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Kjell M. Torbiörn on Globalisation and Democracy: Does the one lead to the other?

27th October 2013

Kjell Torbiörn holds degrees in Economics from the Stockholm School of Economics and in Psycholinguistics from the University of Stockholm, an MBA in Organizational Theory from the University of Wisconsin (Rasmus Neilsen Scholar), and a PhD in International Law from the University of Strasbourg. Prior to his retirement from the Council of Europe in 2011, he occupied positions including as Adviser to its Secretary General and as Head of the Economic Secretariat of the Council’s Parliamentary Assembly. His last function was as Head of the Secretariat of the Assembly’s Bureau. He also served as a visiting professor in European Affairs at Syracuse University’s Strasbourg campus, and still guest lectures there and at other learning institutions in Europe and beyond. A composer and recording artist in his youth, Kjell Torbiörn has published books and articles on a broad range of European political and economic topics, including the thriller “Codename Copernicus” (Sweden). His book “Destination Europe: the political and economic growth of a continent” was published in 2004, with French and Swedish versions following in 2005

Introduction: The nature and effects of globalization

A major shift in world economic activity is under way, from the advanced economies in the notional ‘West’ – in the following to be referred to as ‘Older Economies’ or OEs – and toward a large number of rising economies – hereafter to be called ‘Younger Economies’ or YEs. These latter include the so-called ‘BRICS’ – Brazil, Russia, India, China and South Africa – but also numerous others, such as Vietnam, Indonesia and Botswana, just to mention a few.

The whole world is caught up in this development, often referred to as ‘globalisation’, which may be defined as an economic, social and cultural process largely driven by technological gains, especially in communication and transport. Globalisation is an age-old process – the Roman and Ming empires being early examples. However, the present wave for the first time involves the entire planet, and it at present finds itself at a qualitatively new and particularly intensive stage.

Globalisation has positive as well as negative effects and consequences. On the one hand, the world has experienced a never previously seen growth in material wealth, with millions of people in poorer countries lifted out of poverty. Furthermore, globalisation has brought about a strong interdependence among countries and world regions, leading to more dialogue and a sharp reduction in the number of armed conflicts. Thus, by way of example, the number of violent deaths in the world has decreased by 90% since the end of the 1940s. Finally, a wave of democratisation across the world – mainly in YEs (Younger Economies) – has followed, not always conclusive but well on its way.

There are, however, also downsides to globalisation. Many OEs (Older Economies) have known ‘de-industrialisation’, the departure of many industries and service activities heading for YEs, ‘off-shoring’ and ‘out-sourcing’, leading to a considerable dismantling of of social protection and the ‘welfare state’ in general.

Other consequences include major imbalances in the world economy, accentuated by deliberate undervaluation by many countries of their currencies, such as China, in order to help exports and impede imports. Finally, the mass of newly created and ‘restless’ capital, coupled with economic difficultites in many OEs, has led to a ‘capital glut’ of a highly volatile and fast-moving kind, causing frequent speculative ‘bubbles’ and wild gyrations in the economic cycle.

In ‘Older Economies’: a return of poverty, a shrinking middle class and rising inequality

Many unqualified and even qualified jobs have disappeared in OEs – whether inside the EU, say from France to Romania, or globally to various YEs; or indeed from higher-wage YEs to lower-wage YEs, such as from India to Bangladesh.

In many OEs, the number of unemployed and ‘working poor’ is increasing. (In Europe, this has been reinforced by the eurozone financial crisis, much of which has its origin in the inherent shortcomings of the Economic and Monetary Union as a whole.) Spain has close to 25% unemployment, while the number of Japan’s ‘poor’ has risen from 7% in 1980 to 16% today.

The above has brought with it a shrinking of the ‘middle classes’, the carrying element in any democracy. (Even in relatively prosperous Germany, the middle class shrank by 13% between 2000 and 2010.) True, many goods and services have become cheaper as a result of globalisation – witness cars, electronics and textiles – but rising prices elsewhere, such as petrol and rents in bigger cities due to migratory pressure, have further strained the budgets of broad layers of OE populations.

Globalisation has also led to a situation where fewer and fewer people at the top get to take an ever bigger slice of the global wealth increase. Thus, the much decried ‘Top One Percent’ in the United States in 2010 received 93% of the country’s growth in income, while the remaining 99% of the population took home none of it, or indeed were left poorer than before. In the US, the median income decreased by 10% from 2000 to 2010, with unknown consequences for the 'American dream’ of the pursuit of happiness.

The ‘galloping-top-one-percent’ phenomenon can  be explained by the larger market – the whole world – that is now open to talented individuals like Bill Gates of Microsoft,  , Larry Page and Sergey Brin of Google, and Mark Zuckerberg of Facebook (which is worth some $70 billion and has only some 2000 employees). Meanwhile, the financial sector grew rapidly from the 1980s until recently, with huge bonuses to top executives in tow. The income differential between top executives and workers in industry more generally has likewise grown exponentially over the past few decades. Finally, in many OEs taxation of the very rich has been eased over the years, causing the US billionaire Warren Buffett to observe that his humble secretary was paying a higher proportion of her income in taxes than he did.

A political and democratic crisis in many ‘Older Economies’

The political crisis following from the economic one in many OEs shows up in several ways. Political deadlock largely reigns in the United States between Democrats and Republicans, while the country’s already daunting national debt continues to climb toward unsustainable levels against a background of still comparatively modest growth. Japan has seen six governments come and go over the past six years. In Europe extremist parties to the right and left  - witness Hungary, France and The Netherlands – have grown alongside a shrinking middle class and new poverty, making political compromises on budgetary cutbacks and painful reform more difficult. A disenchanted younger generation – in Spain and Greece nearly half of young people are unemployed – has yet to manifest itself beyond spontaneous street demonstrations of the ‘Occupy’ and ‘Los Indignados’ kind, but it may only be a matter of time before these people’s lack of political activism, sometimes referred to as ‘slacktivism’, will take more radical forms.

