Year LXI, 2019, Single Issue, Page 36
Governing Globalisation:
Are There Any Alternatives to
the Lliberal-Democratic Model?*
NUNZIANTE MASTROLIA
It is often said nowadays that the West in crisis. Some people even believe that the whole Western model, which combines the rule of law with a market economy, is riddled with problems and therefore destined to collapse. In truth, however, there is little real evidence to support this view, regardless of whether we interpret “the West” as a broad or a narrow concept.
In fact, even when the term is applied in a merely geographical sense, “the West” includes the world’s richest, most prosperous and most dynamic countries, namely those of Europe and North America.
In these countries, revolutionary technological developments continue to produce marvels that until just a few years ago would have seemed futuristic. Here is where the welfare state (described by Ralph Dahrendorf as humankind’s greatest invention), along with advances in scientific research, has produced an unprecedented increase in the average life expectancy, surely one of its most amazing achievements. Here is where private enterprise seems to have defeated the concept of scarcity and created an economy of abundance that only the most pessimistic can mistake for consumerism. What is more, these countries are the focus of the dreams of many who, looking at them from the outside, imagine being able to live freer and more dignified lives there. After all, what are the great waves of migration from the southern hemisphere towards the US and Europe if not masses of people voting with their feet for the Western model, and declaring their long-term faith in that model?
Similar arguments hold true even if we apply a broader concept of the West that, essentially, coincides with Popper’s ideal type of open society: a society characterised by a set of institutions that have the capacity to guarantee all citizens and social groups (parties, trade unions, associations, businesses) the broadest freedoms, which they can use in pursuit of their own interests. Every country that has embraced the Western institutional model has achieved extraordinary economic development and mass social progress. The same can also be said of countries that have adopted only some parts of the Western model, such as free enterprise and free trade in the case of China.
Conversely, countries that have completely rejected the Western model have found themselves trapped by illiberal regimes and situations of economic depression. Meanwhile, certain countries that have failed to complete the transition from a closed to an open society, after planting the seeds of the Western model internally and starting to move towards institutional reform, are now starting to show signs of struggling. I refer, for example, to Russia, which soon abandoned the path of political reform in order to pursue Putin’s neo-tsarist dreams; China, which has forcefully blocked the demand for liberal political reforms, preferring to draw inspiration from the Asian despotism of the past; and Turkey under Erdogan, which, having turned its back on the country’s Kemalist tradition, is now dusting off old neo-Ottoman ambitions. Even India, having taken a conservative turn under Modi, seems to have abandoned the path of reforms first embarked on in 1991 by the then finance minister Manmohan Singh. One point perhaps worth stressing is that, in all these cases, it can be seen that the more despotic the power becomes, the less the economy flourishes.
Compared with what is seen in countries that chose to be closed societies, the West’s open society is therefore anything but a model in decline. And yet many of its citizens are under the impression that they are living in a waning civilisation. Without wanting to cite populism, which is all too readily used as an explanation for various phenomena, something is clearly wrong if the prevailing sentiment in Western public opinion is fear of the future. The open societies of the West are still active, creative, alive and free, so why are their citizens succumbing to this fear of the future, and allowing themselves to drawn to illiberal democracies and certain autocratic regimes? If we accept that these fears of decline are unfounded, then what, exactly, are people afraid of?
Let us consider a hypothesis. It can be argued that the fast advancing scientific research and technological innovation produced by Western open societies — these are the only places where social rights (schooling and public health) go hand in hand with liberal freedoms (the right to heresy and the right to err) — has impacted on the economic and social fabric of these parts of the world, to the point of producing a paradigm shift: from a Fordist to a post-Fordist era.
The same kind problem also existed at social level and was solved in a similar way. After all, what is a city (a concentration of people living in a specific place) if not a machine for reducing transport and communication costs? What is a hospital (a concentration of patients gathered in a single building) if not a Fordist “health factory”? Both have their departments and divisions. And finally, what are schools if not Fordist factories of education? In this latter case, the analogy is particularly clear: pupils progress through a course of studies that can be likened to a production line. Moving through the system, from class to class, they are filled with content until, at last, they are ready to undergo the final quality control stage (examinations), before being fed into the market.
