The Russia-Ukraine war has put Europe in turmoil -- perhaps, the biggest one since World War II. On one side is the entire West, led by the US, which is standing in solidarity with Ukraine. On the other side are nations including China, who are siding with Russia in taking the lead against the dominance of Western Capitalism that has ruled the world since the fall of the U.S.S.R. (between 1988 and 1991).
Will the ongoing war be decisive to create a new world order? Can it spell doom for the idea of globalization, as we have known it over the past three decades?
In an interview with Outlook Business, Edward Ashbee, Professor of International Economics, Government and Business, Copenhagen Business School, explains the politics of globalization and deciphers whether the challenges it faces currently have the power to destroy it.
Edited excerpts:
Joe Biden’s recent call for moving manufacturing to the US, which some see as a direct reference to Chinese manufacturing, is the continuation of Donald Trump’s pitch of ‘Make America great again’. Critics view it as the end of free-market capitalism that emerged in the 1990s. What do you make of the US putting an end to the concept of outsourcing production? What does it do to the idea of globalisation in the 21st century?
The white rustbelt working-class voters, who voted for Obama in 2012, then Trump in 2016 and now Biden in 2020 are the most important swing voters in the US. All the rhetoric from the US presidents regarding manufacturing jobs is coming back to appeal to them. But the question here is where is it headed? Do I see this as leading to the end of free-market capitalism? I don’t think so.
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Since 1945, industrial policy or developmentalism has been pursued by all sorts of capitalist states at different points of time and in different ways in both Asia and Europe. The obstacles to change and reform in the US are so great that it’s almost impossible to move that way. While some capitalist states have been able to move towards developmentalism through a degree of government intervention to either develop manufacturing in a particular direction or invigorate it, the capacity of the US government to do that is very limited. We have seen time and again, the weakness, rather than strength of President Biden over the last year or so.
Can they put an end to outsourcing?
It won’t happen because of government action. It might happen because of particular cost issues within a particular supply chain. Or it might happen because of fear amongst large corporations about their supply chains being vulnerable during the period of uncertainty.
What does it do to the idea of globalization?
Globalization takes all sorts of dimensions -- political, economic, and cultural. In certain respects, we can talk about de-globalization processes but not de-globalization per se. We are talking about the pace of globalization slowing down rather than globalization being put into reverse gear.
If we go back to the 1920s… fascism did put things in reverse gear. But today, that’s not going to happen simply because we are not seeing the rise of fascism. Today, what we are seeing is a sort of conservative populism, high on rhetoric against globalization but politically weaker than fascism.
Most countries are unhappy with the US’ use of its currency as a financial weapon against other nations. The US’ ability to print dollars without any underlying assets has fueled inflation across the world, leading to wealth accumulation in the hands of a few in each country. As Russia and China fight USUS dollar hegemony in world trade, what could be its possible outcomes?
If I had a choice between the Renminbi, the Rouble, and US Dollar, I would take the dollar anytime. In practical terms, that’s how international markets operate. Here we are not just dealing with the weaknesses of the US dollar but its weaknesses and strengths as compared to other currencies. The launch of the dual circulation strategy by the Chinese government puts a question mark over their understanding of globalization. The Chinese currency is not fully convertible. So that’s not an option for now. And, who wants the Rouble at the moment? We are left with the US dollar as the supreme boss among currencies. The only other options in the market are gold or trade-in energy supplies.
In a sense, the financial crisis of 2008 never ended. Governments across the world kept on buying more time by resorting to a Keynesian model of growth, without having the means to repay the debt. Do you think that the current war is a result of that financial burden that the West as well as other Asian economies face, or are there other factors behind it? Also, please comment on what unproductive state financing of economic activity can do to sovereign governments?
I would hesitate to say that they resorted to the Keynesian model. There was some emergency Keynesianism in 2008-09. After that, governments and central banks fell back on the monetary policy rather than the fiscal policy. And it has distorted economic development in all sorts of ways by inflating asset prices leading to inequality of wealth. Take for example asset prices in London.
