Abstract
In a number of recent contributions Wolfgang Streeck has provided some of the most penetrating analyses of contemporary capitalism. Particularly noticeable has been his distinction (2013) between Staatsvolk (the people constituting the democratically entitled citizenry of a nation) and Marktvolk (the global holders of finance capital, whose power is exercised over governments through means that bypass and over-run national democracy). In this new work he goes beyond these earlier analyses to provide an account of what he sees as the mutual incompatibility of democracy and a globalized economy. In doing so he reintroduces and updates the contributions to understanding capitalism of those two giants of mid-20th century analysis, John Maynard Keynes and Karl Polanyi. There is also considerable use of data and various research findings, but also of such surprising authors as Edward Gibbon.
A core argument of the book is that globalization has shifted power away from the nation state, which has been the primary level at which democracy has flourished, passing it to networks of global corporations. Whereas many of the advocates of globalization depict it as replacing hierarchical state action by free markets in which consumers are dominant, Streeck points out that the architecture of the new global governance is itself highly vertical. Power is drawn out of the various levels of democratic action and lodged in a few international banks and other giant firms. The doctrine of shareholder value maximization has displaced any other responsibilities (to workers, customers, the environment) that firms possessed when they could be regulated at national levels. By erecting global supply chains, corporations have been able to source parts of their products from wherever labor is cheapest and possesses fewest rights, where environmental and other protective regulation is very weak, where taxation is lowest. As a result, much global trading that looks as though it operates through markets really takes place within the structures of individual giant firms, enabling them for example, to use book-keeping techniques to allocate their costs to wherever they choose, irrespective of what is really happening. One might add, though Streeck himself does not make this point, that the accountancy and audit process of contemporary capitalism are as fictive as the “post-truth” of much current political and governmental discourse. The global economy is not really a market economy, but one dominated by giant corporations—and, one might add, their political allies.
In some of his much earlier work, Streeck (1989, 1997) had argued how certain constraints imposed on business by national regulation actually favored firms’ own long-term performance. For example, the obligation that the German vocational training system imposed on firms to provide their employees with skills often meant that German workers were somewhat more skilled than their current jobs actually required. In effect German firms were spending more on educating their work forces than the strictest calculations of short-term efficiency could justify, putting them at a potential cost disadvantage against competitors in countries that did not require such training. However, it also meant that when firms needed to move up-market to make higher value-added products, German firms were able to respond more rapidly than their rivals elsewhere.
The new, 21st century model of short-term profit-maximizing global capitalism operating through international supply chains and avoiding externally imposed constraints, is in danger of destroying this model, and therefore eventually damaging capitalism’s own capacity to improve quality. Gradually more and more production of goods and certain services has shifted to countries with poor standards of working and environmental life, particularly China. In a context of global competition, the national regulation that was necessary for Streeck’s model of capitalism under beneficial constraints becomes virtually impossible.
One might ask why governments have been content to accept a globalization process that has decimated much of their manufacturing economies, and also an erosion of their fiscal base as they engaged in a race to the bottom for corporation and capital gains taxes. This in turn threw a greater burden of taxation on ordinary citizens—their Staatsvolk—and eventually major reductions in social spending.
There are probably three main answers to this question. First, and most respectably, governments and the international organizations that encouraged them, accepted the theory of comparative advantage. If certain products could be made more cheaply in China and elsewhere than in existing industrialized countries, then consumers in the latter could benefit from lower prices, and their workers could move up to higher value-added activities, usually with better remuneration. The products of some of these last could be sold to the growing numbers of wealthy consumers being generated in the newly industrializing countries as they joined the global economy. The argument is by no means without merit. Outright opponents of globalization, like Streeck, need to recognize that, if the process were to be reversed and a serious deglobalization to take place, income levels across the newly industrializing lands would fall, leading not only to increased poverty there, but also a loss of trade for existing wealthy countries. Deglobalizers would counter by arguing that this deficit would be made up by a revival of industrial production in the old industrialized world. This is an argument to which we shall return below. It is first necessary to examine the two other main reasons why western governments welcomed globalization so uncritically.
