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Economy

The Lingering Death of Global Liberalism

Jun 12 , 2019

Most pundits see the U.S.-China trade conflict as a specific event with specific causes and therefore, potentially, specific solutions. Increasingly, I doubt it. It is a manifestation of a broader problem within the global political economy itself. The liberal world order that was designed during World War II was gradually and successfully implemented. The creation of the World Trade Organization in 1995 was a key milestone. But this order is now failing to adapt to the new challenges of the 21st century.

Liberalism is not dying because it failed, but because it succeeded so thoroughly that the old problems are less salient, whereas significantly new problems now dominate to such an extent that the existing institutional machinery, even existing intellectual conceptions, cannot cope. Whereas many see the economic rise of China as the cause of this challenge, it as more of a catalyst than a cause. The real causes of this lingering death are the global dominance of a handful of private monopolies and the increasing importance of monopoly rights, euphemistically referred to as “intellectual property rights (IPR).”

The postwar liberal order was designed to free the world commercial system from intrusive government powers during the Great Depression and World War II. These include high tariffs, foreign exchange controls, and broad regulation of trade and finance. The channels of trade had become defined as much by governmental regulations as by private competitive ability. Institutions and rules evolved and eventually succeeded in liberalizing the global movement of people, capital and goods. The remaining obstacles are relatively trivial compared to what existed in 1945, although capital and goods cross borders more easily than people do.

The global liberal order thrived politically, as long as it was delivering the goods. Improving growth, efficiency, job creation, and freedom of movement insured that globalism proponents around the world, whether labeled liberals, conservatives or social democrats, gained public support in mainstream parties that thrived. Now in many countries of the Western world, the traditional parties that were sustaining this liberal world order are discredited and, in some cases, even collapsing in a wave of so-called “populist” reaction to the frustrations of contemporary global problems, largely neglected.

Today much of the commentary about global trade still pretends that the problems are the same as ever, but that the new offender to liberal rules is overwhelmingly China. This attitude is ignorant of its main lines of development. China is vastly more open to global brands, products, and technology than it was when I first arrived in 1981. It has “globalized” its consumer culture and industrial base more thoroughly than perhaps any other country on earth. Its private sector is the second largest and fastest growing on earth. It is by many measures globalism’s success story rather than a failure. It has succeeded all too well.

Critics of China argue that its ostensibly “state-directed” economy provides innumerable challenges to the world order that must be resisted and rolled back. I see its problems as much more global and structural, common to all major trading powers. But since most people are still stuck in the obsolete language of the postwar era, they do not understand that what are commonly labeled “Chinese problems” are in fact global problems that we are barely able to conceive or admit.

The global political economy has fundamentally transformed since World War II. Private monopoly power has proliferated so that the most significant global obstacles to free competition are private monopoly powers, not governmental obstacles like tariffs or financial regulations. Traditionally, competitiveness was rooted in efficient low-cost production. Low-cost automated production of almost anything is now possible throughout far more of the world than in 1945. However, relative production costs no longer dominate the conditions of competition, as in traditional economic trade theory. Rather, the channels of commerce more and more flow according to monopoly powers and privileges conferred by IPR and network economies. These unprecedented monopoly powers largely escape public perception, let alone regulation.

Whereas many Chinese leaders are engineers who grasp the revolutionary political-economic significance of technological change, Western countries are governed more by lawyers who see the world in terms of legal rights rather than actual powers. American politicians are consequently abrogating leadership on issues they do not understand to their corporate donors. The public interest is often smothered more in American money-driven politics than by China’s more technologically sophisticated one-party state. Americans largely ignore real power in favor of misleading debates over trivia and labels. Americans are ripe for exploitation, not primarily by the Chinese, who at least sell at low prices, but by our home-grown monopolists and their lackeys.

Consider the hot-button issue of spying that has animated the recent Huawei debate. Do Chinese companies spy? Yes they do, as is well documented in the Chinese press. But just like American companies, they spy largely for commercial advantage. Americans worry most about governmental spying, but corporate interest in your private data is far more pervasive and potentially damaging. Those with a legitimate fear of government intrusion are typically savvy about encryption, but very few people realize how much power they are giving away freely just by using their phone and its apps. We suffer more loss of political and economic power every day to the private interests who centralize and sell our data than most can imagine. Most are unaware of the adverse discrimination that can result. I fear spying by Apple, Google and Microsoft much more than I do spying by governments, which have less capacity and motivation to injure my immediate interests in employment, credit and free speech. Even far-right conservatives are waking up to the dangers of unregulated private power.

There is a similar problem of one-sidedness in U.S. accusations against Chinese companies gaining advantages from government subsidies or tax breaks. Such subsidies are a factor for companies like Huawei, to be sure, but the competitiveness of the great bulk of Chinese exports that originate from foreign multinational corporations and small private businesses does not depend on such subsidies. U.S. companies often gain significant subsidies and tax breaks from Federal and local governments. The U.S. tax code is a Swiss cheese of special interest subsidies, which is why hugely profitable giants like Amazon can pay no tax, presumably legally. Other U.S. businesses cheat the taxman with impunity because of poor enforcement from an IRS gutted by Congressional budget cuts. Are these unfair subsidies too? The issue is way muddier than we would like to admit. China is not the only source of spies nor the only country of pampered business tycoons.

The real problem with the conceptions we have inherited from the liberal global order is the now grossly false presumption that only governments restrain free competition. Free competition, a level playing field, is not guaranteed by rolling back governmental power. Concentrated private power remains. For example, today two companies, Google and Facebook, dominate online advertising globally. China is one of the few countries where they are less fully dominant. This is not a system of free competition, but a system that creates a privileged playing field by centralizing information accumulation and dissemination at a scale and speed unprecedented in world history. It is not in the public interest of most American citizens and businesses that a handful corporate giants consolidate their global dominance even more. It is their power, after all, not ours. Instead of cooperating with monopolists to strip every last vestige of foreign regulatory power, it would behoove us to curb untrammeled monopoly power and thereby better serve the public interests of the vast majority. We have a long way to go.

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