Potential Third Globalisation. Breaking Out of the Exhaustion

Predictions of the future currently hold a special attractiveness as well as special challenges. Continuity seems less and less likely, and more and more is becoming questionable: in the realms of technology, the economy, society, and politics. Innovations, disappointments, breaks in developments, erosion of certainties, indeterminacies, loss of leadership, and new types of conflict have given rise to expectations that cannot be captured, described, or located in a clear way through experiences, tendencies, or path dependencies.

Identity Doubts and Lack of Orientation

The Great History of Freedom, which became a major source of hope worldwide with the fall of the Berlin Wall and the Iron Curtain, and always contained both a political as well as an economic component, is no longer taken for granted, specifically because of its boundless intrusiveness and the sense of foreign control exercised from afar. Identity doubts and a lack of orientation are increasingly dominating social discourse and political debates. The attempt to gain new perspectives from this situation must be based on the insight that globalisation, as a driving force of our economic success, requires normative reassurance. After all, taking a distinctly Western globalisation for granted is just as untenable as picturing an unbiased, purely market-specific global economy. Any positioning of the drivers of the global economy for a Germany in 2030 must take these factors into account.

On the one hand, the questionability of the present unites epoch changes already proclaimed a long time ago: Postmodernity (Jean-François Lyotard; 1979), the ­Crisis of the Welfare State (Jürgen Habermas; 1985), Post-democracy (Colin Crouch; 2005). On the other hand, the economic and financial crisis of the years 2008/09 served as a trigger. It was interpreted as a social catastrophe and overexpansion of political opportunities, as its cause was said to originate in an economic system that, shaped by globalisation, had moved away from the standards of humanity, demanded the primacy of the economy, and coded all contexts of life into sanctified self-interest.

In the end, this conflict situation led to the impression that one of the crucial functionalities of our epoch – to perform coordination efforts peacefully, efficiently, and effectively – was being questioned because the promise of the market economy’s advancement no longer held true. In fact, since the turn of the millennium, the prospect of a generally continuous growth of real incomes and a resulting expansion of the scope for action has proven to be increasingly unrealistic in many countries. The perception of globalisation has changed. Even in national economies that demonstrate robust development and employment records, such as industry-based and export-oriented Germany, the majority rather than the minority are expressing their fears regarding future developments, their own opportunities, and above all their personal status. Contrary to the actual economic development, this is founded on the widespread perception of globalisation as the cause of adaptational burdens for employees in times of digital transformation – either through higher productivity demands, rising wage pressure, or higher risks of job loss.

Regardless of the specific interpretation of globalisation, its ambivalent effect – economic dynamism and societal contradiction – results from the intensifying transnational division of labour as well as the spreading of remote influences, two factors which cannot be separated. In this tension field, megatrends – particularly the digital transformation and climate change – are developing their potential and challenges for the future. The thesis to be developed here is based on the insight that the power of these drivers for the global economy considerably depends on how globalisation can become sustainably acceptable – meaning, inclusive – for society. And this is essentially dependent on the realisation that globalisation only has a future as an explicitly normative project.

Globalisation as a Normative Project

Globalisation connects national economies through free goods trade and movement of services, capital mobility and risk exchange, knowledge sharing and knowledge exchange, migration and human capital mobility. Its defining trademark is therefore interconnectedness, which leads to self-reinforcement and ultimately en­ables the emergence of global players and structures. At the same time, regardless of global structures, societies organise themselves into hierarchies when it comes to both politics and economics. Hierarchies define ranking orders, sanction rights, assign competences, offer conflict solution mechanisms, and spare members of society from various transaction costs. Strong and stable relationships are defined to make hierarchies sustain­able and robust. Such hierarchies also include companies that establish and protect themselves through the advantage of transaction cost savings. If the costs of market use change, this could have far-reaching consequences for existing companies, which would pose a disruptive threat.

The Special Power of Networks

Networks, on the other hand, are unstable, living off spontaneous, continuously reforming order; they rely on the strength of weak and rather arbitrary connections, so-called structural holes that separate nonredundant information. Globalisation represents a normative project in the conflict between the Transatlantic West and China. The special power of networks lies in their ability to bypass these structural holes, especially when different networks and circles of information can be related to one another. This frequently succeeds due to new technologies for information exchange and communication; capital flows and financial intermediation also have the potential to form networks. The opening up of economic possibilities – especially after 1990 through the end of the conflict of political systems –, the liberalisation of capital markets that began back in 1980, as well as the technical-­instrumental progress against the background of strong population growth not only meant giving global freedom a more comprehensive chance, but at the same time redefined the possibilities of random, market-driven – meaning principally anarchic –, spontaneous networking. So far, the globalisation of our time has effectively put political and economic hierarchies under a fundamental pressure to adapt. This is where the hidden normative dissent reveals itself: what form of adaptation of the national hierarchies resulting from global networks can societies withstand? Herein lies the seed of protectionism.