The second is that, particularly in the United States and partly as a result of the early stages of globalization process itself, the real incomes of the majority of workers have been stagnating since the 1980s (OECD, 2011). This might have been expected to lead to a major economic contraction in economies like the American one, based on mass consumption. Globalization helped avoid this; wages might stagnate, but many goods were becoming cheaper. (As we now know, this was not adequate, and many workers in the US, UK and some other countries were only able to maintain living standards by taking on unsupported household debt, which was eventually one of the main factors causing the 2008 financial crisis. But that is another story.)
The third reason is that, following the anti-Keynesian, neoliberal shift across the western world that took place in economic ideology from the 1980s onward, pressures such as those from globalization that weakened the power of organized labor, forced down business taxation levels and business regulation, were politically welcome.
The scope for deglobalization
It is easy to understand why many critical writers on political economy, including Wolfgang Streeck, have come to see globalization in entirely negative terms, and to advocate a deglobalization. To some extent the process is taking place. Some African countries, which, in order to pay debts to the global Marktvolk, have become exporters of food while their own Staatsvolk do not have enough to eat, are seeking to withdraw from international trade. The recent deterioration in relationships between China and the western economies has produced a desire among the latter to reduce economic dependence on China, especially for high-tech products. The Covid pandemic has led to some rethinking of the desirability of long international supply chains, where outbreaks of disease in one part of the world can produce uncontainable economic shocks.
It should be noted that these factors do not address the impact of globalization on democracy or labor and environmental standards in the existing advanced economies, and therefore do not directly address Streeck’s concerns. In order to construct his argument for deglobalization, Streeck turns to Keynes (1933) and Polanyi (1945), who both began to advocate protectionism to defend national economies from an earlier disastrously destabilizing period of international economics in the early 1930s. The position of Keynes, as an essentially liberal economist, was particularly surprising. While acknowledging the gains that flowed from comparative advantage, he saw that the capacity of national governments to manage their own economic policies was becoming severely compromised by the chaos flowing from the financial crashes of 1929-31—these crashes being international because of the financially inter-related nature of economies at that time.
The problem with the analogy of the 1930s is that globalization is today so much more advanced and complex than at that time. Then, world trade basically concerned the US and a few western European countries with their heavily dependent colonies. International supply chains were few, and mainly contained within the imperial authority of the colonial powers. The Soviet Union was largely withdrawn from international trade, and China (in a state of civil war) and Japan (a dictatorship) played little role in it. By 1933, the year in which Keynes published his contribution to this debate, Hitler was taking power in Germany and fascism was advancing in other parts of Europe. Moves toward national protectionism would mainly have affected relations between the US and a few European countries, all of which countries were less engaged in international trade than today.
Today, precisely because trade relations have become so convoluted, extrication by individual countries through the means of protectionism would have to be far more elaborate. One has to assume it would take the form of an uncoordinated set of moves by individual countries. Were coordination feasible for such a task, it would not be necessary; if coordinated deglobalization could be achieved, the easier task of a coordinated regulation of globalization would also be possible. For Streeck, protectionism would achieve two goals. First, it would enable industrial production (and therefore an organized industrial working class with political clout) to return to individual nations, enabling both their economies and their democracies to return to the condition they were in before the long move to neoliberal globalization began. Second, controls on the movement of capital would make it very difficult for banks and other investors to force nation states into fiscal races to the bottom.
An uncoordinated movement toward protectionism would necessarily take the form of a series of mutually hostile moves, each of which would invite retaliation. Let us assume that the government of nation X wishes to reactivate its motor industry. It therefore imposes tariffs on car exports from the countries whose motor industries are more successful than its own. These other countries, Y and Z, retaliate by imposing tariffs on a successful export of country X. The negative effects of tariffs would be experienced fairly quickly by country X, while it would take some time, perhaps years, before its motor industry had revived. The equivalent process would also be happening in Y and Z. Everywhere the negative impact of protectionism would be felt sooner by all those involved than any positive gains. In Keynes’s and Polanyi’s period the mass consumption economy was in its early stages; in the 1940s it was possible for George Orwell to write, accurately, that most people owned just a few sticks of furniture and some clothes. Being confined to the purchase of nationally produced goods was not such a burden. Consumers in the 21st century would rapidly become irritated if they were prevented from buying goods from elsewhere, whether this was a matter of lower prices or superior quality. In sectors tending toward oligopoly or monopoly, both price and quality issues would be exacerbated by the fact that national champion firms, safe behind their tariff barriers, would have few incentives to improve either.
