The destruction of the old world order

Covid-19 is a truly global phenomenon. It started in one country and within weeks had spread all around the planet. Long-distance air travel, which epitomises the connectedness of our ‘globalised’ world, hastened the diffusion of the virus. The equally emblematic international-communication systems instantly disseminated awareness of how governments and people were responding, encouraging the replication of actions and behaviours. The sense of a global community, in which ‘we’re all in this together’, has probably never been stronger.

Such extraordinary human crises, like major wars, are thought to bring people together. Certainly there are many, many uplifting instances all around the world of ordinary people supporting their fellow humans during this pandemic. However, at a political level, conflicts and discord are mostly being aggravated, not eased, by the impact of Covid-19. Within governing elites, prior political divisions – in and between nations – are intensifying.

The dominant antagonism between globalist and insular nationalist politicians has certainly been exacerbated. For instance, President Donald Trump’s suspension of financing for the World Health Organisation (WHO), a United Nations agency, followed his long-running attacks on other forms of globalist multilateralism, from NATO to the G20.

And the attacks on Trump during the Covid-19 crisis from other Western governments have been similarly consistent with their pre-existing globalist playbook. The European Union and other globalist-leaning leaders condemned Trump’s move against the WHO as an act of destructive ‘economic nationalism’. And they did so even though the WHO has been widely criticised for its performance by others far beyond the White House.

This shared censure of the WHO points to another continuing feature of the contemporary political climate. There is often less dividing these two political stances than it appears. Trump’s decision to stop financing the WHO was not that much of a break from the approach of his predecessors, Barack Obama and George W Bush, both of whom were equally critical of the WHO.

On conceptual grounds, too, commentators from both globalist and isolationist outlooks have been drawing on the pandemic to confirm their prior convictions. Globalists called attention to the ease with which coronavirus, or rather individuals with the disease, moved from one country to another as confirmation that national borders are moribund in our ‘smaller’ world. Fighting such a global disease highlights for them the limitations of the traditional nation state in dealing with it. The mantra is ‘global problems require global solutions’.

The pandemic is thought to make the case for supranational governance and action. Many globalists reach for the overused analogy with the Second World War to uphold the need for international institutional collaboration today. Out of the carnage of world war three-quarters of a century ago came the United Nations, the World Bank, the International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade. The current health emergency, it is said, requires something similar for our even more interdependent and, seemingly, more fragile world.

For example, Gordon Brown, the former British prime minister, has called for a global government to tackle the twin medical and economic crises caused by Covid-19. There is a need, he argues, for a taskforce with executive powers to coordinate the response, involving world leaders, health experts and the heads of international organisations. It was telling, though, that elsewhere he also pointed out that ‘the ambition of the G20 seems in inverse proportion to the enormity of our joint challenges’.

Meanwhile, isolationists and others have turned the globalist perspective on its head. The rapid spread of the disease, they claim, starkly illustrates the dangers posed by an open, globalised world with porous borders. Globalisation, they assert with extra conviction, has not only been destroying jobs and livelihoods at home, but has also left disease-hit countries at the mercy of their dependence on global supply chains. Sudden shortages of medical supplies and equipment appeared to expose the risks of offshoring production to lower-cost parts of the world. The pandemic is being turned into an argument endorsing the case for inward-looking national self-sufficiency.

A democratic internationalist alternative

In fact, the pandemic experience justifies neither globalist nor isolationist viewpoints. For instance, the previous failure, or incompleteness, of businesses in diversifying their supply lines is neither a repudiation of an internationalised economy nor an argument for strengthening global governance. Risk registers of most big corporates already listed ‘supply-chain dependence’, at least since the aftermath of the Fukushima earthquake and tsunami in 2011. That corporations took inadequate mitigating steps was due mostly to their shortsightedness and cost-cutting pressures, rather than anything intrinsic to internationalised production.

