Towards the end of 2018, Henning Meyer, editor-in-chief of Social Europe, spoke to the expert on international political economy Mark Blyth, about the crisis of globalisation, populism, Brexit and other political disasters waiting to happen. This is an abridged version of their exchange.
Henning Meyer: Mark Blyth, thank you very much for joining me today to discuss the crisis of globalisation and what political and economic consequences it might have. Let me ask you the first question. Basically, do you think there is a crisis of globalisation? And if there is one, in your opinion, what are its main characteristics?
Mark Blyth: It’s always a tough one. I hate using the word ‘crisis’, because I’ve been doing this stuff for about 30 years now, and when I went to graduate school I read books about crisis. Then we had a crisis. Then we had another crisis. A crisis of this and a crisis of that. There’s a danger that the term becomes meaningless. So I will try and put it in a slightly different cast.
Capitalism itself is usually quite a robust system. That is to say, it can not only deal with shocks—it can sometimes benefit from shocks, depending on the type of shock. What’s happened since 2008 is not the type of shocks that you’re robust to, nor do you benefit from. You have a giant real-estate bust, which tends to then accumulate, through the banking sector and the bail-out of the banking sector, into a series of public debt bail-outs, which then leads to greater fragility on that side.
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The entire financial sector on the private side, whether it was corporates through corporate debt markets or whether it was consumers through consumer debt, are extremely levered. Wages aren’t growing, which is the real big problem. Inequality has literally never been higher in many cases. And we’re finally waking up to the fact that there’s an environmental crisis that is very, very serious and is going to hit us much sooner than we thought.
I look at it this way. We have 15 years to solve and really make a dent in a joint crisis. That joint crisis is one of the environment and one of inequality. And the two of them are linked. If we do that then we could be in a much better place. If we don’t do that, this is the [most] serious challenge that capitalism as a model has faced since its inception.
What you’re saying is there has been, obviously, some very severe instability at the heart of the capitalist system, and what is described as a crisis of globalisation is basically just a political expression of that crisis of capitalism?
Yes, but there’s also something specific about globalisation. Earlier in my career I spent a long time thinking about economic ideas and how they spread. I’m hardly the only person that’s puzzled over the spread of neoliberalism, but the more that I think about it now the less that I think about neoliberalism as a set of ideas and more of a set of practices. Those practices are to liberalise, integrate, privatise, otherwise knock down barriers to competition, etc.
When you do this with what were essentially national labour markets and national financial markets that were relatively closed—let’s say homogenous states that looked the same, made the same stuff and occasionally traded with each other but kept their finances separate—once you change that, through the practices of neoliberalism, and you become one big market in the [Polanyian] sense of integrated finance and capital movements etc, a couple of interesting things begin to happen.
The first one is labour’s ability to command its share of the surplus declines to zero. The strike becomes a meaningless weapon. Strikes decline to function—like to zero—in the western world. And you get prolonged wage stagnation, because essentially all the surplus goes to capital. There’s no reason for it not to. So labour’s ability to push up wages goes to zero.
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But there’s also something interesting that’s happening in financial markets and product markets at the same time. It’s like the second-order effect of neoliberalism. Which is the following. We dumped about 17 trillion dollars—yen, euros and everything else we could get our hands on—and we’re continuing to do so in Europe through QE-type programmes, through central banks, because of the financial crisis. And the weird thing is there’s no inflation anywhere. In fact, Europe is still deflating. It hasn’t hit its 2 per cent target in almost a decade. So there’s no [structural] inflation, despite a massive, absolutely unprecedented monetary injection. That’s also weird.
Then think about the third section, which is competitive product markets. Think about the price of a computer. Think about the price competition going on in all sectors. If you look at words called ‘mark-up’ and ‘margin data’ across firms, what you find, particularly in the US but not exclusively, is that if you’re a digital monopoly you’re making 50 per cent to 60 per cent profits. If you’re a small or medium-sized firm and you’re in global competition, your margins are tiny, your profits are tiny and you’re very resistant to push[ing] up wages, because that literally could drive you out of business.