Streeck’s hopes for a rejuvenation of industrial employment in the advanced economies must also take account of the fact that globalization has not been the only destroyer of industrial jobs. A major role has also been played by automation. A motor factory or coal mine of the early 21st century employs a fraction of the manual workers that it did in the 1970s. This was something never acknowledged by President Donald Trump, the only major political figure in an advanced economy so far to have promised similar policies. Protectionism would not bring back the vast working class that forced politicians to pay attention to its interests in the mid-20th century.
While protectionist moves would hit trade relations among wealthy nations, many poor countries would also be affected as they found their exports barred from the former. While it is true that many poor nations suffer from globalization, the imposition of tariffs against them by unilateral action by various wealthy nations could throw their fragile economies into chaos.
A world of nation states competing to set up trade barriers against each other would also be a dangerous world; the 1930s were not a great example of peaceful international relations. Streeck directly confronts this issue, by arguing that today’s populations in the advanced economies are very different from their forebears; they have learned to accept peaceful, multicultural relationships. There is plenty of evidence to the exact contrary. Nationalistic, xenophobic, racist movements are today gaining strength, or at least maintaining important positions in almost every one of such countries. In Hungary and Italy major political parties are even echoing the hatred of Jews that formed such a terrifying part of the politics of the 1930s, with even more hatred for Moslems, gypsies, and (in the case of the UK) other Europeans. These are precarious times. Streeck seeks a nationalism of the left, distinct from that of the racist right, and there is certainly a movement of that kind in several countries: most notably the French party France Insoumise, but also currents within center-left parties elsewhere: Aufstehen in Germany, the so-called Lexit wing of the Brexit movement in the UK, i sovranisti in Italy. It is therefore open to him and those who share his position to argue that, unless the left articulates its own form of a new sense of nationalism that is clearly stalking much of the world, including its democratic parts, the extreme right will be able to absorb all the resentments felt by many working people into its own grasp, and turn them into xenophobia instead of a rational demand for democratic economic autonomy. Streeck himself acknowledges the trumping of class by national identity, pointing out (and the historical argument is incontestable) that nation has nearly always been a more powerful mass mobilizing force than class. If he is right in saying that the nation state is the principal manifestation of democracy, then if mass politics could be organized around a series of acts of national defiance of international capitalism, economic transformations might be possible that would ever remain elusive if waiting for a cross-national class alliance. Overall he tends to view nation states as culturally sealed boxes (see especially p. 395).
However, if any part of the political spectrum “owns” appeals to the nation it is the far right, whether in opposition to the cosmopolitanism of international organizations, enmity toward other nations, or hostility to ethnic minorities. Streeck’s politics would share the first of these; but would reduce inter-national conflict to a rationalistic business of economic protectionism; and would have nothing to do with the third. But the concentration of emotional energy around nationalist politics would remain firmly in the hands of the far right, who can articulate feelings of hatred across all three levels. The risk faced by a leftist or centrist politics that seeks to use nationalism in a limited and restrained way is that it legitimates the more powerful primordial charge that belongs to the far right. Streeck is himself ambiguous about the performance of various xenophobic governments, such as those in Hungary, Poland, the UK and the US under Trump, never actually criticizing them, but citing some of their actions with approval.
Can there be a primarily anti-capitalist politics that uses national identity, and thereby robs the right of its claim to speak for the nation? At present we have some examples of attempts to do this: the Danish social democrats, who in government have adopted positions of hostility to Islamic immigrants, positions associated with the Dansk Folkeparti; the British Labor Party, who in opposition have recently adopted a flag-waving, post-Brexit stance; and France Insoumise, who have replaced the red flag with the tricolore and the Internationale with the Marseillaise. Of these three only the last are using nationalism to articulate an anti-capitalist stance. The Danes and the British seem just to want to deny the right a monopoly of nationalist sentiment. As social observers, we need to watch whether this disarms or reinforces the extreme right; at present it is too early to tell. There is however a further problem: adopting a nationalist stance does mean writing off significant cross-national co-operation as undesirable. Is this a feasible strategy in the contemporary world?
