by From Thomas Palley and current issue of the RWER Economic failings and the rise of politics It has been ten years since the financial crisis. Since then, the global economy has recovered and attention has increasingly shifted to political risks as the trigger for the next economic crisis. That shift of attention has been driven by political events like the UK’s Brexit referendum, the election of President Trump, and the rise of anti-euro populist political parties in Italy. Such events have the potential to cause financial disruptions that trigger broader economic dislocation, which in turn could further aggravate political conditions. In effect, we have moved to a world in which politics has become an important potential economic detonator. The rise of politics is no accident.
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from Thomas Palley and current issue of the RWER
- Economic failings and the rise of politics
It has been ten years since the financial crisis. Since then, the global economy has recovered and attention has increasingly shifted to political risks as the trigger for the next economic crisis. That shift of attention has been driven by political events like the UK’s Brexit referendum, the election of President Trump, and the rise of anti-euro populist political parties in Italy. Such events have the potential to cause financial disruptions that trigger broader economic dislocation, which in turn could further aggravate political conditions. In effect, we have moved to a world in which politics has become an important potential economic detonator.
The rise of politics is no accident. Instead, it reflects the popularly perceived failings of the neoliberal economic paradigm which has dominated economic policymaking for the past forty years. Since globalization is the most prominent feature of the neoliberal program and has also had some of the most visible negative effects, it has been placed in the forefront of the backlash. That backlash suggests globalization is unlikely to deepen further, and may even unravel a bit.
- Globalization as economists’ version of the “end of history” fallacy
The challenge to globalization has taken economists by surprise. In many ways, there are parallels between economists’ faith in globalization and Francis Fukuyama’s (1989) “end of history” hypothesis. After the demise of the Soviet Union, Fukuyama prophesied that free market liberal democracy had become the “final form of human government, to which all countries would now converge (Fukuyama, 1989, 3)”.
Fukuyama’s hypothesis reflected the triumphalism that accompanied the fall of the Soviet Union. Within ten years it was already looking frayed, and within twenty years it was in tatters. At its base, lies a flawed understanding of human psychology regarding the appeal of identity, religion, racism, tribalism, and nationalism. Those profound forces easily lend themselves to majoritarian democracy without minority rights, or even outright authoritarianism. The fallacy of the end of history hypothesis was already visible at its inception in the form of rising Islamic fundamentalism in the Middle East and robust Christian fundamentalism in the USA. The discontent with the neoliberal experiment has further encouraged non-liberal forces, as evidenced by the tilt toward nationalist illiberal democracy in Russia and Central and Eastern Europe. In China, a hybrid state – free market economic system has emerged in which the political system is nationalist and authoritarian and moving in the direction of a high-tech totalitarian surveillance state.
Strong parallels can be drawn between mainstream economists’ belief in neoliberal globalization and Fukuyama’s end of history hypothesis. Economists’ thinking rests on the ideal of competitive general equilibrium which frames modern economic theory. That theory justifies the neoliberal economic paradigm, and trade theory extends the paradigm into the international sphere via application of the principle of comparative advantage which supposedly determines the pattern of specialization and trade.
Given this framework, globalization is presented as inevitable and unstoppable owing to the forces of technology and mutually beneficial gains from trade. The optimal future course of the global economy is to follow the template established by the World Trade Organization (WTO). Any who question that analytical perspective and its policy prescriptions are labelled as protectionists, luddites, or economic nationalists, and they are written off as being on the wrong side of economic history.
Unfortunately, as with Fukuyama’s political version of the end of history, events now threaten economists’ economic version of the end of history. That is because neoliberal globalization has run smack into a host of economic, political, and geopolitical contradictions. read more