Against the calls for autarkic self-sufficiency, the pandemic actually reveals the ability of many companies to repurpose themselves to produce essential supplies. Pharmaceutical companies, unsurprisingly, have refocused their efforts on developing vaccines and testing kits. Cosmetics companies, spirits makers and gin distillers have become hand-sanitiser producers. Car manufacturers retooled to fabricate ventilators. Factories that usually made clothes for fashion retailers are producing face masks and other protective garments. Even makers of musical kit have switched to medical gear.

Delays in getting essential stocks to the right place were less because of the barriers of developing new production lines, and more down to government failings in coordinating matters. This included lack of clear messages about what was needed, and the slowness of some official regulators to approve new producers and products.

The speedy responses from business help to refute the case for insular self-sufficiency. They showed that in times of crisis, people are able to rise to the challenge and produce a lot of what is needed. Certainly, ensuring better supply-chain redundancy, or back-up, through diversifying suppliers across different parts of the world could have helped, too. But reshoring everything to localise production would be a retrogressive step. Such a reversal of the international division of labour – described by some commentators as ‘deglobalisation’ – destroys the productivity gains from international specialisation. Firms making themselves ‘local-only’ would likely become less competitive. Prices would go up for inputs into other businesses and also for consumers.

Of course, a stronger domestic production base as part of a wide international division of labour enhances a country’s economic resilience. A positive legacy of the brutal destruction caused by the pandemic shutdown could be to incentivise substantial state-led economic restructuring and renewal. If so, that should create a healthier spread of industry, both goods-producing and service-delivering, to bolster not only people’s day-to-day prosperity but also the country’s future robustness.

The ordeal of the pandemic has repudiated globalist assumptions, too. Actions taken have vindicated the validity of national state organisation. Only nation states have the authority to impose lockdowns and then provide – or, in some countries, try to provide – emergency financial aid to compensate businesses and families for the impact of the lockdown.

Nation states have been unevenly successful in their responses to the pandemic so far, but no other institution has the popular license to act on behalf of a collective citizenry. The WHO, the IMF and other international organisations have collected information on the pandemic’s effects and made recommendations. But nation states remain supreme in their capacity, for instance, to shut down societies and pay right away for the pressing items and activities required. They are unique, too, in printing recognised money and being able to levy taxes in the future to recoup immediate crisis spending.

The state can do all this because it retains dominion within developed countries, something that has not been achieved by any of the international and supranational institutions set up during the past 75 years. Imagine how people would have responded if the UN secretariat or the European Commission had decided – even with scientific advice – what was best for everyone, and imposed rules about staying at home, stopping non-essential work and travel, and preventing people sitting in the local park.

In the national context, the vast majority of people, at least initially, have put up with all the official intrusions in their lives. They did this both out of communal solidarity and also in recognition of the lingering, if dwindling, prerogative of national government. In fact, the acceptability of the state’s interventions has become suspect only when it has veered too far in disregarding people’s freedoms and democratic rights.

Although countries are better interconnected than ever before, everyone still lives in particular national territories, and the nation state is the only legitimate territorial actor. To have the chance of being effective, actions mitigating Covid-19 – or any other global problem – need to be implemented. This means they have to carry weight with people and organisations within specific geographical territories.

So far in history, only the nation state has the means and plausible support to act in this way. Governments can blow this potential and antagonise their electorates, not least if they treat people as if they were unthinking, unruly children. But dealing with a shared predicament like Covid-19 impresses the value of cooperative state-led actions, within countries and across borders.

There is no objective reason for national state apparatuses to operate only on their own, even if in practice some have been acting parochially. National science institutions and nation-based pharmaceutical companies are working together in the search for effective treatments, better testing capabilities and vaccines. Nation states could similarly still better pool their resources for collaborative progress in achieving solutions to this global challenge.

As the alternative to both globalism and narrow-minded nationalism, a third approach also beckons through the upheavals of the pandemic: an internationalist nation-based path. Just as diseases travel quicker in a more interconnected world than at the time of the Black Death, it is true that solutions can be found much faster, and without erasing the advantages of country boundaries.