Europeanization equals globalization?
Streeck presents a world of stark alternatives: either there is neoliberal hyper-globalization, or there is a democratic national taming of capitalism. Here he agrees with Rodrik (2011), whose noted trilemma posits three poles: deeper international economic integration (globalization); the nation state; and democracy. Democracy could be combined with globalization only if there were a global federal state, which is an impossibility. For both Rodrik and Streeck national democracy without globalization is possible, because that is what the advanced economies experienced under the Bretton Woods régime that regulated the world economy from 1945 to the early 1970s. This presents a problem of direction of travel. The Bretton Woods nation states were engaged in a process of gradually relaxing trade barriers, an essentially amicable process. Deconstructing a collaborative international trade regime, a move in the opposite direction, is essentially unfriendly.
Is it not possible to combine some democracy with some globalization, with some national autonomy? Rodrik is an economist, and they are well known for insisting on sharp, ideal-typical distinctions. But as a sociologist Streeck ought to be aware of nuance and the near infinite human capacity for innovation and for finding compromises and part measures. Can there not be a regulated globalization, regulated partly at global and world-regional levels, partly at national ones, enabling us to enjoy something of each limb of the trilemma? The crucial point here is the possibility of shared sovereignty among national democracies, such that they give up some autonomy in order to achieve some shared power that they cannot wield alone.
Streeck rather fleetingly accepts the possibility of shared sovereignty (verteilte Souveränität, p. 490), but is mainly concerned to argue that confrontation with the power of global finance capitalism requires a mass mobilization of democratic counter-capitalist power, and this can be found only at the level of the nation state. Therefore, all attempts at regulating capitalism at supra-national levels are doomed to fail. There is certainly evidence for such a position. The World Trade Organization (WTO), the most important institution for regulating global trade (or it was until Trump removed US judges from its court, rendering it toothless), acts as a door-keeper admitting countries to the global economy and administers sanctions if their behavior breaks its rules. These rules are solely concerned with limiting state subsidies and other forms of governmental support. They are silent on whether an economy uses slavery, child labor or other forms of labor exploitation, or uses highly polluting manufacturing processes—though these could well be defined as anti-competitive factors in themselves. This is a global order produced by capitalist interests with no regard for those of workers or citizens. It could have been otherwise, had labor, consumer, and citizen interests the political power to influence the rules and structure of the WTO. They could not do so, Streeck can justly argue, because their influence is limited to the nation state and, unlike capitalist interests, cannot reach beyond it.
If we are looking for nuance and possibilities, we do not remain content with this answer. If we look in more detail, we can note how some organizations in this essentially capitalist global governance architecture have in recent years advanced beyond such positions. The International Monetary Fund (IMF), the Organization for International Cooperation and Development (OECD) and the World Bank have all warned against the dangers of growing inequality in the US and elsewhere. The OECD has also tried to coordinate international action against corruption (a far from marginal component of contemporary capitalism), and for minimum levels of corporate taxes in order to contain the race for the bottom. Nearly all international bodies with relevant competence have warned and campaigned against the impact of fossil fuels and other sources of environmental damage on the climate and on biodiversity. In particular, since the now obvious disaster of the global, bank-orchestrated policies for recovery from the financial crisis, many institutions, such as the European Central Bank (ECB), have started to see the error of their former ways and to shift policy.
It could be argued that these institutions are only furthering capitalism’s own long-term interests; they have not been mobilized by democratic politics. But that was always part of Streeck’s earlier arguments about beneficial constraints; it needed authorities outside those of business itself to point to, and often to implement, policies that served capitalism’s own long-term interests, but which capitalists themselves were usually too myopic to see. There is scope for this happening also at the global level, and there are instances of it.