This leads to the unequal alternative of either reversing globalisation with traditional means – building physical walls, as US President Donald Trump propagated during the 2016 election, or deactivating and censoring the Internet, as practiced by the leadership in China – or accepting this adaptation through institutional reforms within the countries as well as through the development of innovative transnational institutions. The present phase of stagnation can be construed to mean that the conflict between networks and old hierarchies is currently being resolved, but that the new hierarchies are not yet accepted, secured, clarified, or even visible.

Both the West and China are experiencing this conflict and reacting to it restrictively, even though their respective understanding of globalisation is very different in terms of values. Globalisation represents a normative project in the conflict between the Transatlantic West and China. In this context, the perspective of the West – and due to historical reasons, this means especially the perspective of Germany – is based on the fundamental principles of inalienable human rights, of the rule of law, the separation of powers, popular sovereignty, and representative democracy. Over a long period of time, the normative framework completely and naturally stabilised the advance of globalisation without ever losing its own historical relativity. However, the years since the fall of the Wall and the opening of the Iron Curtain in particular show an epoch that picks up on the ideas of 1776 and 1789 like no other has before. This epoch for the first time links the ideas of 1989 with the hope that the civilisational project of the West could mature on a global scale. But how sustainable could and can a globalisation be when it is not restricted to the exchange of goods, but instead views the conditions of a new location holistically through trade of services, direct investments, and migration decisions – meaning that the classic regulatory issue of consistency among the political, social, legal, cultural, and economic orders arises?

The economic dynamics of our globalisation are linked to the integration of emerging countries, from which Germany notably profits. The development in the People’s Republic of China plays a particularly considerable part in this. The economic dynamics of our globalisation are strongly linked to the integration of emerging countries, from which Germany notably profits.All the same, neither political democratisation nor societal liberalisation have followed the opening up of China’s market economy. The repressive approach to civic participation – particularly rigid in the case of the dissident and Nobel Peace Prize laureate (2010) Liu Xiaobo – makes this abundantly clear. China’s political leadership consistently propagates its own political path and is thereby in a particular way simultaneously earmarking the position of normatively neutralising economic globalisation with a view to politics and society, basically reducing it to a technical procedure. China’s opening after the death of Mao was never understood as a democratisation project. Instead, two hundred years of Chinese regression and decay now serve as an incentive for today’s leadership elite in China. They aim to correct this – at least so interpreted – aberration of history by means of an independent model: democratic dictatorship. Up until today, in principle, nothing has changed in terms of binding capitalism to the communist leadership structure and the party’s centralism. Therefore, the following applies: the normative question of the appropriate economic order is crucial. This is particularly pertinent in a time in which many are sensing the end of all security. With a view to the future drivers of the global economy, it must be examined to what extent the project of globalisation, against the background of cultural differentiations and path dependencies, can be anchored normatively and sustainably within the battle of networks and hierarchies.

The Exhaustion of our Globalisation

For a long time, the normative tension of our globalisation was unable to dampen its success. The release of the worldwide integrating economic forces dominated everything for decades. The massive developmental differences between the established industrial Western countries and the emerging and developing countries made the regulatory differences seem subordinate. The priority was (initially) placed on initiating economic catch-up processes. The panorama of our globality is shaped by the following characteristics:

  • Institutional innovations such as the multilateral World Trade Organization (WTO) offer all participants a certain say on a global stage. Smaller countries actively took advantage of the new opportunity to participate in a way that would not have been possible in bilateral negotiations. With the help of this economic integration, a few Asian countries in particular managed to utilise the opportunities on offer and achieved a level of growth through the catch-up process that had long been considered impossible.
  • Contrary to expectations, the opening of the capital markets after the end of the monetary regime of Bretton Woods did neither lead to emerging and developing countries gaining unrestricted access to the global financial market nor to a comprehensive and widespread implementation of investment projects in those countries. Instead, investment streams have interwoven an already relatively homogeneous group of countries ever more closely.
  • Global digital interconnectivity and transport cost savings simplify the operations of international corporations along globally integrated value chains. As physical distances between the consumer and production sites lose significance, global entrepreneurs are able to exploit entirely new possibilities in the division of labour. While corporate management remained in the country of origin, especially industrial companies moved production jobs to emerging and developing countries as part of realising labour cost advantages. This is a particularly apt description of Germany’s position in the global economy.
  • The modernisation hypothesis, according to which economic growth initiates the democratisation of political processes, is turning out to be an empty phrase, or at the very least questionable. So far, any growth-driven convergence towards a system of liberal democracy propagated by the West has not been observed. Our globalisation fosters peace in places in which it creates or stabilises integration structures. Securing political freedom, however, mainly depends on national conditions, which are proving to be more resistant to economic integration.
  • The acute difficulties of emerging countries in generating sustainable growth which particularly takes humanitarian, ecological, social, or democratic aspects into consideration make it clear that the dreams of institution-free growth will ultimately fail to come true. The resulting fear of the ‘middle-income trap’ elucidates the tension field and insecurity, which cause the exhaustion of globalisation to ensue.