The existence of nation states and of national borders has not prevented attempts to accelerate the discovery of treatments and vaccines through harnessing the wisdom and ingenuity of the global commonwealth. For instance, the Chinese had, within a few weeks of Covid-19’s emergence, detected its genetic code, and shared this knowledge with the rest of the world to kickstart the worldwide search for cures.

This early experience of the pandemic does more than vindicate the possibility of an internationalist alternative to globalism and to insular nationalism. It also reinforces the urgency of debating it, given the fractious international political climate exacerbated by the pandemic.

It is often said that everything changes in a major crisis. But this is not quite right. The changes that happen seldom derive from the crisis itself, but from the acceleration of existing trends. So far, Covid-19 has similarly sped up and crystallised earlier tendencies. As a result, it is helping make the true state of affairs clearer. As the Economist Intelligence Unit concluded, the ‘coronavirus pandemic will not usher in an entirely new global order, but it will change things in … important ways … [and] bring to the surface developments that had previously gone largely unnoticed’.

In particular, three pre-pandemic features of international relations are being amplified and brought to the surface: the changing economic balance in the world; the unraveling of the post-1945 world order; and tensions between the advanced industrial nations.

Economic shifts

The medium-term economic impact of the pandemic will take many months, probably years to work itself out. The early indications though are that the measures taken to contain the virus are having a differential impact between East and West. It seems unlikely at the moment that the pandemic will get in the way of the prevailing rebalancing of wealth production from the West to the East. Western debt-dependent staying power is no match for Eastern economic dynamism.

Ever since the 1980s, the advanced Western economies have shown tremendous resilience in the face of declining profitability and slowing productivity growth. They have maintained an aura of prosperity, but only by borrowing it from the future. The steady ramping up of debt has allowed governments, businesses and households to live beyond their means.

They have been able to spend more on their immediate requirements than is enabled by the new wealth that their economies are creating. This extended era of ‘making do’ had already been gravely shaken by the 2007–09 financial crisis. Resilience was subsequently extended further, mainly by the central-bank adoption of ultra-easy monetary policies, involving quantitative-easing measures, alongside zero or negative official interest rates. However, the strains were already showing well before Covid-19 arrived, with the return to record indebtedness levels and the re-emergence of precarious price bubbles in various financial assets.

There had already been growing acknowledgement of these financial stresses over the past couple of years. This backdrop paved the way for most Western governments to espouse ‘whatever it takes’ fiscal interventions in response to the pandemic. Treasuries and finance ministries had already become aware that they would need to intervene directly on a bigger scale in the next recession, whenever that came. The precipitous and severe economic collapses brought on by the self-imposed shutdowns have merely hastened these actions.

However, these won’t fix the underlying problems of profitability and productivity. Pandemic-related hikes in sovereign borrowing and debt might camouflage the depression for a little longer. If done on a sufficient scale, additional state spending can offer a purchaser of the last resort. On its own, though, this can’t restore the West’s economic dynamism and provide enough secure well-paid employment for people. Without a huge Marshall Plan-style economic reconstruction following the pandemic’s likely economic shake-up, any recovery in the advanced industrialised countries will be muted, leaving many tens of millions of people in great hardship.

In contrast to the mature Western world, China and other fast-developing Asian countries have in recent decades been enjoying rising prosperity based on expanding value production. The impact of the pandemic is still whacking them hard, both as a result of their own versions of lockdowns and the damage likely caused to their export markets in the West. However, what is different is that they have the legacy of underlying domestic dynamism in business investment, innovation and productivity growth to fall back on. In many Asian countries, the strength of their prior economic expansions gives them a better prospect for a ‘bounce back’.