Add this all together and you’ve got a very, very strange world that we haven’t experienced before. One in which you’re going to have [structurally] low interest rates because there’s no inflation to combat. Then you’ve got a world in which labour markets [can have] full employment but it does nothing for wages, which means sustaining and perhaps making worse the inequalities that are already there. Then in product markets you have a winner-takes-all dynamic, whereby quasi-monopolists get monopoly rents and everybody else [gets to return to perfect] competition.
That seems, in a very abstract sense but in a very real sense, to characterise a world we haven’t been in before, and the consequences of thinking through that world are quite profound.
You’re basically straddling the Atlantic. Do you see any significant differences in how this pans out in the United States and how it pans out in Europe? What would you say is maybe specifically characteristic of the United States and what is a European thing?
Well, let’s start with the fact that Europe still has significant welfare states and welfare transfer. If you look at Ireland, for example, which is a very small unrepresentative country admittedly—because it basically lives off American FDI stocks and them being a trans-shipment point into Europe—but Ireland has a very high pre-tax Gini [inequality] coefficient [yet comes] amongst the lowest when they do post-taxes.
So government policy matters and Europe still has policies. It actually wants to do something on climate change. It’s finding out the distributional politics of that: [in] France in particular [they] are more tough than we thought. But there’s effective governance and an attempt to basically deal with these agendas.
In the United States you have a governing class which is utterly in denial about the challenges that it faces. So in a sense what you see in the United States is the most accelerated version of these pathologies. If you don’t even accept that global warming and the consequences of climate change are real, it’s very hard to do anything about it.
That’s a big difference that we have at the moment between America and Europe. But at the same time 30 per cent, I believe, of Germany’s electricity is still produced by coal. Poland is somewhere around the 60 per cent mark. We’re all talking a good game, but very few of us are walking a good game.
You also mentioned some of the big tech companies. As these tech giants spread they are using, basically, their quasi-monopoly power in one sector to muscle into another. In the United States there’s a discussion about what big-tech company is going to disrupt healthcare next year, because that’s a big share of GDP that is utterly inefficient in the United States. Market segmentations that used to shield or at least structure competition seem to be disappearing. At the same time you have the user-network effect, that gives these tech giants a big advantage to use these disappearing boundaries to go after all sorts of different market segments—or what used to be market segments. The inequality tendencies that are not least the result of this, are they likely to get worse before it gets better? Or what kind of policies do you think need to be implemented in order to address these issues?
Well, this is where Europe once again has disappointed, unfortunately. The whole point of [the General Data Protection Regulation] (GDPR) wasn’t about data protection. It was essentially scaring Facebook and Apple and the rest of them into paying some taxes—basically saying: ‘If every time that you switch on your platform you have to click through 12 screens of approval you know you’re going to lose 80 per cent of your users. Most of your business is data accumulation from your users.’ Particularly on the Amazon and Facebook side of things. ‘So you really need to wise up and play ball.’ It seems that, with the intervention of the Dutch and the Estonians and a few others who love tech, that’s gone by the wayside. We’re going to have some nominal taxation and they’re going to be able to continue doing what they want.
The truly damaging thing here with these companies is what they do to innovation. If you’re running a start-up company here—I was talking to someone yesterday about exactly this—the ambition for their company is to be annoying enough to be bought by Amazon. Then Amazon will do what they did in the 1930s with critical technology, such as beryllium and others at that point in time for steel. Which is you simply put them on the shelf and you don’t roll them out, because you don’t want the competition to ever [get an edge].
This is all market preservation and killing innovation by buying it and putting it on the shelf. This is exactly what monopolists do. Now, we’re meant to know what to do with this. It’s called bust them up. But there seems to be no political will to do this.
I heard a very good presentation by an economist the other day, who came up with a theory. The question is: what is the difference, say, between the current crop of internet or technology giants and the first ones? After all, Facebook wasn’t the first social network; Google wasn’t the first search engine—nobody talks about AltaVista anymore. He came up with the idea that the difference is not just user-network effects but the underlying data. Basically, if you’re just sitting on the biggest pile of data the marginal costs of innovation are actually reduced by such an extent that it becomes completely inefficient and demoralising for your competitors to even think about competing. That then stifles innovation, because it’s concentrated in the monopoly power.
