Nationalism Trumps Liberalism and Globalisation

by Dec 2, 2016

The victory of Donald Trump was like an earthquake which signalled the electorate’s misgivings about liberalism and globalisation. Voters have instead embraced nationalism/ identity politics. Trump, with no political experience, credible plan, minimal political infrastructure, abusive to women, ethnic minorities and Muslims, who all the pundits had dismissed won. His opponent with detailed and credible plans, support of the establishment, including many Republicans, with an impressive political infrastructure, lost. It should be noted that Trump had considerable support from the FBI Director who reopened a spurious case against Clinton late in the campaign and, he lost the popular vote. A number of themes seem to be at play that in some ways are frightening. Voters rejected what the liberal elite consider to be a rational choice and applied different standards to Trump – for example he made far more incorrect statements than Clinton which they ignored. However the decisions taken by voters which may not appear to have any logic, makes sense to a significant proportion of the electorate and just as Hitler came to power appealing to some of the darkest and primordial instincts of his supporters. The Liberal establishment is largely to blame, partly because it failed to communicate and connect with the electorate and/or has just not understood or appreciated the angst and difficulties that globalisation has caused. Trump is not an isolated case; the nationalist movement has taken root in the UK, Eastern Europe, Russia, China, the Arab world and Africa. How did it happen? What is the way forward? Do nationalist sentiments have any positive attributes?

The rise of nationalism

Trump swept to power on the White vote, primarily the White working class but also a significant majority of almost all sections of that demographic. The deindustrialisation of America caused by globalisation has hurt the White working class disproportionally as skilled jobs have been shipped abroad. The damage caused by this trend was compounded by the fear that Whites feel about losing the ascendancy they have always enjoyed. In Britain the loss of sovereignty and jobs to the EU and other EU nationals respectively were the deciding factors in Brexit. In Eastern Europe there are fears of immigrants coming from Syria and other conflict zones. Russia has been flexing its muscle in the Ukraine and other former Eastern European satellites because of its loss of influence and power in that region, economic stagnation and, Putin’s desire to let the world know that it is still a power to be reckoned with. China is flexing its muscles, laying claim to large swaths of the China Sea. China has largely abandoned its communist ideology and embraced capitalism, giving rise to a new focus, namely, nationalism. In the Arab world the religious turmoil has a nationalist flavour in the form of a pan-Arab Muslim “caliphate” espoused by the so-called ISIS, with the Sunnis at the helm. In Africa’s largest country, Nigeria a new, unique leader elected last year has been pushing that country to rely more on its own resources and to wean the country of its dependency on imports, to the consternation of “free trade” ideologues.

Irony verging on the perverse

The nationalist fervour is full of ironies verging on the perverse. Trump’s hotels were built with Chinese steel, he used foreign workers, many of the products used in various enterprises are produced outside the US and he has significant investments and used finance from the Middle East and China, areas he has castigated.

The White working class may not be aware that Trump’s policies could actually hurt them. The central plank of his economic platform, tax cuts have not only proved ineffective – Bush tried them but his administration experienced anaemic economic growth – but will exacerbate the huge income inequality, with high income earners getting a disproportionate share of the tax cuts. The hefty increase in import duties on Chinese imports will raise the price of consumer goods. If he abolishes Obamacare, as promised in the campaign, many of them will lose health insurance and/or the significant subsidies the system gives to low and middle income families. On the whole therefore low income families will gain very little or even be worse off economically.

Many of grandees of the Republican Party, the billionaires that bankroll the party, are largely to blame for the deindustrialisation of the US, having shifted production abroad to benefit from cheap labour to maximise profits. Indeed the previous Republican presidential candidate, Mitt Romney had taken a leading role in this when he took over companies with US production and shifted operations abroad. The American public has become addicted to cheap imported goods and many of their unions’ pension funds have been party to the country’s deindustrialisation by investing in companies that shifted production abroad to maximise returns. He has appointed a Treasure Secretary who, as head of a major financial institution was responsible for reckless lending policies that largely caused the great recession. The corporate class who sent American jobs abroad will be rewarded with huge tax cuts. The people who caused the financial crash will be rewarded with a place at the top table and a repeal of the safety measures to prevent such a crash, the Dodd-Frank legislation.