Indicative of the contrast between West and East, China has already become more self-sufficient than it was at the time of the financial crisis. For instance, the country is now much less dependent on exports for growth and prosperity. The World Bank reports that Chinese exports, relative to annual output, peaked at 36 per cent in 2006, up from six per cent in 1980. Since the aftermath of the financial crisis in 2010, export reliance has steadily fallen from 27 per cent down to 20 per cent in 2018. China’s home market was already more developed and sturdy, despite the accompanying expansion of precarious indebtedness there, too.

It is too early to anticipate the effects of the pandemic as catalysing a substantial state-led economic transformation in the US and other Western industrial nations. But without this radical change of direction in the West, relative growth rates in different regions of the world will likely favour the continued balancing of the world economy towards the East. It is clearly possible that the shift in economic power from the US to China could be quickened through and after the pandemic.

The fraying world order

This epochal reorientation in the world economy is exacerbating the unravelling of the postwar international settlement. The pandemic is likely to compound the mismatch between economic and political power. Although the centre of global wealth creation has shifted from West to East, specifically from the US to China, the distribution of power within international institutions still reflects the very different economic world of 1945. This incongruity has already fomented huge tensions between the declining and the expanding nations and regions.

The way China and the US have responded to Covid-19 affirms their changing positions in the world, further revealing the anachronism of the inherited global settlement. In particular, the US’s inability to play its previous strong hegemon role was palpable in the early stages of the pandemic. By contrast, China, the geopolitical challenger, used the crisis to seek to extend its influence, as the US continued its retreat from global leadership. The diverging international positions will affect how other countries, especially poor and developing ones, perceive the respective great powers and their sociopolitical systems.

Despite its continued geopolitical and military muscle, it was striking that the US failed to lead a global response to the pandemic. In its first weeks, the US government proved either unwilling or unable to direct an internationally coordinated set of measures to counter the crisis. When, in mid-April, it helped broker oil-supply cuts with Saudi Arabia and Russia, this first significant G20 response to the pandemic showed up the sluggishness and narrowness of early intergovernmental coordination.

The wider international reputation of the US’s, and the West’s, market model was already battered and bruised by the 2007–2009 financial crash and crisis. Now America’s laggardly response to the pandemic, broadcast to the world by high-profile clashes between the federal and state governments, is further tarnishing its standing. Shortages of testing kit and facilities, and a lack of protective equipment for healthcare workers, reveals basic administrative incompetence in the US, as well as in Britain and several other Western countries.

In contrast, the Chinese government is now promoting itself as a responsible and helpful global partner. This came after an awkward defensive start, when it was facing criticism for hastening the global spread of the disease due to a characteristic authoritarian cover up. Now presenting itself as a benevolent and generous world leader, China has provided medical equipment, and even medical personnel, to hard-hit countries in Europe, and to poorer countries elsewhere, especially in the Middle East and Africa.

When Italy appealed to its EU partners to send protective equipment for medical workers, it was China that stepped up first, dispatching masks, ventilators and intensive-care doctors to support its struggling hospitals. Ominously for the EU, Italy’s foreign minister Luigi Di Maio acknowledged the support from China by saying: ‘We will remember those who were close to us in this difficult period.’

The squabbling between the US and China over the causes for Covid-19 demonstrates the additional deterioration of Great Power relations. After initially insisting on calling Covid-19 the ‘Chinese virus’, or the ‘Wuhan virus’, the Trump administration even tried to get the UN Security Council formally to declare China as the source of the virus. Enraged Chinese diplomats were at the same time trying to get the UN to praise the Chinese efforts to contain the virus.

Meanwhile, some Chinese government officials openly speculated that the US military had brought the coronavirus to China. In turn, a few American politicians publicly hinted that the virus might have emerged from China’s biosafety laboratory in Wuhan. At one level, this war of words can be understood as a conventional attempt to shift blame for the impact of the disease at home on to foreign scapegoats. But when this explodes into accusations between the two superpowers, this represents an ugly ‘downward spiral’, to use the words of former White House official Ryan Hass.