Yet, the impact of this technological innovation has been felt only in the world of production, which, as we have seen, has moved from a Fordist to a non-Fordist model. In other words, whereas production has ceased to be Fordist, all the other spheres of life (cities, schools, education, collective bargaining) have continued to operate according to the Fordist model. And the general inertia and failure to address this situation has only exacerbated the problems that are emerging.
Thus, in cities today, negative externalities, in terms of congestion and poorer quality of life, often outweigh positive ones, to the point that it has now become very difficult to think of large urban areas simply as machines serving to reduce transport and communication costs. Similarly, the health system continues to “produce health” in a Fordist way, i.e. by treating the sick (not preventing the healthy from falling sick), yet without personalising treatments or health checks. And this situation, combined with the staggering increase in the average age of the population, is threatening to push costs up more and more. Similar criticisms can be leveled at schools, which continue to fill pupils’ heads with content even though it would perhaps be more useful, given the speed at which knowledge is evolving, to provide them with the tools they need to navigate today’s world. So, if we accept that state schools and the public health system represent the heart of the welfare state and that they continue to be run along Fordist lines in a world that is no longer Fordist, then we have to acknowledge the fact that there has been a failure to reform the welfare state and adapt it to the new times in which we live.
This failure to overhaul the welfare state and adapt it to the new post-Fordist logic has had dramatic social effects. First of all, it has deprived the citizens en masse of the tools necessary to live, work and thrive in a post-Fordist world. As long as state schools continue to prepare students according to the requirements of an era now superseded, they will continue to produce individuals who find the world incomprehensible and feel they have no voice and no instruments at their disposal. This explains their disorientation and fear of the future — a post-Fordist future in which most people feel they have no place.
Because it has been neglected, the welfare state has become not only inefficient but also entirely unable to fulfil what is, perhaps, its most important function: to prevent and assuage fear of the future, in other words, to make citizens feel that they are not alone in the face of major changes taking place.
Finally, it is worth highlighting a further consideration. In this scenario, there comes a point at which the welfare state is no longer capable of keeping the majority of people in step with the times, and no longer able to provide the citizens with the tools they need in order to live and thrive in the world (post-Fordist) in which they live; instead, these tools are available only to the wealthy minority. This, then, is the point at which the majority of people start to think that the liberal institutions must exist to serve only the few, and are actually an obstacle to their own well-being; it is therefore the point at which there emerges a mass consensus in favour of doing away with the liberal institutions.
This brings us to another question: why has the welfare state never been modernised? Quite simply, because for thirty years it was believed that the market could produce wealth and development (which is true), while also ensuring social progress and guaranteeing social rights for all (which has proven to be false). In other words, the neoliberal theorists believed that better distribution of wealth (the opposite of today’s inequalities) could be more effectively guaranteed by the market (through wealth trickling down and having the effect of raising all the boats, even the smallest) than by the state (through high taxes and public spending).
But that theory, as shown by the trends of recent years (growing inequality and increasing pressure on the middle classes) has failed the test of reality; in fact, it can be said to have been resoundingly refuted, in a Popperian sense, by the great recession. What this tells us is that a rich and prosperous middle class, crucial to the stability of liberal democracies, is not a natural product of market forces, but an artificial result of a series of political actions that amount to the guaranteeing of social rights through the setting up of an institutional system called the welfare state. In other words, the market alone is not enough to guarantee social progress; there has to be state intervention, too, or at least a series of collective rules that impose respect for social rights, remembering that a right is something that belongs to a person regardless of the will of others.
When that system (the welfare state or the logic that underpins it) ceases to work, societies become polarised and the people (here meaning the stable and prosperous middle class) turns into a crowd, that is to say, an irrational and reactionary actor that, gripped by a fear of the future, becomes ready to voluntarily relinquish all its liberal freedoms in exchange for the very minimum in terms of future security and social rights. This is the reason why liberal democracies turn into authoritarian regimes. It all comes down to failure to resolve a social issue: the presence of a fearful crowd.
