Niall Mulholland, Committee for a Workers’ International, International Secretariat
For over three decades, ‘globalisation’ (capitalist world trade and production growth) has appeared to many, including some on the left, to be unstoppable – with the role of the nation state increasingly relegated. Now, as the trend towards globalisation has gone into reverse, some have concluded: “Globalisation is over”.
Is it? What is the real relationship between the world economy and the nation state?
Ten years ago, there were around 10,000 protectionist measures in place globally. Now the figure has risen to 35,000.
The European Union, which was set up out of necessity by the main capitalist states in Europe, in competition with the US and other powerful economies, suffered the serious setback of Brexit in 2016 and is still fraying at the edges.
‘Bidenomics’, the economic policy of the Democrat administration in the US, is a vast intervention by the state, carrying out among other measures; increased investments in infrastructure and social security, an increase in taxes on higher-income individuals and corporations, increasing the national minimum wage, widening access to affordable healthcare, and bringing about ‘forgiveness’ of student loan debt.
At the same time, right-wing, anti-globalisation, populist nationalism has come to the fore in many countries in recent years, most notably that of Modi in India, Orbán in Hungary, Meloni in Italy, Erdogan in Turkey and the current coalition government in Israel – albeit with important distinct features in each case. Previously, Bolsonaro in Brazil, and the Trump administration, which could make a return to the White House after the next elections, played a similar role in deploying nationalist demagogy.
The war in Ukraine shows that supposedly outdated methods of warfare between nations – involving many thousands of field troops, World War One-era trenches and artillery – are still essential for the ruling classes. The US, the European states and Japan are all vastly increasing their arms budgets and tooling up their national armies.
But do all these developments mean that the nation state has overcome the phase of globalisation that dominated the world economy over the last 30 or so years?
For Marxists, it is not a question of either the capitalist nation state or globalisation completely overcoming the other. The capitalist system was founded on the contradiction between the striving of capital to expand globally, on the one hand, and the limitations imposed by the nation state, on the other – this contradiction gave rise to two world wars. It is an uneven and contradictory process.
Globalisation may have gone into reverse, to a degree, in recent years, but at the same time multi-national companies that bestride the world have in some cases grown in power and influence and even formed their own private armies. The Wagner Group, which has a fractious, symbiotic relationship with the Russian state, has led fighting in parts of Ukraine, and operates in parts of Africa and the Middle East, attempted a coup against Putin’s rule in July. This starkly revealed elements of a ‘state within a state’.
The nation state
The capitalist nation state arose out of profound economic changes, bound up with trade and increasing use of money. The growth of capitalist production and the accumulation of capital required the development of a national market and the breaking down of guild privileges and local customs, barriers and tariffs. The development of capitalist production drew together villages and cities, and created a national market, together with a common language, laws and currency.
The creation of the modern nation state, based on the creation of new borders and barriers, defined the jurisdiction and authority of the capitalist class. However, as capitalist production developed further, it began to transcend the nation-state framework.
The capitalist system cannot resolve this contradiction. It cannot do away with the nation-state system in which property is rooted. Nor can the productive forces be limited to national boundaries. The logic of capital and economic activity means that capitalism continuously transcends the nation-state framework and therefore undermines it.
Globalisation followed by ‘de-globalisation’ is not new. Between 1850 and 1870, trade and investment expanded sharply in Europe and the US under the auspices of British imperialism. This was followed by the economic depression of the 1870s to the 1890s.
Another wave of global expansion followed in the 1890s up to World War One. Globalisation declined through the Great Depression of the 1930s and up until World War Two (WW2). There was a new wave of global expansion under Bretton Woods (a negotiated monetary order requiring countries to guarantee convertibility of their currencies into US dollars) under US domination. However the boom was exhausted by the late 1960s and early 1970s and led to slumps and retraction.