It is however still non-democratic, and therefore that much weaker than earlier instances of such policies in pre-globalization days, operating at national levels. On the other hand, several major current issues - preventing fiscal races to the bottom and combating climate change are fundamentally important examples—where Streeck’s autonomous, protectionist nation states, however democratic, would be incapable of acting effectively alone. When we discuss themes of collective and public goods or universal benefits, we often take it for granted that “collective,” “public” and “universal” are near synonyms for the nation state. They are not. Carbon dioxide emissions do not respect tariff barriers or national flags; neither do viruses. For many contemporary problems “collective” and “universal” have to mean what they say. It is true, as Streeck would argue, that global collective action against climate change has so far very little to show for all its posturing and the self-praise that governmental and corporate leaders heap on themselves. But if individual national action can achieve so little, what alternative is there but to repeated attempts at organization and lobbying at cross-national levels, building up that array of international social movements and pressure groups that has emerged over the past 30 or so years?
To argue, as I am here, for compromises on all three elements of Rodrik’s trilemma, includes compromising on democracy, which I need to defend. Streeck is a radical democrat, by which I mean that he opposes most attempts to constrict the autonomy of democratically elected governments. For example, he shares the view found on both the left and right of the political spectrum, that central banks should not be independent of the government of the day. To adopt this position means to reject any need for limits to governing politicians’ ability to employ economic policy measures. This implies confidence that politicians will not use such power to manipulate developments to make more likely their re-election. Similar arguments apply to the role of constitutional courts to rule government measures as ultra vires. Unless one believes that the democratic mandate entitles governments to do what they like, one must believe in the need for institutions that themselves stand outside democracy but which ensure that governments obey certain standards of behavior. This raises issues of what it is that democracy can and should achieve that go beyond our present concerns; but the view that sovereignty should be taken literally to mean that an election mandate entitles governments to act without some external surveillance must be challenged. (One should also remember that the policies that brought us all the problems of unregulated globalization were ushered in by democratic national governments.)
If we are looking for part-way, compromise policies and institutions that might help us in a world where Streeck and Rodrik’s bleak all-or-nothing alternatives leave us with so little hope, attention must turn to the European Union (EU). This is the only important transnational body to incorporate democratic participation, both through its elected parliament and its many contacts between its agencies and groups in civil society, organized interests and local government. It also erects frameworks of regulation that insert some social and other priorities to counter the pure profit-maximization activities of firms operating within it or trading with it. This surely is the main instance that the world has to offer of a set of trans-national institutions that impose compromises on the trilemma.
Streeck strongly disagrees. For him the EU is a particular bête noire; he in no way accepts that it inserts some kind of regulatory protection against global capitalism. Indeed, he often treats Europeanization and globalization as synonyms. The EU, he argues, is a would-be imperium, a huge centralizing, top-down structure that must eventually overreach itself and collapse like the Roman Empire. (It is here that he uses arguments from Gibbon as though they were written today about the EU.) He certainly has evidence for this claim in the response of the European Commission, the ECB and the IMF to the Eurocrisis of 2010. The decision that banks should not share in bearing the negative consequences of their irresponsible lending policies to heavily indebted governments, the highly centralized and dictatorial nature of the restrictions imposed on those governments if they wished to remain in the common currency in the wake of the crisis, and the uncompromisingly neoliberal nature of those policies and rules, all speak for a set of institutions that operate in an undemocratic, top-down way and uncritically follow business interests (in this case those of global finance, though not necessarily of other business sectors).
However, that disgraceful episode is by no means the full story of the role of the EU. It rarely operates in as centralized a manner as when it was defending the suddenly extremely vulnerable Euro (and one must remember that this was the context of the actions). Normally it has to seek agreement across large numbers of member states using unanimity or highly qualified majorities. This is not how an imperium operates; and indeed, the EU’s need for extensive discussion and compromise is one of its characteristics that the two former imperial powers on its eastern and western flanks (Russia and the UK) are happy to mock. Further, although it is true that EU policy normally favors business over labor and other social interests, these latter can rarely be entirely ignored—as can and does happen within nation states. At any one time there will be a diversity of political interests represented among the governments of member states, and – unlike in nation states - trade unions can never be left entirely out of policy-making.