In short, the Western model is not in crisis. That “something wrong”, mentioned earlier, is the fact that technological and economic progress, which is but one aspect of the model, has forged ahead more rapidly than social progress. And the reason for this difference in pace lies in the failure to reform the welfare state (i.e. the institutional system that should have guaranteed respect for social rights) and adapt it to our fast-moving times. This failure can be attributed to the neoliberal model’s defining belief that the market is able to guarantee social rights — advanced ones at that — more effectively than a public bureaucrat can. In other words, in accordance with neoliberal doctrine, it was believed that the market would guarantee not only economic development, but also social development. However, only the first part of this belief turned out to be founded.
There is a further consideration worth dwelling upon, and it concerns the fact, already mentioned, that Western open societies are institutional settings where liberal freedoms (the rule of law) and social freedoms (the welfare state) coexist. The combination of these two elements triggered the greatest phase of economic development and social progress known to humankind. And this was made possible by creating systems wherein liberal rights and social rights coexist without either prevailing over the other. And yet it is often forgotten that this formula — liberal freedoms plus social rights, and rule of law plus the welfare state — was the basis for building not only the internal order in Western and other countries embracing this model, but also the post-WWII international order. Because the major international institutions, such as the International Monetary Fund, the World Bank, and the GATT-WTO, were designed to do more than just keep the global market open and guarantee economic freedom; they also served to prevent the formation of closed blocs like those seen in the 1930s, and, furthermore, had the task of fostering social process, intervening less in developed countries (where this function was performed by the nation state) and more prominently in developing ones.
At international level, therefore, the post-war order created by the USA, a hybrid between a Westphalian and post-Westphalian order, was assigned a dual task: to prevent clashes between the world’s superpowers and the formation of the monetary and economic blocs that had driven the world into a second World War, and to regulate international competition with the aim of maintaining, within states, social peace and growing economic well-being. In fact, as pointed out by John Ikenberry, remarking on the USA’s apparent bewilderment following the disappearance of the Soviet Union (and therefore of the objective — containment — that had been perceived as the guiding star of American foreign policy), the most important result achieved by Washington in the post-war period was the construction of a liberal-democratic order. This was born of the need to eliminate the logic that, generated in the wake of the collapse of the Pax Britannica by the subdivision of the world into closed regional commercial blocs, had triggered the Second World War.
From this perspective, it can be argued that the building of the post-war liberal-democratic order amounted to the exact opposite of what had been done in the 1930s. Whereas the states grappling with the effects of the 1929 financial crisis had retreated behind huge tariff barriers, the activity in the wake of WWII consisted of breaking down barriers and opening up markets in a concerted manner, while at the same time keeping an eye on the internal stability of the single countries (hence the protection clauses written into the GATT). Whereas in the 1930s each country had acted unilaterally, seeking its own route to salvation, paying no heed to the consequences that such actions would have at international level, in the post-WWII period, the free nations of the world undertook, of common accord, to embark on a joint management approach designed to support the stability and prosperity of national economies and ensure social security. As explained by Ikenberry, instead of simple freedom of trade, the industrialised countries set out to create and manage an open order, nevertheless based on a set of multilateral institutions and a “social pact” aimed at balancing economic freedom with stability and well-being. He then further underlined this point, reiterating that that the Bretton Woods agreements were important precisely because they served as the foundation for building broader coalitions around an order that was both open but also managed. In short, they represented a compromise solution that was supported both by conservative free traders and by the new economic planning enthusiasts. All recognised that the removal of barriers to the movement of goods and capital was not enough, and that the system needed to be monitored and governed by the leading industrial nations. There absolutely had to be institutions, rules and the active involvement of governments. All this because the experience of the 1930s had led to a fear of contagion, the idea that a single nation’s pursuit of bad economic policies could threaten the stability of all the others.