At one level, therefore, today’s situation resembles that of the 1930s, when the big question was whether capitalism and democracy would survive, given wildly gyrating economic cycles, threatening mass poverty and unemployment, lost hope for the future and rising income inequality. However, there are differences between the 2010s and the 1930s: much freer trade today; no gold standard straitjacket restricting economic growth; and a much more deeply integrated world community.

This being said, the politics pursued in the coming years will probably come more to resemble those of the post-World War II period than the 1930s: that is, a more restrained capitalism in order to prevent further financial crises – even if this comes at the price of slower growth - and an emphasis on the shoring up of the middle classes to reach greater political stability.

Globalisation, the ‘modernisation imperative’ and democracy.

Against the above sobering portrait of the majority of OEs, or ‘Older Economies’, stands a global picture of largely rising YEs, or ‘Younger Economies’. Perhaps the present situation could be likened to continental Europe’s ultimately successful efforts in the 19th century to catch up to Great Britain, the then ‘workshop of the world’.

Of the world’s some 190 countries, roughly a third could be described as ‘democratic’, i.e. offering their citizens a high degree of political and economic freedom; another third may be called ’partly democratic’, affording citizens a lesser degree of political and economic rights, often due to insufficient or inadequate legislation, as well as corruption; and a final third of countries, the ‘non-democratic’ ones, award their populations no civil freedom, while the political process is strictly controlled.    

Enter globalisation’s corollary, what one might call its accompanying ‘modernisation imperative’. It largely builds on the ’modernization theory’ as formulated by R. Ingelhart and C. Welzel in their work « Modernisation, Cultural Change and Democracy: The Human Development Sequence » (2005). This theory holds that greater democracy becomes all the more necessary for countries in a globalising world, for the simple reason that if countries want to grow economiclly in such a world, as they must, they will have to adjust to it via  a more educated population, whose values will change as a result of the very education they go through and the greater prosperity they reach. The result will be demands for greater influence over the country’s political process, much like the mass demonstrations in Moscow by a rising middle class in the winter of 2012.

The theory itself is in part derived from A. Maslow classical 1943 theory of the ‘hierarchy of needs’ in which a person’s rise in material well-being passes from more basic ‘deficit needs’ of food and drink, safety, belonging and esteem, toward ‘being needs’ of self-actualisation.

Thus, transferred to the level of countries, OEs like Germany (relatively prospering) and Greece (in unprecedented economic crisis) show considerable differences as regards democratic quality and efficiency, and the same may be observed among YEs, such as between Taiwan and Ukraine, or between Brazil and Venezuela.

But for neither of the suffering countries in these two groups would the overthrow of democracy provide any relief, since any such setback would only cause the country in question to fall further behind in the Darwinian race for economic competitiveness in a globalising world. China may well now find itself at such a crossroads, with perhaps Iran and North Korea as well.     

Some 3,400 years ago, oligarchic Sparta and its associated cities defeated democratic Athens and its allies after a 30-year war fought largely on ideological grounds – the tried and tested reign of the few (oligarchy) against the novelty of the reign of the many (democracy) – that was to devastate Hellas for centuries. The Greece of today, if we are to believe the ‘modernization imperative’, does not have this ‘luxury of choice’, as last witnessed during the country’s military dictatorship in the 1970s, for it would only fall even further behind. A more efficient and less ‘extractive’ (that is, exploitative as between social groups) democracy is the only way out.

Based on our analysis so far, five different types of economies may be discerned:

1)            ‘More inclusive’ OE-democracies – such as Germany, the Nordic countries, Canada and New Zealand – with good prospects;

2)            ‘Less inclusive’ OE-democracies, like the US. These will probably have to become more ‘inclusive’, especially by pursuing policies that can rebuild a sizeable middle class; 

3)            ‘Extractive’ OE-democracies, such as Greece or Argentina. Such countries will face major difficulties in adapting their social protection to a leaner format and reform their economy. But, as previously argued, there is no other way for them to go.

4)            ‘Inclusive’ YEs, like Brazil and India. This group could be expected to fare reasonably well, provided they permit an emerging middle class to grow further.

5)            ‘Extractive’ dictatorships à la Zimbabwe and North Korea. Their situation is already difficult and they will therefore sooner or later be faced with the necessity of democratisation.

A caveat is in order here, in that globalization – and hence the ‘modernisation imperative’ – will only function as long as there is at least a degree of ‘normalcy’ in the world. If the present overall ‘win-win’ situation – meaning a gain over time in overall world wealth creation that is distributed with at least a modicum of social fairness within and among countries – were to turn into its opposite, namely into a ‘win-lose’ situation, then all bets are off. A ‘win-lose’ situation would, for instance, be one in which raw materials or commodities such as oil or rare earths were depleted, or not shared with others, without any substitutes in sight; or dramatic food scarcity; or nuclear conflict; or radical climate change beyond what nations together would be able to remedy through joint action.

Concluding remark

A ‘mega-trend’ of democratisation is sweeping the world, borne on the broad shoulders of globalisation and the latter’s social consequence - the ‘modernisation imperative’ - along the lines of the expression: “The rising tide will lift all boats”.

If, however, the world situation were to turn sinister for whatever reason and become adversarial to cooperation, then democracy could again find itself on the defensive - this time along the lines of above quote, now supplemented so as to read: “The rising tide may lift all boats, but if a storm comes even the sturdiest of them may no longer be safe”. 

The world therefore has a vital interest in cooperating, so that ‘normal circumstances’, and hence overall ‘win-win’ conditions, can continue to prevail. 

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