Covid-19 has also brought major European states into this combustible geopolitical mix. The French government is using the crisis to promote long-standing proposals for enhancing European ‘economic sovereignty’. At the start of April, French finance minister Bruno Le Maire argued that the pandemic provided the EU with a ‘historical opportunity to become an economic and political superpower between the US and China’.

Subsequently the EU competition commissioner, Margrethe Vestager, encouraged member states to buy stakes in their companies in order to stave off the threat of Chinese corporate takeovers facilitated by pandemic-linked, falling share prices. In consequence, the rhetorically pro-competition European Commission accelerated its plans to protect businesses from ‘unfair’ competition — that is, from takeover approaches by economically stronger Chinese firms. Vestager claimed that the pandemic plight impressed the need for regulatory authorities to act quickly, thereby helping normalise national and regional protectionist practices.

Britain, too, has seemed to develop a clearer geopolitical stance during the pandemic. Hitherto, from China’s cross-border financial initiatives, to using Chinese suppliers in its telecommunication networks, Britain had been offending the US by cosying up to China. Given the UK’s distinctly weak economy, the UK government had been reluctant to jeopardise potentially lucrative ties with China.

So far during the pandemic, though, Britain’s disapproval of China has hardened. Government officials let it be known that there would need to be a ‘reckoning’ with China after the pandemic had abated. Already, in the middle of the crisis, the culture secretary has stepped in to block Chinese attempts to take board control of one of Britain’s biggest remaining information-technology companies, Imagination Technologies.

In this interregnum between the old postwar order and whatever new one emerges, other regional players have also taken advantage of the pandemic to up their profile. The Kremlin, for instance, was no doubt delighted at the opportunity to respond to a US request for medical equipment by branding it as ‘humanitarian aid’ from Russia.

If international relations were not so strained, the vital pursuit of Covid-19 cures and vaccines might demonstrate much that is valuable about international collaboration. Indeed, despite our disordered circumstances, the early weeks of the pandemic produced some admirable instances of cross-border scientific cooperation.

However, there were also some disturbing indications that the race for a vaccine could degenerate into a protectionist battle between the US, China and Europe. While each of these three parties saw an opportunity to be the first to achieve scientific accolades, there was also a possibility of this turning into a matter of securing patents and revenues to benefit their own countries. Some people close to the research work speculated that governments could intervene to favour their own populations with the initial production runs instead of sharing the vaccine where it was most needed elsewhere in the world.

Sharpening intra-West tensions

The combined effect of these crisis-infused geopolitical developments is that it is unlikely that the incongruity of the post-1945 global order can be covered up much longer. Exacerbating this escalation of geopolitical rivalry are the frictions within the old Western world. In particular, the ructions between EU countries, and between the US and the EU, have increased. This fusion of West-West with East-West tensions raises the prospect further of open international confrontations, because each conflict makes it harder to deal with the others.

The acuteness of intra-Western discord was especially evident in the pandemic responses within the EU. Jean Monnet, one of the postwar founders of the pan-European project, coined the phrase that ‘Europe would be forged through crises’. In theory, the Covid-19 crisis was just such an opportunity.

Instead, the most striking feature of the early EU response to Covid-19 is that it couldn’t agree on one. Member states acted unilaterally and ignored the EU. In response to the pandemic, German chancellor Angela Merkel made her first-ever address to the nation in her 15 years in power (aside from her traditional New Year greetings). Describing the coronavirus epidemic as Germany’s greatest challenge since the Second World War, she tellingly made no mention of the EU, and nor did she express solidarity with harder struck member states.

The ensuing health crisis prompted weeks of quarrelling between EU member states, which was reminiscent of that which prevailed during the earlier eurozone crisis. For instance, after the Dutch finance minister Wopke Hoekstra criticised southern member states early in the pandemic for failing to carry out economic reforms to build up fiscal buffers for such crises, António Costa, the Portuguese prime minister, rejected the statements as ‘repulsive’ and ‘senseless’. Costa warned that ‘such recurring pettiness threatens the future of the EU’. Italian politicians joined in the criticisms, saying the Dutch stance was devoid of ‘ethics and solidarity’.