From the mid-1980s and through the 1990s, the expansion of trade and cross-border investment was the largest in the history of capitalism. The dissolution of Stalinist states in the former Soviet Union and Eastern bloc allowed US and European capitalism to spread its influence further, opening large new markets and the exploitation of cheap labour. China, with its huge workforce and cheap labour, also entered global manufacturing and trading markets. However, the latest globalisation wave started to decline in the 2000s.
Despite claims by the evangelists of capitalism that the last wave of globalisation saw harmonious economic development and the more or less eradication of the role of the nation state, the process is much more complicated and contradictory.
Capitalism is a system with contradictions generated by the profit motive. As the main capitalist economies struggle, they start to compete more intensely, laying the basis for conflict and division.
Globalisation and free trade did not lead to a rise in incomes for all, as its supporters claimed. Using its own measurements, the World Bank says that in 1980 about 43% of the world’s population lived in extreme poverty and today the number is about 8% due to globalisation. But this analysis excludes an explanation about the crucial role of the state in the Chinese economy, where more than 800 million people have been taken out of extreme poverty since the late 1970s.
The reality is that globalisation has increased inequality of wealth and income, both between nation states and also within national economies, as multinational corporations relocated their activities to cheaper labour areas and introduced new technology that requires less labour. Neoliberal policies have also vastly increased inequalities by attacking trade union rights, imposing casualisation of labour, repressing wages, carrying out privatisation, reducing public services, and attacking pensions and social security benefits.
Recessions and slumps have led to a significant loss of household income for the majority. The financial crisis and recession unleashed in 2007 and 2008, followed by weak recovery, the economic shutdown caused by Covid, and the war in Ukraine, have all hit global trade and capital movements, and global supply chains.
This does not mean that world trade and investment will disappear. It will continue, and can grow, to some extent. But current economic volatility and increased competition between the major capitalist economies will see protectionist tendencies of nation states and trading blocs continue to grow.
Supporters of Keynesian economics, sometimes also called advocates of ‘mixed economies’, call for a return to the heady days of the post-WW2 boom, and draw attention to the fact that between 1950 and 1973 world GDP grew at the fastest rate in history. The United States and western European nations experienced relatively high rates of growth and low levels of wealth inequality.
But this was during an exceptional period for world capitalism. The world economy was emerging from the ruins of WW2 and Europe’s economies needed to be rebuilt. With the extension of Stalinist regimes in Eastern Europe (state ownership and economic planning that saw significant social gains for the working class, albeit under the rule of unaccountable bureaucratic elites), the US, the major capitalist power, had to shore up Western capitalism with the Marshall Plan and other instruments of massive investment. All this acted as a powerful stimulus for world capitalism and the ‘post-war boom’.
The role of the state in capitalist economies went quite far in advanced capitalist economies. In the UK, the post-war Labour government nationalised key industries and created the National Health Service. US government spending more than doubled between 1950 and 1962. Meanwhile, the top marginal tax rate in the United States and the United Kingdom was close to 90%.
However, the economy started to sharply decline in the early seventies, with the oil embargo and the recession of 1973-74. It became prohibitively expensive to borrow money. By 1980, inflation was around 14%. Mass unemployment rates rose to double digits in many countries. The American economy and other major capitalist economies were mired in “stagflation” (high inflation and low growth).
Capitalist governments flailed about to find a way out of the crisis. In 1980, Republican candidate Ronald Reagan was elected US President and set about breaking the air-traffic controllers’ union, whose members, federal employees, had gone on strike. In Britain, the Tories under Margaret Thatcher undertook a similar attack on ‘welfare-state economics’.
Deregulation of the airline industry, railroads, and trucking began under Democratic President Jimmy Carter and continued after Bill Clinton was elected, in 1992. “The era of big government is over,” Clinton announced. Tony Blair and Clinton promoted a neoliberal approach to international trade, the beginnings of what became known as ‘globalisation’.
In 1993, the US Congress ratified the North American Free Trade Agreement (NAFTA) – Canada, Mexico, and the United States. And in 1999 it repealed part of the Glass-Steagall Act, a Depression-era statute that prohibited commercial banks from joining together with securities firms (‘investment banks’).
