Storm, The (19 page)

In the wake of the current crisis there has been a succession of protectionist trade measures, in almost all of the G20 countries,
despite their undertaking not to go down this road: big automobile subsidies in the USA and EU; iron and steel tariffs in
Russia; farm product restrictions in Argentina and Brazil; as well as ‘Buy America’ and ‘Buy China’ policies.

Beyond these specifics, it is not yet clear what form political reaction to the current crisis will take. But well before
the
current upheaval in financial markets there was what can loosely be described as an ‘anti-globalization’ movement. Its extreme
manifestations were the violent demonstrations at or near big international economic summits, as at Seattle. They were motivated
by different philosophical strands – anarchism, revolutionary communism, radical environmentalism – and a mixture of issues
and causes: the lending conditions of the IMF; the World Trade Organization (WTO); ‘unfair’ trade, as seen from the viewpoint
both of workers in rich countries and of farmers in poor countries; global warming; multinational companies, especially those
in extractive industries; privatization in developing countries; human rights abuses; the foreign policy of the Bush administration;
and many other of the world’s real or imagined evils.

Except possibly in France, the anti-globalization protests never had any identifiable political core, but rather represented
a ragbag of discontents. They were the angry fringes of political life: those who, for many different reasons, did not buy
into the idea of the ‘end of history’ whereby political and economic liberalization were seen as inexorable and positive forces.

But it would be a mistake to underestimate the influence of those who give intellectual stiffening to the inchoate protests
and who are now being listened to more attentively. George Monbiot, for example, has argued trenchantly against ‘free trade’,
and articulates the concerns of many ‘deep-green’ environmentalists about the impact of international specialization, through
trade and investment, and competition, on long-term sustainability. John Gray provided a conservative critique of the impact
of internationally competitive markets on stable communities and national cohesion. (Marx, by contrast, was a free-trader,
for the opposite reason: ‘the protective system of our day is conservative while the free trade system is destructive… [and]
hastens the social revolution’.) Ethical criticisms were expressed by some of the churches, notably the Catholic papacy and
Muslim scholars and activists, about the amoral (and sometimes immoral)
activities of capitalist markets. There are those who did not lose faith in socialist analysis, from Noam Chomsky on the role
of multi nationals to Bob Rowthorn’s work on the impact of immigration on British working-class concerns. Among the more original
critiques is that of David Singh Grewal, who makes the case that globalization reduces rather than increases choice and diversity
because of the dominance of network standards. None of this adds up to a coherent and consistent alternative view of how the
world should be run, but there is now a small army of critics who can say ‘we told you so’.

Even those who see the overall merit of globalization have nonetheless identified several economic and political factors pulling
powerfully in the opposite direction. The first of these relates to the distributional impact of international economic integration.
We have already referred to the academic and political arguments regarding the impact of competition in manufacturing and
services from the big low-wage economies, notably China and India. Larry Summers, recently appointed to a key post in the
Obama administration, has written of the threat to the ‘global middle’. His argument is that a combination of low wages, diffusible
technology and an ability to access global markets is having an enormous and rapid impact on living standards in these poor
countries, while there has also been a ‘golden age’ for owners of scarce commodities (oil sheikhdoms), intellectual property
(patents, copyright, trademarks), capital, and a strong brand or star quality. But it is less obvious how the people in the
middle benefit. Summers points to the fact that median US family incomes have fallen far behind productivity growth, and average
family incomes in Mexico have barely grown in the last – economically successful – decade and a half. He argues that without
measures to win the support of the ‘global middle class’, it is ‘very doubtful that the existing global order can be maintained’.
It has to be said that there is little hard evidence that trade plays a central role in wage inequalities; and there are good
studies, by Krugman and Lawrence among others, that suggest
that trade with China either post-dated widening inequality or reduced it. But the intellectual climate has shifted in the
opposite direction.

