visions to neoliberalism have not been offered by the established elite. So Brexit and voting for Trump becomes your chance to have a “f**k you! I want my voice heard” moment. From this perspective, public anger is a response to a lack of representation, to a real sense of being ignored and not listened to. It is also a failure to present a compelling and motivating alternative to the centrist consensus.
What has happened over the past ten years in Europe and America is similar. The political centre was totally blindsided by a crisis that they thought could never happen. And they had no response to it except to pile misery on the very people who didn’t cause it. Unsurprisingly, those people got very angry about that, and that anger has been amplified and hijacked in multiple ways.
From the American Midwest to the North of England, from Italy and Spain to Greece and Portugal, all these countries have experienced serious economic trauma over the past decade, and the political classes not only offered no alternative, but told their citizens that it was their fault: “You borrowed for a house you could not afford”, “There has been an orgy of spending that we need to stop”, etc. So when there was a chance to vote for an alternative vision, as for example in Greece in 2015, or in the UK in 2016, or Germany in 2018, it should come as no surprise that that is what happens.
But this story has deeper roots than the 2008 crisis and its economic legacy. Specifically, a lack of voice is related to the sense that the nation state has been neutered by globalization. At some level, it is not just that the population at large feel unheard, and the empirical research shows that they are not listened to, but that their traditional representatives also seem resigned to their situation: “Globalization made us do it”, “There is no alternative”, etc. This certainly seems to be a major concern, and the rise of nationalist politicians seems to be the result. The lack of voice paired with a perception of futility is a toxic mix. It’s like voting for populists in Italy and then figuring out that they can’t do very much either. The result undermines democracy itself.
MARK: As I try to think about it, you have markets, whose reach is global, or at least as far as the division of labour, technology and finance allows them to go, and then you have democracy, which is inherently local, bound by this thing called the nation state and the people, the citizens, that constitute it. This generates an inherent tension between the openness of the global economy and the responsiveness of the state to the democratic wishes of the public. The more open you are, the less control you have. The less control you have, the less you can respond to what the global economy demands that you do. The economist Dani Rodrik usefully calls this the “political trilemma” of the global economy, where globalization, democracy and sovereignty are mutually incompatible in such a way that you can only ever have two out of the three.14 And once you have accepted globalization, you can either have democracy or sovereignty, but not both.
To preview what we will discuss in the next dialogue, we have been through two big iterations of this tussle between states and markets, between openness and democratic responsiveness, in modern times. The first set of rules was established in the aftermath of the Second World War and the Great Depression. The new rules were about limiting the reach of the market through controls on finance – making sure that capital is invested at home – targeting full employment to prevent the 1930s returning, and imposing high taxes and transfers across the economy in order to build a welfare state.
This system, as we shall see, functioned quite well for about 25 years. But the flaw was that it generated inflation, and labour’s bargaining power eroded profits causing declining investment spending. The response to the stagflation of the 1970s – falling growth and rising inflation – was to “disinflate” by opening-up financial markets, privatizing state assets, deregulating businesses, thereby “freeing” capital from the constraints of the nation state to find its highest return. This was construction of what we call today the neoliberal order – what Rodrik calls “hyper-globalization”.
If you were an investor in the years after the Second World War, you were bound to the territorial nation state, which meant that local labour could quite effectively exercise its voice through strikes to claim its share of productivity gains. But what happens if capital can go global? What happens if capital can exit the nation state but labour stays local? Or if they can move your job abroad, which is the same thing really? They take away the ability of labour to demand their share, along with their voice. And since the 1980s this is what has increasingly happened.
Labour’s ability to demand their share of national income declined dramatically, and business entered a new golden age – as did inequality. The numbers are now so well-known as to be commonplace. According to the World Income and Wealth Database – the source with the most complete picture at a global level – the top one per cent globally captured as much income growth as the bottom 50 per cent of the entire world economy since the end of the 1980s. Across Europe the top 10 per cent have 37 per cent of national income. In the US the figure is 47 per cent, which is higher than in Russia. In the US in particular the rise of the one per cent has been accompanied by the collapse in the income share of the bottom 50 per cent from 22 per cent to 13 per cent of national income. The poor really have gotten poorer as the rich have gotten richer.
In the UK after the crisis real (inflation adjusted) government spending fell by 16 per cent per person. At the local level it fell by nearly a quarter, with some areas losing nearly half, yes half, of their budgets.15
You will not be shocked to know that the areas with the deepest cuts swung most heavily nationalist (to UKIP) at the time of the Brexit referendum.
Given this, when we talk about the rise of tribal political parties emerging under angrynomics, we need to stress that this is absolutely not about reigniting a latent tribal political identity that is somehow genetically inherited. England, after all, has only been around in its modern form for a few hundred years. And yet here is a genuine sense in which much of the political class, everywhere, at a national level, feels both neutered and powerless in the face of globalization while nonetheless profiting from this skewing of incomes. Regardless of whether it’s left-wing or right-wing nationalism, the re-emergence of so-called “populism” then becomes phrased as the struggle to protect the nation and the national economy against “outside” forces that produce these inequalities. The Brexit campaign slogan of “Take back control” resonates for a reason.
I think we can also see this very clearly in the 2016 US presidential election. It is very telling that the five states that were supposedly solidly blue-collar Democrat, but turned out for Trump, were the ones that suffered the most in terms of de-industrialization and the export of jobs. One of those states, Wisconsin, lost one third of its industry, not to Mexico or China, but to Southern “right to work” (union-free) states in the 1970s and 1980s as business migrated south. Wisconsin has been in relative decline for a very long time. NAFTA in 1994 and then China joining the WTO in 2001 accelerated that feeling of decline and actual job losses, and over time the Democratic Party coalition that tried to embrace unions, free-up trade, and profit from global finance all at once fractured. After all, these policies of trade openness and global capital were championed by Democratic administrations, but mainly hurt Democratic Party loyalists.
These dynamics, and not just in Wisconsin, have been 30 years in the making. As I noted earlier, back in the 1970s, we had a world where labour unions were strong and because capital was local rather than global, they had real bargaining power against capital if they went on strike. In such a world workers could get a better deal in terms of how profits were shared, and we saw this in the data. Labour’s share of national income in the US peaked in 1973 and has been in decline ever since. That decline parallels the rise of a world where unions are all but extinct in the US and are much weaker than they were in Europe. Even German unions know that globalization starts 60 km outside of Berlin with the threat to move jobs to Poland should German workers ask for more than whatever their employers are willing to give.
Similarly,