Trump’s policies will result in a huge increase in the US budget deficit. A central mantra of the Republican Party’s opposition to Obama, led by the Tea party movement, has been its opposition to budget deficits. And whereas Obama’s stimulus spending which did not receive a single Republican vote in Congress, that most Economists attribute to the US weathering the great recession better than most other developed economies, most of Trump’s deficit will go to tax cuts for the rich and defence spending. Early in Obama’s administration, against strong opposition from the Republicans in Congress he gave crucial support to the automotive sector which was on the verge of collapse. It is therefore rather odd that this party now has a President who would have gutted America’s industrial landscape significantly had Obama not prevailed.

It should be noted that Trump’s slogan, making America great again is hollow given his party’s record in power. Bush, the last Republican president inherited a budget surplus from Democratic Clinton that he quickly turned into a deficit, yes through tax cuts. Whereas Clinton had overseen record job creation and economic growth, Bush gave us the great recession and it was Democrat Obama, presiding over America’s longest running period of job creation that made America great again, a feat envied by many other developed countries.

Trump the nationalist is the grandson of a German immigrant and the son of a Scottish immigrant and his current and previous wife were East Europeans immigrants. The fear of immigrants among working class Whites goes against the history of the USA. Indeed mass immigration in recent history started in Europe which saw millions of its citizens flee poverty, political repression and religious intolerance to the Americas, Australia, New Zealand, Africa and Asia. The fear by White Americans of being swamped by immigrants therefore ignores the basic fact, that most of them came from Europe and displaced the American Indians – there were no passport controls then. This fear is rather the fact that most of these new immigrants are not White and the share of the non-White population is growing faster. Europe is opposed to refugees but its population is stagnant and/or in decline – that is probably one of the main reasons why Angela Merkel took in a million refugees from Syria. In Eastern Europe some of the countries with the strongest opposition to refugees such as Poland and Hungary have had hundreds of thousands of their citizens moving to the UK, Germany and other EU states for work. Russia is claiming additional territory when its population is in decline. China is at loggerhead with Vietnam, a country that it strongly supported during and after the Vietnam War. It is in territorial disputes with many other south East Asian countries and yet it wants to draw them into its orbit.

End of History

A quarter of a century ago Francis Fukuyama’s End of History predicted a symbiotic link between capitalism, democracy and liberalism as the way forward. Capitalism and globalisation have brought huge benefits to the world, in particular, there has seen a huge increase in trade flows, economic growth and more open markets. However that symbiotic link has not evolved as the author envisaged, at least not in a systematic way. China, the star performer economically since Fukuyama’s prognosis has embraced capitalism with fervour but the communist party has maintained its strong grip politically. In the same period Russia moved away from the chaos ushered in when it embraced democracy and capitalism to Putin’s authoritarianism and nationalism. Two darlings of western powers that have seen radical transformation in their economies, Singapore and Malaysia have exhibited authoritarian streaks with the same parties maintaining power since independence.

Taking a longer term historical perspective, it should be noted that Hitler came to power amidst the chaos of the democratic Weimar republic, promising and delivering order and prosperity. Mussolini performed the same feat in Italy, where for the first time “the trains ran on time”. Alarmingly, like Trump, both fascist leaders spoke in the same language and adopted the same policies, namely, they promised to make their countries great again and invested in infrastructure and defence. Interestingly, the Fukuyama’s prognosis has had reasonable fertile ground in South America, Asia and Africa. These regions still face enormous challenges because economic growth rates are still inadequate relative to high population growth and ethnic and religious issues have been far more important than Fukuyama envisaged. In such an environment, democracy and liberalism are often not particularly relevant to every-day life which is partly given rise to ISIS.

The way forward

What is the way forward? Trump and his ilk in Europe cannot be dismissed and they have tapped into real and perceived concerns. However their solutions are on the whole inappropriate, wrong and miss out on the solutions. The concerns about trade liberalisation which has seen American and European industries flounder and caused misery in the form of unemployment, low and stagnant wages and anaemic economic growth rates need to be addressed. In terms of trade policies, the ideal solution is for trade agreements to incorporate issues like freedom to form and manage trade unions, flexible currency exchange rates, elimination of state subsidies and sustainable production methods. Access to markets and tariffs could be based on these “metrics” which would ensure a more level playing field. Incorporating all of these “metrics” into trade agreements is highly unlikely partly because some are difficult to quantify and will face huge resistance from many developing countries. The more feasible option, taking the nationalistic approach is for companies, governments and consumers in Europe and America to promote their industries by highlighting the fact that goods produced locally provide jobs and have lower carbon footprints, under conditions that allow freedom to form unions and use sustainable and environmentally friendly methods. It remains to be seen whether major corporations will be willing to take this route given the pressure to maximise shareholder returns. Governments may also breach WTO and other trade agreements relating to state aids. Consumers, addicted to cheap imported goods may also not go along.