Underlying these debates is a fundamental question about who gains and who loses from an open, liberal economic system. The
classic piece of economic theory that predicts outcomes is the Stolper–Samuelson model, which shows that in any one country
it is the owners of the scarce factors of production (these being labour, capital or land) who benefit from protection, and
owners of abundant factors who benefit from free trade. The model is stylized and hedged about with restrictive assumptions,
but, in a rough and ready way, it helps to explain some of the main historical shifts we have seen. According to a perceptive
analysis along these lines by William Bernstein, British ‘free trade’ came from a coalition of capitalists and workers uniting
against a landowning oligarchy (land being scarce in this context). German Fascism came from an alliance of xenophobic landowners,
capitalists and petty bourgeoisie against free-trading workers. The present line-up of interests in the Western world involves
a clash between free-trading ‘skilled’ labour and protectionist unskilled labour (and, arguably, between mobile international
companies and protectionist small business, with European landowners playing a familiar protectionist role). Suffice it to
say that class rather than national interests explains much of what is happening in the policy debate.

Politically, too, the ‘end of history’ has not led to an uncon-tested liberal consensus – nor was it ever likely to. A decade
ago I wrote about how the decline in socialism, at least in its more fundamentalist forms, would lead to a new polarity to
replace the left–right divide. I argued that what would emerge would be a new emphasis on the ‘politics of identity’, a reaction
to the forces of integration and globalization in the form of parties or wider movements emphasizing ethnic, religious or
linguistic differences, or nationalism. There are many examples of how the politics of identity has come to the fore: in the
USA, the ‘culture
wars’ and the rise of the religious ‘right’; in the UK, the importance and emotive force of immigration as an issue, the neuralgic
issue of Europe, and the rise of Scottish nationalism; in India the emergence of the Hindutva and its political offshoot,
the BJP, as a powerful party; the growth of Islamic radicalism; regional separatism in Spain, Italy and Belgium; anti-immigrant
parties in Austria, Switzerland and the Netherlands; and the pathological extremes of ethnic politics in the former Yugoslavia
and former Soviet Union.

Even before the financial crisis and global recession sent paroxysms of fear and uncertainty through many countries, there
were already strong forces of reaction in place, and grievances based on perceived unfairness and inequality.

In the wake of the financial convulsions of 2008 and the deteriorating economic environment, we are beginning to see the shape
of an emerging political reaction. In the EU, a book by the Italian finance minister, Giulio Tremonti,
The Fear and the Hope
, captures many of the fears of the working class and small business in a modernized xenophobia. He blames ‘globalization’
for the financial and commodity crisis. He is obsessed by China – ‘the Chinese Dragon will possess Europe’ – and claims to
see a ‘fifth column’ of Chinese immigrants. It requires a particularly conspiratorial mind to see a sinister plan behind the
Morecambe Bay cockle-pickers and the growth of Chinese takeaways; but Tremonti identifies a potentially fruitful populist
theme to enlarge upon as the centre of gravity of the world economy shifts towards China. Tremonti’s prescription is more
sophisticated than old-fashioned nationalism or fascism; it is ‘Fortress Europe’, albeit one finding common purpose in an
‘Atlantic Area’ with the USA. Some of these ideas are very similar to those advanced over a decade ago by Sir James Goldsmith
in
Le Piège
(The Trap) and reflect ideas that are common among French, Italian and Spanish conservatives. They also tap into the instinctive
statism of the Christian Democrat
and nationalistic right, summed up recently by Nicolas Sarkozy: ‘The market economy is a regulated market, a market that is
at the service of development, and the service of society, and the service of all.’ The practical application of this statism
in a modern context is Sarkozy’s proposal to set up a European sovereign wealth fund to buy up stakes in European companies
(to keep out Arabs and Asians). Tremonti’s wider appeal is to European ‘identity’ expressed through ‘Judaeo-Christian’ values.
He may be a minor player in the wider scheme of things, but he has cleverly brought together a potentially potent – and dangerous
– cocktail of themes: cultural identity; the new Europe; protectionism; fear of a rising Asia (and Russia).

