THE GREAT REGROUPING OF THE WEST

Globalisation stutters and stumbles

Global economic integration is facing a major crisis. It needs to overcome this gridlock – transformed and improved. The West can pave the way, also through value-based geopolitics.

TEXT: KARL-HEINZ PAQUÉ
ILLUSTRATION: EMMANUEL POLANCO/SEPIA

THE GREAT REGROUPING OF THE WEST

Globalisation stutters and stumbles

Global economic integration is facing a major crisis. It needs to overcome this gridlock – transformed and improved. The West can pave the way, also through value-based geopolitics.

TEXT: KARL-HEINZ PAQUÉ
ILLUSTRATION: EMMANUEL POLANCO/SEPIA

The current malaise should not surprise anyone. Processes of global economic integration fluctuate. Sometimes they go faster, sometimes slower, sometimes they falter temporarily, and sometimes they regress significantly. That is what happened in the disastrous interwar period in the early 20th century, which failed to meet the level of globalisation achieved before 1914 and, in a spider's web of autarky, tragically ended with the Second World War. It is this horrific experience of the early 20s that causes the public to react with greatest concern to any slowdown in global integration. Already in the decade following the global financial crisis of 2008 to 2011, alarm bells were ringing and calls for caution were multiplying, speaking of deglobalisation because world trade was no longer expanding at the old dynamic pace and even shrinking in some respects.

Added into this anxious mix of crisis perceptions was Donald Trump's protectionism, China's state capitalism and the increasing paralysis of the WTO's multilateral trade system. This development was best described by the London-based magazine "The Economist," which coined the term "slowbalisation" in 2019 – with the telling cover picture depicting the world economy as a snail. It was a fitting title at the time. Since then, new events have impacted integration. From 2020 onwards, the coronavirus has at least temporarily shattered the cross-border value chains of many manufacturing sectors. Some of these have yet to be fully restored, especially since China has only recently sent entire metropolitan regions such as Shanghai into lockdowns that lasted for weeks without regard for its own population forcing them out of the global economic division of labour. However, all of this was topped by Vladimir Putin’s war against Ukraine, which resulted in massive sanctions and has permanently called into question Russia's integration into European energy supply chains. It was the powerful return of geopolitics to the stage of the world economy and, moreover, of global inflation driven by energy prices. 

It was the powerful return of geopolitics to the stage of the world economy.

It was the powerful return of geopolitics to the stage of the world economy.

Learning from crises

That, too, is not entirely new. There are two previous moments in recent history, when the world economy experienced a serious setback after decades of successful expansion and integration: in 1973/75 with the first oil crisis in the wake of the Yom Kippur War and in 1980/82 with the second oil crisis following the Iraq-Iran conflict. These events resulted in two deep recessions, international trade stalled and the fight against inflation in the West led to great turbulence in the world economy as dollar exchange rates rose sharply – leading to debt crises in many developing and emerging countries.

Interestingly, this did not lead to a permanent collapse of integration, as it did in the interwar period. On the contrary, the West reacted with a fundamental transformation of its production structure and product range – a shift away from oil and with a stronger focus on modern technology. That is what laid the foundation for the dynamic globalisation push that occurred sometime later, from the early 1990s onwards, after the communist East had collapsed economically and politically precisely because of its inability to undergo the kind of structural change that is only possible in a market economy.

It is important to note that it was precisely the time of crisis that set in motion the huge adjustments of our international liberal order that were necessary to help our economies to be able to get up and running again more quickly and to become more resilient. It was not the long era of rapid, broad-based growth, but the critical phase of stagnation and stuttering that led to a new – and sustainable – path of development. This is not a bad model for today, even if one must not forget the political turbulence of that time. The 1970s and 1980s were an unfortunate period of serious conflict and error in the West, but they were also the beginning of a renewed path to more resilience.

Strategy and goal of the West: unity

Now, what is needed today to achieve greater resilience? First and foremost: unity. The West has demonstrated this in its reaction to Putin in an astonishing way, to the surprise of many sceptical analysts and observers. Putin's aggressive imperialist war against Ukraine has raised awareness throughout the West that we must stand together when defending our values of democracy, the rule of law and the market economy. The courageous resistance of Ukrainians to the Russian invaders demonstrates once again how attractive these values of freedom are to others. The West is by no means alone and isolated. Its values are the values of humanity.

This renewed self-confidence in the values of liberal democracies lies the foundation for the expansion of globalisation – in the spirit of liberal multilateralism. In essence, it is about the West assuming the leading role in the world. It must set the standards via-à-vis an imperialist Russia and a state-capitalist China. It must provide a long-term framework for a continuous dynamic development of the world economic order. Unity must therefore lead to specific results. We need pragmatic progress, not all-encompassing upheavals. New international agreements should not reflect the whole complexity of modern international trade but rather the unconditional will for more freedom and integration. What we need is not another comprehensive, all-encompassing trade agreement, but rather strong impulses for fair trade and constructive cooperation.

