The Failure Of The Global Capitalist Fantasy

Hungarian Prime Minister Viktor Orban and the coalition led by his rightwing party swept to victory in elections over the wee
Hungarian Prime Minister Viktor Orban and the coalition led by his rightwing party swept to victory in elections over the weekend. Orban has stressed anti-immigration policies.

Two subjects that dominated the news this past week ― the continued ascendence of neo-fascist ultra-nationalism in Europe and the United States’ escalating trade war with China ― seem unrelated. In fact, they share a common genesis.

Both calamities ― and they are calamities ― are the byproducts of a naïve faith that a push for free-market global capitalism would somehow increase the appeal of liberal democracy.

This was the hope in 1989 when the Berlin Wall came down and communism fell — a grand convergence of ever-freer markets and ever-stronger democratic institutions. This was also the hope when China was allowed to join the World Trade Organization in 2001, pretty much on in its own terms. China would become less totalitarian in its government and less statist in its economy. No less than Tom Friedman proclaimed, “China’s going to have a free press. Globalization will drive it.”

Neither fantasy has come true. In Western Europe and the U.S., the more that political and financial elites embraced hyper-global capitalism, the more they lost the support of the people. China, despite its greater exposure to world markets, has doubled down on both one-party dictatorship and state-led mercantilism.

In this super-global era, living standards for most working people in the West have stagnated and most gains have gone to the top. Establishment politicians have few answers except to blame the people themselves for having insufficient skills. People not only lost jobs; they lost respect. Those left behind were losers ― except that losers voted. Into this vacuum marched Donald Trump, and ultra-nationalist figures like him all over Europe.

Flows of refugees compounded the damage, but the prime cause was economic. In the 1950s and 1960s, when economies were delivering broad prosperity, the nationalist far right had little appeal.

It is bad enough that neo-fascists with open contempt for democracy have gained broad popular support in countries with weak democratic roots such as Poland, Turkey and Hungary. But far right parties are now the second or third largest in most of Western Europe as well. In Germany, the neo-fascist AfD is now the largest opposition party in the parliament.

These movements did not come out of nowhere. Rather, they were a reaction against the destruction of a social contract that once regulated capitalism and delivered broadly shared opportunity and prosperity.

Ultra-globalization was the instrument of this destruction, as global corporations and their political allies devised “trade” deals that were really deregulation deals. The idea was to make it harder for national governments to housebreak capitalism. When the backlash came, it wasn’t just against globalism, but against democracy itself, since these deals demolished popular trust in the entire political class.

Chinese President Xi Jinping at the first session of the 13th National People's Congress in Beijing last month.
Chinese President Xi Jinping at the first session of the 13th National People's Congress in Beijing last month.

All of this is the subject of my new book, Can Democracy Survive Global Capitalism?, published this week.

Once, strong democracy tempered capitalism in a broad public interest. Now capitalism is overwhelming democracy — which takes a second hit when the common people turn to the far right.

To answer my own question: Democracy could survive, if democracy once again is mobilized to temper raw capitalism. But if we stay on the current path, crony capitalism will deepen its alliance with autocracy, ordinary people will continue to lose faith in the political center, and nationalistic rightwing populism will keep gaining.

The rise of China, and a long-deferred clash with the U.S. now playing out in a game of chicken over tariff hikes, is the result of the same naïve faith in globalization.

As long ago as the 1980s and 1990s, it was all too clear what sort of game China was playing. Beijing’s state capitalism put up barriers to imports and only allowed Western companies in on terms convenient to China. Meanwhile, it flooded the world with subsidized exports.

The culprit is letting market forces and corporate elites overwhelm society, to the detriment of ordinary people.

As late as the Obama administration, the U.S. government refused to recognize this reality, even though it was hidden in plain view. The rather pathetic, now defunct Trans-Pacific Partnership was an effort to make deals with other nations rather than challenge China’s economic system as an assault on open markets.

Trump has belatedly changed the game plan, but in a ham-handed way.  A competent trade diplomacy, with the U.S. working closely with Europe, could compel China to open more of its markets. But America can’t win a tit-for-tat, unilateral tariff war with China.

The naive globalist fantasy lies in ruins. The sooner the political mainstream admits that, the greater chance we have to take the appeal away from Trump and his counterparts among Europe’s neo-fascists.

In fact, there is more than one form of globalism and more than one form of nationalism. The Keynesian brand of globalism devised at the Bretton Woods conference of 1944, which ushered in 30 years of broad prosperity, was intended to limit the sway of global private capital and allow each nation to create social contracts that harnessed markets for the broad public good.

At the national level, the counterpart was a healthy form of nationalism that took pride in national democratic institutions and broadly shared prosperity. Leaders of that era knew all too well from the crash of 1929, and the Great Depression that followed, how untrammeled speculative capitalism leads to economic collapse, loss of faith in democracy, dictatorship and war.

They were determined never to repeat that history. But here we are again.

In the U.S., there is good reason to expect that a blue wave will lead to the ouster of Trump and the Republicans. But the kind of Democrat who is elected is at least as important as whether a Democrat is elected. If we get more Wall Street Democrats, who ignore the increasing insecurity and disrespect of regular working people, we will only get more Trumps.

It’s a mistake to blame Trump on some kind of chronic fragility of democratic institutions. The culprit is letting market forces and corporate elites overwhelm society, to the detriment of ordinary people. The only thing that can reverse the trend is a resurgence of democracy, as powerful as the resurgence of raw capitalism that has characterized the past several decades.

Robert Kuttner is co-editor of The American Prospect and a professor at Brandeis University’s Heller School. His new book is Can Democracy Survive Global Capitalism?