Real-time controlling around the world brings about the fundamental innovation for the real economy: globalisation of the value chains. This has significant prerequisites and equally substantial effects. It requires connectable work organisations and working time schedules, it must allow the integration of the concerns of single operations into the global context, and different cultures and values at the various locations must be connected in a constructive manner. It hereby becomes clear that we are dealing with both corporate requirements and political-institutional standards. What is a necessary condition on the one hand, on the other hand has considerable effects at the different company locations and even on the level of global interconnectedness.

Waning Impulses From Fast-growing Countries

Nearly thirty years after the fall of the Iron Curtain and end of the East-West conflict, as well as forty years after the programmatic anchoring of the capitalist economy in the People’s Republic of China, globalisation appears exhausted. The stagnation of intermediate input and thereby the intensification of the global division of labour represents one important indicator of this, as does a world trade elasticity of a maximum of one and a waning of impulses from fast-growing countries. The exhaustion of globalisation is reflected by a high-level institutional helplessness, which can ultimately be explained by normative dispute which is deep-set and repressed, or, in any case, not actively accepted.

  • The industrial countries are increasingly recognising the illusion of security they succumbed to following the euphoria of the year 1989. Western criticism of globalisation binds forces that lack constructive further development and that could counteract the overcoming of stagnation – especially the resistance from the circle of emerging and developing countries (Doha Round in the WTO, TTIP, CETA). Especially in Germany, this criticism was loud and clear.
  • The emerging and developing countries are increasingly experiencing the illusion of efficiency, which is coming to light in view of the stagnating income development. Regional development cooperation cannot solve the problems, since the international capital markets have other demands, namely the institutional quality and stability considered to be standard in the West.
  • The rise of protectionist tendencies in the industrial countries is reflected by a free-trade avowal by the Chinese leadership, but this does not substantially reduce or even bridge the normative gap between the Western and the Chinese idea of globalisation. In principle, the Chinese understanding of globalisation has not changed since 1978, while the Western understanding has lost its self-confidence.
  • The likelihood of finding new formats, rules, and institutional solutions within the framework of international cooperation is currently extraordinarily low. It is no longer even possible to form a widespread consensus on the global challenge presented by climate change. Threats lie in the Transatlantic West – in the US – as well as in the Chinese model.
  • Extreme contradictions characterise the anti-­globalisation movement, which is often communicated as a fundamental rejection. This movement ignores the progress regarding the reduction of poverty and increase in life expectancies in developing countries and fails to offer alternative solution mechanisms to the market economy. The hidden lowest common denominator of rejection from both the left and the right is ultimately the home of backward-looking and exclusive nationalism.

Relevance of Different Economic Areas in the History of Globalisation

The percentage change of major economic areas, measured by the respective regions’ share of world GDP, 1500-2007.

Climate Change and Digitalisation

When assessing which trends lead out of the exhaustion and into the future, the decisive adaptation factors and risks of global structural change must be acknowledged: digitalisation and climate change. Both represent globalisation-­based and globalisation-driven phenomena, both share the common aspect of wrestling between hierarchies as well as networks, and both revolve around the issue of a central controlling body. External effects always raise the question of the legitimacy and enforceability of ownership, as nobody wants to let the principle of ‘might is right’ become the norm. Hardly any country can escape from either phenomenon, even temporarily. Climate change can only be contained by means of a central (and urgently required) controlling body. The networks generated through digitalisation have developed into international power structures that could hold their own against nation states today.