In Europe, the voices of protectionism and the ‘fortress’ economy are drowned out, for the moment, by the more liberal and
outward-looking tendencies of the Anglo-Saxon and Scandinavian worlds. But there are signs that in the USA similar ideas are
gaining traction, as they have in periods of crisis in earlier generations. According to the Global Attitudes Survey in 2008,
only 53 per cent of Americans think that trade is good for their country, as against 78 per cent in 2002 (compared with 87
per cent of Chinese, 90 per cent of Indians, 71 per cent of Japanese, 77 per cent of Britons and, surprisingly, 82 per cent
of the French). In his election campaign, Barack Obama pledged to impose draconian labour standards as part of free-trade
area agreements with the USA, and to introduce stronger controls into existing arrangements with ‘low-wage’ economies such
as Mexico. There are powerful voices within the Democratic Party, which has a strong majority in the new Congress, urging
the new administration to ‘get tough’ with China (after various anti-Chinese bills failed to make headway in the last Congress).
The administration has thrown them a little red meat in the form of trade restrictions on Chinese tyres. One of the key battlegrounds
within the new administration will be whether the ‘liberal’ critics of globalization are able to find liberal solutions –
better healthcare and education, more redistributive taxation – before they are overtaken by the forces of economic nationalism.

Nor is American nervousness confined to trade. A Public Strategies Survey suggested that 55 per cent of Americans thought
foreign investment harmed national security, and only 10 per cent disagreed. Resistance to Arab investment in US ports and
Chinese investment in the oil industry – however small and innocuous – reflects a deeper disquiet, which will grow as the
USA becomes more dependent on Middle Eastern and Asian sovereign wealth funds to recapitalize its battered financial institutions.

Although public opinion in most of the big new economic players appears to favour trade, the behaviour of governments suggests
that there is a deep residue of nationalism in the economic policies of the emerging-market economies. While it is legitimate
to criticize US and EU negotiators (and governments) for failure to offer more far-reaching concessions in liberalizing agricultural
trade, it was India, supported by China, which, at the final moment of crisis, pulled the plug on the Doha Round of WTO negotiations.
They were motivated not solely by frustration at the lack of progress surrounding open markets, but by a wish to protect their
agricultural and financial sectors and anything that could be described as ‘strategic’. In India, in particular, the conversion
from earlier autarkic trade policies is only partial, and there are powerful voices on the Indian left and the nationalist
right, as well as organized vested interests, vehemently opposed to opening up Indian markets.

Policy debates in China are less transparent than in India, but it would be surprising if the heirs of Mao were anything other
than deeply suspicious about opening up their economy too far. Even more than in the West, a preoccupation with ‘economic
security’ – in relation to technology, food, energy and military hardware or software – is deeply ingrained. China has given
aid to repressive regimes such as Sudan primarily in order to support state oil enterprises like Sinopec, reflecting a fusion
of commercial and security concerns. Moreover, since the success of the 2008 Olympics, observers have begun to notice an increasingly
assertive and nationalistic tone in Chinese dealings with the rest of
the world: a new ‘Buy China’ policy; foreign businessmen and their Chinese associates imprisoned for ‘spying’; well-publicized
rearmament and sabre-rattling with its neighbours over disputed frontiers. China has played a broadly constructive role in
the international response to the international financial crisis and recession, and clearly values its new role as an economic
superpower in the new forum of the G20. But Chinese nationalism is not far below the surface, and is reflected in the defensive
response to internal problems with Muslim minorities in the west of the country, as well as a greater general assertiveness.
In a major new book on China, Martin Jacques warns of the need to understand that, while the emerging China has little history
of, or interest in, territorial expansion, there is a strong sense of exclusiveness and superiority, including an element
of racism. Attitudes to economic relations with other countries will reflect these underlying sentiments.