It is open to Streeck to argue that, because of all these compromises, EU social regulation is so weak as to be nugatory. To assess this contention requires a full research exercise for which there is no space here. One can however point to the case of the UK. Streeck much admires what was at his time of writing Boris Johnson’s UK government, for having withdrawn from the EU and celebrated rediscovering national sovereignty. But, with the exception of a shared denunciation of cosmopolitanism, the purposes of leaving the Union were, for the UK government, almost exactly the opposite of what Streeck envisages for his protectionist nation states. British Brexit aims include: the reduction or elimination of many labor, health, food safety and environmental regulations; a shift to more, not less globalization and more extended supply chains, as the UK is to seek a place for itself among the economies of the Indo-Pacific region, where many of its former colonies are located; and plans, not to re-industrialize the national economy, but to expose agriculture and industry to intensified global competition outside the EU’s relatively protected single market, so that the country can become even more a services-oriented economy.
Of course, it can be contended that how a nation state chooses to use its post-EU sovereignty is a matter for itself; it does not have to follow Streeck’s personal policy preferences. However, the mere fact that British policy aims at using its sovereignty to pursue deregulation and intensified globalization means that it cannot be correct to argue that Europeanization is tantamount to globalization. It must therefore represent some of the compromises among global economic integration, the nation state and democracy that we are seeking.
The only situation in which this would not be true is if the UK government was totally mistaken, believing that EU membership imposed regulations and impediments to full globalization that do not really exist. There is some potential evidence for this. For example, the UK government frequently insists that it is only outside the EU that it can establish free ports. This is untrue, as there are free ports within the EU, particularly in Germany. But it is not really credible that the government of a major country would be in error over such a matter of fact. It chose to lie about free ports in order to pretend to an advantage for being outside the EU. It is not that it was necessary to leave the EU in order to establish free ports; rather, it was necessary to lie about free ports in order to justify leaving the EU.
One of the many other reasons for Streeck’s hostility to the European Union and to European integration in general is his claim that small and medium-sized states are frequently better governed and economically more effective than large ones. This argument is strong, and well supported by research. It does not however contain much helpful advice. It is not quite clear what he considers as the maximum size for a small or medium-sized state. Presumably a country the size of Germany should ideally dissolve into its individual Länder. In many areas of policy this is already the case, and one of the advantages of German institutions. But if individual Länder are to be able to protect their economies against each other, presumably the process of customs barrier elimination among German states that led to the Zollverein in the mid-19th century would have to be reversed. It is difficult to imagine German policy-makers ever agreeing on such a strategy. But it is far more difficult to imagine the really large states—the US, China, India, Indonesia, Russia—accepting internal differentiation without massive civil wars. Russia is already regretting the dissolution of its former empire that followed the collapse of the Soviet Union, and the war in Ukraine is an example of how large states react when faced with claims for independence among parts of their former territory.
Streeck’s small and medium-sized states must always live alongside a number of giant ones, and the latter would therefore dominate the ways in which the global economy was ruled. Streeck might argue that there should be no global economy, but many states would continue to participate in one, there will still be global pollution and other issues that simply cannot be confronted by individual states, especially small ones. Ironically, it is only within wider structures like the EU that such states find a place that gives them access to a wider stage. It is notable that would-be separatists in Scotland and Catalonia see their future nation states as being EU members. It is part of the protective shield that small nations need when living in an interdependent world where giants lurk.
Streeck’s at times brilliant analysis presents a world in which we have to choose between extreme, undesirable positions: neoliberal hyper-globalization or democratic nationalist protectionism, the latter of which is highly unlikely to be attained without co-opting the support of racist and xenophobic movements. There is an alternative: a search for compromise positions on global regulation to enforce standards in the interests of workers, social policy, consumers and pollution-ridden citizens. This would have to be achieved by mobilizing social movements and campaigns that draw on people from many countries, working together across national barriers, and taking particular advantage of intermediate political levels that incorporate at least some elements of formal and informal democracy. Such campaigns exist; and they could be stronger. So far, the EU is the only example of a supernational régime that incorporates elements of democracy, but that makes it only more important to work for its improvement rather than its destruction. Such a project might be idealistic, but it is a more practical and attractive idealism than a vision of a mass of independent, non-cooperating small states trying to grapple individually with a world from which tariff barriers will not enable them to escape.