I would agree with that. I would go [further]. What exactly is the fuel for these corporates? It’s our data. And we give it up for free because their platform is free, so we use their platform. Very simple then. Charge for the platform. Make them charge for the platform and then watch their users drop off. Or have a free version versus a pay version. Alternatively, even better, get people to individually license the use of their data to these firms. We auction off the digital spectrum to telephone companies. Why don’t we auction off our personal data? Basically give the data on a ten-year lease that’s revocable.
There are lots of things we could do. We just simply choose not to. There’s the real commonality just now in governance. This is the bit that’s truly disappointing.
The quality of political capital of the governing classes has just been eroded, and it’s very clear to see why. There’s no money in it. What you do is you jump into a party. You become well known for a couple of years. You then get some expertise. You parlay that [into a] selling opportunity with the private sector. Then you jump ship and work with the private sector. So there’s a huge governance failure, which I think is to do really with the quality of politicians that we have.
What can be done? If you wanted to come up or start with a policy agenda to address some of these issues, what would you do?
The one thing we want to do is not do that. Here’s why.
In a sense, what we’ve run across the world during the globalisation era is a kind of meritocracy. A meritocracy is people like you and people like me, and people who are slightly different from us but nonetheless went to the same universities and studied the same courses. We get to run everything and we become the technocratic class. The technocratic class really has nothing to do with the rest of society. We send our kids to the same schools. We read the same newspapers. We have the same social habits. We’re a kind of transnational class. I was part of this. I saw it emerging.
Now, you’ve got everybody else who lives a very different life, where wages aren’t rising. The real-term costs are going up. The politicians are telling them ‘There’s no inflation’ but it seems that the cost of everything nonetheless is going up for them in real terms. And there’s a disconnect between the two.
Now, go back to the story about globalisation and how it emerged. The first thing neoliberalism did, in a sense, was to globalise labour markets and thereby render labour’s ability to command its share of national income obsolete. Then you have that product-market effect, and it [eats through product] markets. In a sense what happened was all of the little cartel structures, corporatism in Germany—let’s think product-market coalitions, all that sort of stuff, that kept the national economy insulated, all the little rules about who could buy your stocks on the stock market etc—all of that was stripped away.
Once all that was stripped away and everything really did go global, then you’ve got a question as to what happens to the political-party structures. Because what made all those little labour-market cartels and cushy arrangements possible, what made all those product markets safe for domestic companies and all the rest of it, were the political classes that mediated that post-war compromise—that were based everywhere on either a two-party system, Labour and Conservative, or a majoritarian coalition system of the type that you have in Germany.
Now you’ve destroyed the labour-market cartels. You’ve destroyed the product-market cartels. You’ve globalised everything. What’s the point of the existing parties? They don’t really have one. They were there to stabilise structures that no longer exist. Which is why they’re strangely clueless about what’s going on.
So the thing we don’t want to do is to say: ‘Well, let’s hand it over to the technocrats. Let’s get some policies. We will have some policies.’ This was the 2016 [US] election. Senator Clinton had hundreds of policies. They were all ranked. You could see the R[andomised C[ontrol] T[rials] that they were scored against to prove that they worked. And we could just add them together and that was a platform. Except it’s not—because what people are crying out for is a vision, a reason to believe in something.
What they actually want is someone to explain to them why, if global warming is so important, they have to pay through their wallets, through a diesel tax, when people that own yachts seem to get off scot-free. What they need is somebody to explain to them why it is that inequality has got so out of whack and our politics is run by the very people who are sitting at the top of the pile pulling the strings of the politicians. They’re not stupid. We think they’re reading ‘fake news’. They’re not. They’re just looking for an alternative account, because they don’t believe a word that comes out of our mouths anymore.
So until we actually get over the fact that the post-war party system is dead—[that] populism is the new normal—and we somehow reconfigure political action to basically create new parties and new structures or renovate old parties, and move forward with a much more progressive agenda … Then we can talk about policies. Just simply going ‘What are we going to do in terms of policies?’—we tried that in 2016. It was a disaster.
And the institutional structures of existing parties are not really accommodating. How would you reform parties? What would they need to do? Mainstream conservative, mainstream social-democratic parties are under pressure everywhere. What would you recommend they should do?