It should be evident that globalisation requires an environmental framework which is effective and sanctionable. Global, comprehensive, and binding emission allowance trading would be crucial for this. Climate changes have already encouraged the establishment of international awareness, a strategy of action, and a contractual framework. However, the political boundaries of the Paris Climate Agreement are visibly narrow. In any case, in addition to the irreversible damage to humanity and the environment, climate changes are also burdening the economic dynamics – either by directly hindering the division of labour as a result of restricted exchange relationships or by incurring abatement costs for environmental damage. The economic innovation efforts, if they are market driven due to state regulatory policy, can certainly provide room for economic scopes of action to grow and new markets to emerge. Climate change can only be contained by means of a central (and urgently required) controlling body. The challenges to environmental policy must be accepted regardless of the normative anchoring of the economic order and thereby the respective globalisation model. Whatever agreement international players can bring themselves to make in terms of policy, the technological implementation will exert pressure on the market-based enforcement of environmental-­policy goals (regulatory policy). If the delegations reach the pain threshold of their mandate during climate negotiations, solutions will be required that contribute to achieving goals as efficiently as possible – otherwise they risk failure due to internal political resistance or the squandering of resources. This could be used for negotiating purposes by making compensation payments of rich industrial countries dependent on such an implementation logic in developing countries. Environmental problems are problems of relative scarcity. Problems like these can be solved most effectively and efficiently in open markets and with marketable tools. With the need for action, this cannot be differentiated on a cultural basis. A joint commitment of the political hierarchies is required to be able to give globalisation and its network dynamics a stable, equally effective and efficient environmental policy framework.

Taking Fragmentation and Individualisation of Communication Seriously

As a result of the digital transformation, public communicative structures are changing. This is where the effect actually worth considering can be found, rather than in deductions drawn from competition policies or production technologies. The issue therefore lies in whether and how the fragmentation and individualisation of communication is dismantling society’s public space into echo chambers of smaller, prejudiced communities. Constructively developing and filling public space through the exchange of interests, acceptance of competing interests, and equality of interests with a majority principle and protection of minorities marks the core of modern, deliberative democracies and necessitates the principle of general and equal access. The digital transformation’s effect on the public sphere is an ambivalent one: on the one hand, it promotes the individualisation as well as fragmentation of communication, reduces the acceptability of macrosocial values, and impedes the implementation of the quality stan­dards of democratic media. On the other hand, individual forms of confidence-building emerge, the transparency of political structures, procedures, and decisions increases, and social innovations become enforceable at an accelerated rate due to network-building. The validity of democratically founded norms and standards risks eroding in the factuality of social processes.

In addition, our public is at risk due to the loss of domestic sovereignty as a result of unchecked medial, informational, and cultural external influences with question­able legitimation. Regardless of the content, the collapse of the public will be accelerated by the fragmentation and individualisation of communication if we fail to apply the standards valid for established formats to alternative social media and to establish a new common level playing field. Of course, we are unlikely to succeed as long as there is no common international understanding on these matters. And this, in turn, seems rather unlikely given the differing political dispositions of the nations involved. Hierarchies are lining up to gain networks for binding standards and measures of conduct in order to contain the potentially dysfunctional effect on the public. If the networks create their own hierarchies (as institutions of self-regulation), they could turn into a powerful force in the normative conflict of our globalisation. The theoretical understanding that the market-based system as a prerequisite of democracy and deliberative democracy as a prerequisite of the market economy are connected in a normative way then receives a new practical valency.

Breaking Out of the Exhaustion

To continue the story of freedom, globalisation must be given a sustainable perspective by adding a new perspective of responsibility. While private actors must inevitably develop trust in the market society to increase their efficiency, societies and nations aiming to stimulate economic activity to achieve prosperity and social security must generate trust in a targeted way through clever institutions. Considerations of globalisation policy tie in with these. They also point towards the normativity of globalisation, which can only be reflected appropriately in the twenty-first century through multilateral negotiations and structures as well as transnational institutions. This does not mean the end of the transatlantically shaped dream, but rather of its contemporary classification as a European and German responsibility.

To counteract the waning cohesion of nations, it is crucial that a solution is found to the persistent trust issues of developing countries. All attempts to enable so-called Third World countries to establish an accessible position for economic integration through credit guarantees, development aid, and special programmes for institutional development have not yielded the desired success. The trust problem must be overcome within the developing countries themselves. The validity of democratically founded norms and standards risks eroding in the factuality of social processes.At the core of this concept lies the question of which framework conditions must be created to guide private foreign investments towards African countries, with a special focus being placed on long-term and capital-intensive infrastructure projects for which domestic funds do not suffice. A funded old-age provision has the potential to activate national capital in the first step and gradually stabilise economic as well as political institutions. As soon as these effects solidify, international donors would be able to guide their funds to the respective regions. Even if they do not correspond with the standards of Western liberal democracy, countries could thereby participate in the successes of globalisation step by step, doing so via strategic investments in infrastructure and locations of innovation. If the location requirements are created in this way, then the national economies will become increasingly capable of accessing the international value chain and will be successful in attracting skilled workers for their specialisation patterns. Sustainable old-age provision can contribute to the stabilisation of economic and political institutions through long-term investments and the formalisation of gainful employment. Thereby, capital formation as an internal development-­policy action by countries of Sub-Saharan Africa lays the foundation for an independent perspective, supported by the international capital markets as opposed to development aid from the West and China.