The most feasible approach is for America and Europe to improve their competitiveness by investing more in their physical and soft infrastructure. While much of the emphasis has been on physical infrastructure such as roads and railroads, there should be much more investment in soft infrastructure, namely, research and development and education, particularly in science technology, engineering and maths (STEM). As the UK’s CBI noted recently, investment areas such as education offer countries much higher returns. The Brookings Institute has also noted in papers published that losses in US manufacturing are largely because of improved technology that has made the country very efficient. It also advocated more emphasis on retraining workers who have lost jobs as a result of globalisation. They should consider adopting the German model in terms of technical education and collaboration between the unions, corporations and the state that has seen that country weather the great recessions much better that other countries, retain and improve the skills of its workers and avoid the huge income disparities associated with many other developed countries.

China needs to act as the super power it has become, as an engine of world economic growth, much as the US has and continues to do. It must open its market, not just for raw materials but also manufactured goods. It needs to intensify efforts to produce goods for the Chinese market and eliminate subsidies that have seen huge exports of products such as steel that have decimated industries in other countries. Economic theory suggests a significant appreciation of the Renminbi after that country’s spectacular economic growth and that process must be allowed to take place making the country more attractive to exporters from other countries. It must allow and respect international arbitration on its claims in the South China Sea. These measures will be good for the Chinese people as well as other countries around the world.

The world must continue to resist Russia’s aggressive behaviour to its neighbours and pressurise that country to amend its actions in Syria. Its nationalistic posture in Eastern Europe and its unilateral action in Syria must be curbed through sanctions and diplomatic means. Hopefully, the friendly relationship between Trump and Putin should result in a less adversary action by Putin.

Nationalism cannot be dismissed by politicians but they need to set the record straight. They need to point out that immigration does have some positive economic benefits and particularly in the face of stagnant and/or declining population in much of the developed world. This has been validated in a recent report by the Office for Budget Responsibility in Britain. That report downgraded Britain’s growth forecast largely because it factored in lower immigration as a result of the Brexit vote. Unfortunately this is not the agenda of purveyors of populism, as a recent BBC report of an event by Trump supporters show. The event showed the group celebrating the Trump victory because it heralded a victory for White supremacy.

Conflicts are the primary source of the wave of immigrants, notably Syria, Iraq, Afghanistan and Libya. Europe and America have played key roles in either initiating these conflicts and/or fanning their flames. A concerted effort must be made to end such conflicts and others around the world. Regime change must be avoided and all efforts made to assist fragile states through political and economic means.

Trade makes society as a whole better off, in economic parlance, it expands the social welfare function but in so doing results in winners and losers. In addition, for real gains to be made to society as a whole markets must be efficient in production and trade. Market imperfections such as state support for production in specific sectors or currency manipulation means that the expansion in the social welfare function is illusory not real. The issues for politicians are therefore how to compensate the losers, ensuring that markets are efficient and if not what corrective actions are needed. Political masters then, not corporate overlords, have to make these decisions. Unfortunately for Americans, particularly for the White working class who have been seriously conned, there is a very thin divide between the corporate elite and the new political masters as The Donald, rather than “draining the swamp” as promised, has filled it with appointments of millionaires and billionaires to key positions, the winners. He has adopted policies that are not only unlikely to expand the social welfare function but will also exacerbate the huge income divide. Yes he will invest in the physical infrastructure but he has not come up with any proposal on soft infrastructure that would be even more productive, such as research, education and retaining.

The Donald and others of his ilk in Europe have tapped into the angst but they need policies that are quite different from what they currently espouse. The Donald does not do policy, rather he tweets and makes grand gestures, ignoring the big picture. A perfect example of this was the recent announcement that he had saved a thousand jobs in in Indiana from moving to Mexico. He ignored the fact that the same company will actually move 1,400 jobs to Mexico anyway. And he ignored the fact that the jobs saved are minuscule compared to the millions created under Obama, including 178,000 job gains in the latest US jobs report.

Does nationalism have a place, yes it does? Does globalisation have a future, yes it does? America and Europe need to use nationalism to encourage their consumers to buy domestically produced goods. The European Union project needs to adopt pragmatic policies that do not ride roughshod over the national characters of its member states. Nationalism is particularly relevant in fragile states in Africa, Asia and South America where it is often a useful glue to pull together disparate ethnic and religious communities.

J Boima Rogers is Principal Consultant at Media and Event Management Oxford, He is currently working on a book on this topic.