These new arrangements also allowed the governments to meet the new obligations of the welfare state, implementing expansive macroeconomic policies and ensuring the well-being of the population. In more general terms, the emphasis placed on creating an order that would ensure social stability reflected a central objective of the American drafters, and it explains why a social democratic order in the Keynesian mould was created within the states, alongside a social-democratic order at international level, too; the latter was based on international economic institutions entrusted, among other things, with intervening should the single states prove unable to fulfil their functions intended to ensure social stability. I refer to the UN, the IMF, the World Bank, and the WTO (formerly GATT); all these organisations were expected to intervene in order to ensure that internal order and international order coincided and advanced together. According to David Landes, one of the main objectives of the Bretton Woods agreements was indeed to ensure that employment levels remained high. In his view, the linking of international economic stability to employment levels in single countries in itself marked a political turning point and showed the extent of the influence wielded by the new economic doctrine. Landes here refers to Keynesian thought, which suggests that the international post-war order can also be considered a Keynesian order. One might think, for example, of Stiglitz’s explanation of the role assigned to the IMF: essentially, the IMF was required to sustain global aggregate demand by putting pressure on countries to maintain full employment and by providing liquidity to those that, struggling with periods of economic slowdown, could not afford to support the necessary expansionary increase in public spending.
In short, the state had the task of supporting internal demand and preventing market failures, while the international organisations were required to stop any such failures from spreading internationally and, at the same time, to help countries in difficulty.
The advent of the Hayekian model produced, internally, a reduction in the effectiveness of the welfare state, while externally it changed the nature of international institutions and therefore their social functions. Essentially, this model, by forcing the state and international organisations to assume a role completely different from that envisaged by the Keynesian model, had the effect of changing the post-war order. The struggles of Western countries today are therefore due not only to internal problems (failure to adapt the welfare state to changing needs), but also to the difficulties faced by the international order on account of the modification of its cardinal institutions produced by the advent of the Hayekian model.
Thus, these institutions (the World Bank and the IMF), which were meant to help developing countries to ensure greater social progress, have become tools for implementing (necessary) liberal policies, but they lack the counterweight of institutions able to guarantee social rights. It is this that has produced inequalities, social imbalances and the perception that that the international order was created not to serve the well-being of all nations, but only the interests of certain hegemonic powers and of those enterprises better placed to exploit privatisations imposed in the name of the Washington Consensus.
This is the reason why some countries have abandoned the reformist policies they had undertaken (also in an instrumental sense) and backtracked. In short, they have abandoned the path that would have led them to an open society in order to return to their past. As mentioned, we have seen Russia moving back towards its tsarist past, Turkey harking back to the Ottoman Empire, and China reverting towards its imperial past. In other words, these countries, and those that have followed their example, have abandoned the path that would have led them to an open society in order to return to Asian despotism, that is, the old way of running the state.
It can therefore be concluded that the Western model is alive and kicking, but going through a growth crisis. This is due to the fact that while economic development and technological development have advanced to an incredible degree, the domestic and international institutions, which should have ensured that the majority kept pace, have failed to do the same. This situation has generated fear and frustration internally (especially in countries where there has been less reform of the welfare state) and it has triggered the birth of movements firmly opposed to the market. These movements accuse globalisation of being the root of all evil, and regard open borders and migration as a threat. They also oppose enterprise (demonising multinationals) and the institutions and political leaders that have defended the liberal order (such as the EU and Merkel, initially, but now Macron, too). At international level, on the other hand, this situation has produced the birth of illiberal democracies and authoritarian regimes that explicitly reject the liberal order and Western open societies. None of this has happened because the liberal-democratic model is spent, or because open societies have been defeated; it is simply the effect of the failure to overhaul the institutional system that, both at international level and internally, should have ensured respect for social rights together with liberal freedoms. The current ills are due not to the demise of open societies, but rather the extraordinary growth that they are now experiencing. The good news is that there exists a remedy; the bad news is that failure to apply it could be very dangerous, both for the internal stability of Western countries and for the liberal international order. The only alternatives to this order are regional blocs. And let us not forget that these, in the name of economic protectionism and political nationalism, twice in the space of three decades exposed the world to the horrors of global war.
* This is the translation of a speech given at a meeting of the Debating Office of the Movimento federalista europeo (MFE), held in Naples in 6-7 April 2019, entitled European federalism and the crisis of civilisation.