Well, the first thing that they should do, to quote—I think it was Planck, the physicist, that said this—‘Society evolves one funeral at a time.’ Let them die. I think you’ve got to start from scratch. When I had to give a speech at the SPD [Stiftung] in 2016 I said: ‘You are two electoral cycles from extinction.’ And I think I was exactly right. You might get three. But they’re dead. So there’s no point in trying to renovate something that’s dead.
What you can do is you can do what Corbyn did, although he’s not doing much with it, which is to take the dead husk of the Labour Party, in a kind of free-leveraged buy-out—take it over, build a whole new membership and then run it from the inside out. Until you assemble [in Germany] some kind of red-red-green coalition, you’re not going to stand in the way of the nationalists [in Alternative für Deutschland].
What do you think will happen once populists are in government? Look at Italy right now.
Yes. This is the really interesting one. When the Italian thing came up I said: ‘Look, here’s your real problem. It’s not this government. It’s what happens when this government fails.’ Because at the end of the day what populism has going for it is the notion of sovereignty.
Chris Bickerton, a political scientist at Cambridge, had a really nice observation about this. There’s a book he did a few years ago called [European Integration: From Nation-States to Member States]. Sovereign states have their own printing press. They can devalue. They can default. They can do all these things. Once you join the euro you can’t. It’s off the table. Essentially, you enjoy the backing of the ECB, who will back your sovereign debt and thereby backstop your credit markets, so long as you play by the rules. Hence the importance of rules in the system.
But those rules really don’t work for large, consumption-based economies like France or in particular Italy. They work for the ones that can globalise their supply chains through eastern Europe, and then sell their stuff to the rest of the world and suck in demand from abroad. That’s Germany, the eastern Europeans and some of the north. So you have a real north-south split on this.
The populists come to power in Italy. They may even come to power in France. They’re going to find out unless they leave the euro there’s not much they can do. But if they leave the euro they will destroy probably somewhere in the region of 40 per cent of national savings while trying. That’s not a good option. So you’ve now got people in charge who said: ‘Screw them all. We will change everything.’ And they’re not going to change anything. What does that do to democracy and people’s faith in democracy?
The constraints are in many cases not just confined to the national circumstances. Even though the initial expression might lead to a populist government of sorts, without actually triggering a cataclysmic event they won’t be able to do very much about these issues.
Right. What happens is in electoral cycle one, since the crisis, whoever was incumbent gets thrown out and whoever was the establishment opposition got in. In electoral cycle two the establishment opposition, who is now the government, is voted out. Half the time the old establishment incumbents in 2008 got back in but then had to share power with populists. Or populists themselves massively increased their vote share, typically eating away at [the] centre-left. Run the next electoral cycle. You will have more populism. More collapse of the centre-left going on, because it won’t be able to reconfigure itself in any important way.
More of these people will get into power and they will fail. And I really worry about that, because when they fail we could say: ‘Well, good, because they’re all idiots and they’ve got stupid policies.’ Yes, but what does that do to the public’s faith in democracy? Because they’re basically saying: ‘You can vote for the radical alternatives and you still don’t get to change anything.’
So you’ve given up hope that there is some way to reform, not just party structures—party structure is just a function—I mean reform the political economy, which is basically the constraint on many of these issues?
I think that it can be done if there’s activism to try and do it—if basically remnants of the progressive forces actually realise that unless they hang together they will definitely hang apart. And we’re really at that moment. Germany is the classic example for this again. If you had done red-red-green six or seven years ago we could have been in a completely different space now, but it wasn’t done. If you can reconfigure that now you can offer an effective opposition to AfD, but if you can’t then you won’t, because the SPD is dead. And that’s a choice that’s facing lots of countries.
This is not a counsel of despair. I have zero faith in the incumbents. They’ve had 10 years to fix it. They resuscitated the system with a massive liquidity injection. Didn’t change anything. And it turns out the world has changed and those structures don’t fit anymore.
Humans are incredibly adaptive, and when we’re faced with crises, as we are—environmental and inequality—there can be various responses. Just now what we see is the exclusionary nationalist response but that doesn’t have to be the only one. We are totally masters of our destiny here.
My point is this: if you’re waiting for a bunch of superannuated, septuagenarian social democrats to save your arse start looking elsewhere.