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But I don’t think that inequality due to quantitative easing is leading to war. If you look at Putin's motive to wage the war against Ukraine, it’s clear from his speech that he wants to regain past Soviet territory. This is more to legitimize his form of government in Russia. So, suggesting that the current war is a result of the financial crisis of 2008 and thereafter is taking a step too far.
Donald Trump was trying to withdraw the US from its role to save the world in climate talks and safeguard democracies. Do you think that going forward; the commitments under climate talks have put additional pressure on Western democracies.
If we look at internal pressure in the US, it’s clearly not just Trump. Even Joe Biden is not going to be able to make much of a move on this. His eyes are always on those voters who are not sympathetic to climate talks and reforms. Also, there are one or two Congressional Democrats who resist reform. At this stage, because of the Russia-Ukraine war, there is pressure to find an alternate source of energy.
Will the European Union come under further stress given its proximity to China and a large part of it not being able to corner enough markets in the world for growth? How do you see the more prosperous Western Europe treating the eastern part?
The European Union has been trying to hedge its bets both in terms of connectivity and trading with Asia. If you go back even six-seven years and look at EU policy documents, at that point Belt and Road project was the only game in town. But what we have seen since 2017 is an attempt to hook up with Japan, India and ASEAN countries for infrastructural connections to counter the Belt and Road Initiative. While there is still some expansion in China, many firms have realised that they have to compete on what they see as unfair terms with the state-owned firms. As a result, many firms who have the resources are keeping their hold in China but they are also diversifying their supply chains in other South Asian countries. So, it’s not so much about building markets but safeguarding markets and supply chains.
Given the Russia-Ukraine war, and the fast-changing geopolitical situation, do you think European companies have enough time to decouple themselves from their dependence and engagement with China?
Capitalism has logic. It’s like a tiger that cannot be tamed. So, Donald Trump or Mike Pompeo might talk about decoupling the US from the rest of the world, but there’s not much that they could do about it. Though, we must acknowledge that there is a slowdown in the relationship between the West and China because there are a lot of obstacles for the Western companies and this is why they are diversifying their risk by establishing their base in countries outside of China.
Do you see a relationship between the rise of “strong” sovereign leaders and capitalism in crisis?
I certainly see a connection between Capitalism in crisis and would be strong sovereign leaders’. Donald Trump wanted to be a strong sovereign leader, but a feature of contemporary capitalism is fragmentation and rival centers of power. If we look at the Trump era, we can look at what Trump was able to do, but we must also notice what he was not able to do.
But yes, we should take note of the rise of conservative populism in Europe and the US. This wave of populism generally promotes the idea of a strong leader.
What are your views on the increasing income disparity in the world and capitalism’s role in increasing the standard of living of people in developing and indebted economies?
It depends upon what period you take. Say from the 70s till today, because of the transformation of China and India… When Xi jinping says that the Chinese Communist Party lifted so many million people out of poverty in the last three-four decades, that’s what happened. Any discussion of inequality should take into account what happened in Asia compared to many African economies. In fact, it can be argued that Chinese and Indian capitalism did much to reduce income disparity in the world.
What scope are sovereign nations left with to continue being welfare states in the event of uncertain world order and falling economic growth?
This comes back to different forms that capitalism can take. Left was arguing in the 90s and before that capitalism and globalization will lead to a race to the bottom in terms of wages and conditions. The picture that we saw since then is complicated. Scandinavian countries have not engaged in a race to bring down wage levels because they have established certain forms of comparative advantage and certain kinds of specialization.
Will there be a new world order and what will be its role in the idea of sovereignty?
In the 90s, people said that nation-states are dead… governments will be reduced to local councils. Clearly, that’s not going to happen. Nation-states remain important. People talked about globalization way too much. Indeed, nation-states are becoming important again due to the rise of political forces and neoliberalism will have to make its peace with that.