NAFTA made it easier for American manufacturers to relocate plants to Mexico, where labour is cheaper, helping to create the ‘rust belt’ in the US. And the weakening of Glass-Steagall was partly blamed for the financial crisis of 2008 and the ‘Great Recession’ that followed (estimated to have cost the public $23 trillion).
Deregulation, which was supposed to spur competition, did not stop monopolisation. Just three companies provide 90% of wireless services in the US.
Globalisation and neoliberal policies did not mean the nation state was redundant, as some of its most exuberant supporters argued. Pro-market policies were generally mixed with state funding and government direction. However, the last phase of globalisation did see an undermining of the nation state to a new level, as factories, commodities and money were able to move around the world.
The end result of decades of these pro-market policies is that inequality is omnipresent. In 1980, CEOs were paid about 42 times as much as the average employee; in 2016, they were paid 347 times as much. The three million people who make up the wealthiest 1% of Americans are collectively worth more than the 291 million who make up the bottom 90%.
The more astute supporters of capitalism see that the rise in inequality poses the most immediate threat to so-called ‘civil society’. The Financial Times columnist, Martin Wolf, in his new book, ‘The Crisis of Democratic Capitalism’, doubts whether the United States will still be “a functioning democracy” at the end of the decade (reviewed at socialistworld.net).
‘De-globalisation’ and the rise of nationalism are causing new crises for capitalism and its institutions. As one commentator put it: “The sun has set on neoliberalism. Both parties [US Republicans and Democrats] have drifted closer to something like mercantilism; the language of the market has lost its magic. ‘Bidenomics’ entails immense government spending; meanwhile, a new cadre – protectionists, crony capitalists, ethno-nationalists, and social and cultural provincials – have been rewriting party platforms. Republicans eagerly lambast Big Tech and clash with ‘woke’ corporations, more intent on fighting a culture war than on championing commerce.” (‘The rise and fall of neoliberalism’, Louis Menand, The New Yorker magazine, 24 July 2023)
The post-WW2 boom era that Keynesians hark back to cannot be repeated. Then, the multilateral capitalist organisations of the post-WW2 era, like the IMF and World Bank, were all under the dominance of US imperialism. Today the US is facing relative decline. The major capitalist economies are in a period of economic crisis. The decline of globalisation results not just in the US and its allies in struggles with Russia and China, and their allies, but also the possibility of a number of economic and military blocs competing with each other.
The vast changes in capitalist production over the past three decades have had a major impact on the world capitalist economy and nation state, but also on the composition of the working class and the organised workers’ movement. Following the downfall of the Stalinist regimes, traditional social democratic parties shifted dramatically to the right and embraced the market economy as their reformist programmes, based on the national economy, were significantly undermined by global capitalism. This does not exclude left parties coming to power and taking significant measures against capitalism during periods of intense economic crisis and under the pressure of the working class. But so far, left formations like Syriza in Greece or Podemos in Spain, have failed to bring about significant reforms for working people, let alone challenge capitalism.
Yet the objective conditions for the socialist transformation of society on a world scale have never been better. The globalisation of production has brought about a vast expansion of the international working class. Globally speaking, the working class has become the numerically predominant social class in the past three decades. Most people on the planet are now urban dwellers.
In the advanced capitalist countries, ruthless downsizing carried out by major companies, and attacks by governments on the public sector, have seriously eroded the status and working and living conditions of wide sections of the middle class. Junior doctors, lawyers, teachers, nurses and head teachers, for example, have all been on strike in Britain in recent months or balloted for strike action
Globalisation of production underscores the urgent need for the international cooperation of the working class in a common struggle against the bosses, and lays the basis for socialism across the planet. A planned socialist economy, on a world scale, would see the vast transformation of living standards, technology, education and culture, leading to the dissolution of borders and nation states, as we know them. To achieve this goal, the international working class needs its own political parties and other independent class organisations, like genuinely combative trade unions. These need to be armed with bold socialist policies, strategy and tactics, to take on and remove the disastrous, exploitive profit system, at both a national and global level.