The developed national economies as globalisation forerunners and deeply integrated economies, embedded in consolidated statehood, bear a special responsibility, both for reforming social cohesion and developing a global perspective. In this context, Germany must assume responsibility on the frontline. We meet the role model requirements as a democracy established in a Western-Transatlantic tradition with a developed civil society; this stands for the quality of a democratic culture, opens up perspectives of integrating various life situations as well as ways of life, and is important for overcoming challenges in distribution policy.

Systematic Integration into Civil Society

To end globalisation’s state of exhaustion, civil society must be systematically integrated due to its identity-­shaping power and its ability to practically acknowledge individual life situations. This is because as much as the national distribution conflicts resulting from globalisation require convincing responses to occupational integration through education policy, competition policy, and social policy, they also need responses to the increasing heterogeneity of life circumstances through civil engagement. Here, the focus lies on identity and security in a practical sense. The differentiating power of civil society is proving to be important for another reason: the dwindling of social cohesion in connection with a globalisation-related insecurity can be observed in a wide variety of societies with wholly different economic developments. Companies as the central players of our globalisation – who not only create their own value globally, but thereby also put themselves, as well as the nations that surround them, under substantial competitive pressure to adapt – are also facing the challenge of incorporating the relevant social groups with a view to profit responsibility. Systematically integrating civil society opens up new transnational space for discourse and offers the opportunity to establish a sustainable economic strategy and to strengthen the exhausted globalisation. To achieve a truly inclusive globalisation, companies must systematically combine this social and political view with their economic actions; German companies must secure and expand their established edge. Only in this way will they escape the dilemma of legitimacy, which results from arbitrary and not locally connected actions and from the institutional pressure to adapt that is being caused.

Germany’s Responsibility

The opportunity for the Transatlantic West – and thereby for Germany – arises from the fact that the self-­evident civil society now forms the decisive lever for understanding and accessibility in the new target regions of globalisation – not only as a field of association for problem-­solving discourses, but also as a transformative driver of deliberative policy. Both take the normative relationship of market economy and democracy into account. In this respect, the question arises as to the drivers of the 2030 global economy, especially in terms of globalisation policy. If the normative conflict does not at least relax, the matters of industries and markets of the future will become more or less subordinate. Germany’s responsibility also results from the fact that systematic thinking and consistent rules are basically at home here. This demands readiness for conflict in the matter at hand, particularly when it comes to old friends – such as the US – as well as critical partners – like China.

The Next Globalisation

How We Must Act

The economic situation in the year 2030 will be considerably determined by whether we succeed in freeing our globalisation from its visible exhaustion and opening up perspective for an actual (Third) Globalisation. This also determines the scope for action for the two major challenges: climate change and digital transformation. Inclusive globalisation stands for giving developing countries a true chance of participating.It entails utilising the integration of civil society to establish a global power from the established economies with their consolidated governmental structures.

  • Commitment to binding rules and multilateralism in international cooperation. The WTO must be given priority over bilateral solutions (Article 24 of the GATT). The idea of cooperation may demand preliminary work from the Transatlantic West. Because of its globality, Germany holds a leadership role in this regard.
  • Developing countries must heal their institutions’ problem of trust from within. One path, which would link with their own interests, is the creation of a funded old-age pension. This addresses the necessary domestic investments as well as the expectations of external investors.
  • The countries of the Transatlantic West – with Germany and the rest of Europe taking the lead – must find the courage to advocate worldwide and in a credible manner the normative foundations they consider to be important for globalisation. This requires minimum standards of openness as well as a strengthened, international civil society, also and especially through international corporations.

Prof. Dr. Michael Hüther (56) is the Director of the German Economic Institute and Honorary Professor at the European Business School. He strives to promote regulatory consistency in economic policy through empirically supported articles and studies. This is also reflected in his work with commissions (Expert Commission for the Sixth Report on the Elderly as well as the First and Second Engagement Report; Advisory Committee at the Federal Ministry for Economic Affairs and Energy) and various supervisory boards (TÜV Rheinland, SRH Holding, Allianz Global Investors).