A lot has gone wrong in the past. For example, in transatlantic trade relations: in the attempt to conclude the Transatlantic Trade and Investment Partnership (TTIP), the EU and the United States became tangled up in their own sensitivities regarding hygiene regulations in food trade as well as rules on public procurement and arbitration, instead of pragmatically circumventing them or simply excluding particularly sensitive areas. CETA, the EU's trade agreement with Canada, is still awaiting ratification because environmentalists are expressing concerns about ecological details. Canada and the U.S. are our allies and among friends, priorities must be reassessed: in a world in which imperialism and state capitalism are omnipresent, trade agreements must not fail because of such trivialities – otherwise there is a real threat of a return to the 1930s.

The commitment to the multilateral rules of the WTO is rightly part of the ironclad canon of Western values.

The commitment to the multilateral rules of the WTO is rightly part of the ironclad canon of Western values.

The same applies to new trade agreements and partnerships with third countries in Africa, Asia and Latin America. In the past two decades, there has been a ruthless “race” for the sympathy of these regions of the world – with China and Russia trying particularly hard, especially in Africa. Incidentally, the interim results of this race can be seen in the voting behaviour of African countries on Russia’s invasion of Ukraine: the majority abstained from voting in the UN General Assembly. Not because of any particular sympathy for Putin's aggression, but because they did not want to get caught in the crossfire of two major powers that have invested heavily in their countries.

The political initiatives of the United States and even more so of the EU in these regions seem rather small-scale and hesitant in comparison. To the outside world, they often appear like paternalistic efforts of former colonial powers, which are meant to please a sensitive public at home more than the people on the ground. A fundamental new start is needed that also takes into account the importance of the global South in geopolitical terms. Otherwise, the West runs the risk of leaving large parts of the world economy to Chinese and Russian influence – with devastating consequences for the affected countries themselves. These countries are becoming fatally dependent, a fact that China, in particular, is cold-bloodedly exploiting to secure important resources for its own high technology.

It is therefore time to pragmatically and swiftly conclude free trade agreements that are already in draft form, such as the EU trade agreement with the Mercosur states in Latin America. But we should not stop there: an investment offensive in the southern Mediterranean, a free trade agreement with India and further treaties with a large number of countries in the global South must follow. The task is to create a network of interdependence across continents that strengthens Europe's constructive role in trade and direct investment – be it in Africa, Asia or Latin America.

It is important that the European countries credibly step out of their traditional role as former colonial powers and that the treaties convincingly demonstrate the spirit of equality. Only then do we have a chance of effectively countering China's enormously increased role in the developing and emerging countries of the world.

Enforcing WTO rules

All this must take place according to the rules of the World Trade Organization (WTO) – and not as an alternative to it. The commitment to the multilateral rules of the WTO is rightly part of the ironclad canon of Western values. At least since its founding in 1995 as an international organisation (and legal successor to the General Agreement on Tariffs and Trade, GATT, concluded in 1947), the WTO has had a paramount position as a global guarantor of fair trade, supported by its judicially secured dispute settlement mechanisms.

For too long, the WTO has been weakened by Donald Trump's "America First" policy and China’s disregard for its investment rules without the West standing up to these unfair practices. This, too, must come to an end: free and fair trade must be worthy of its attributes which means that is must the liberal multilateral rule of the WTO, which must also be enforced. This is worth the political struggle, be it against American right-wing populists or Chinese state capitalists. All in all, the agenda for the West is huge. It will take time to work through everything. But it will be worth it: global economic integration has in the past given billions of people the chance to grow out of abject poverty into at least modest prosperity. This promise of globalisation must also hold true in the future – paving the way for a broad middle class around the globe. Globalisation must continue, but please in freedom.

Karl-Heinz Paqué is Chairman of the Board of the Friedrich Naumann Foundation for Freedom. He is an academic economist holding a chair of international economics at Otto-von-Guericke University in Magdeburg, Germany. Global economic development has preoccupied him since his studies in the seventies. Globalisation is one of his life's themes. His opinion: it must not and will not fail.

Karl-Heinz Paqué is Chairman of the Board of the Friedrich Naumann Foundation for Freedom. He is an academic economist holding a chair of international economics at Otto-von-Guericke University in Magdeburg, Germany. Global economic development has preoccupied him since his studies in the seventies. Globalisation is one of his life's themes. His opinion: it must not and will not fail.

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