Obviously, the pandemic didn’t cause the antagonism between the ‘prudent’ north and the ‘spendthrift’ south. However, the pressures from dealing with Covid-19 have ratcheted up the name-calling and increased existing inter- (as well as intra-) country divisions and animosities.

Support for the EU has been especially battered in Italy. One opinion poll in March suggested that two-thirds of Italians now believe being part of the EU is a disadvantage. When this heavily impacted founding member state initially appealed for assistance from its European partners, other countries tightened border controls, as free movement inside Schengen zone countries ceased. For a time, Germany banned exports of its own medical equipment, and France’s protective actions had a similar effect. As already noted, the first medical aid to Italy arrived not from its EU allies, but from China, the EU’s previously declared ‘systemic rival’.

Subsequent proposals from France, Italy, Spain and six other EU countries for a common ‘coronabond’ to boost public spending across the eurozone met strong resistance from Germany, the Netherlands, Finland and Austria. Although a compromise loans package for the worst-hit regions was agreed in early April, its consequences are still likely to exacerbate north-south European differences. Yanis Varoufakis, the former Greek finance minister, described the plan as ‘an epic dereliction of duty’ by the eurogroup. Any new debts agreed would be adding to and exacerbating the existing huge indebtedness of the region’s already weakest members.

Even as official European cross-border support has picked up as the pandemic has continued, it seems likely that the early responses will have added to widespread doubts throughout Europe about the point of the EU. Monnet’s claim that Europe is built through crises was more than an observation. It was a guide for leaders to use crises to push through European institutional adjustments. People, he reckoned, would only accept change when faced with harsh necessity.

The Monnet approach does not seem to hold anymore. Surveys across Europe demonstrate high levels of frustration with other member state governments. Southern Europeans feel abandoned by their richer partners in the north, while people in northern countries don’t want their already squeezed finances being worsened by higher taxes to fund spending elsewhere.

The assessment of the Financial Times’ pro-EU chief economic commentator Martin Wolf is apposite:

‘If the eurozone cannot show solidarity in such a crisis, its failure will be neither forgotten nor forgiven. The wounds will be deep, perhaps mortal. Without visible solidarity in a crisis for which nobody bears blame, the European project will be morally, maybe practically, dead.’

The pandemic also added to pre-existing transatlantic strains. For instance, German government officials complained when the Trump administration sought to lure a German biopharmaceutical company, CureVac, to undertake its vaccines research and production in the US. In response, the European Commission was prompted to pledge more money to the firm, with European Commission president Ursula von der Leyen explaining, ‘It is a European company – we wanted to keep it in Europe’.

Also, European governments have accused the US government of intercepting orders of medical equipment produced by American companies overseas, and diverting them to the US. Germany’s interior minister claimed that a consignment of equipment made by 3M, a leading American medical-equipment producer, had been confiscated en route from China to Germany, and redirected to the US. Although Washington denied the claims, tensions remained high as the Trump government explicitly used a Korean War-era law to order 3M to prioritise sales to the US government.

Conclusion

The Covid-19 pandemic has accelerated pre-existing tendencies and tensions in world affairs. It has drawn out the realities of sclerotic debt-dependent economies in the advanced nations, the shifting of wealth creation to Asia, the unstable interregnum in global power relations, and the escalation of rivalries within the old West. The pandemic is unlikely to transform the world on its own. But the responses to it are accelerating the trends towards geopolitical conflict already in motion.

The crisis has also seen many stirring examples of people, businesses and other non-governmental institutions working together to beat Covid-19. The hope is that the positive practical solidarities displayed, within nations and between them, can inspire a new popular internationalism to go beyond confrontation. However, we know that mere hoping is never enough.

Phil Mullan’s new book, Beyond Confrontation: Globalists, Nationalists and Their Discontents, will be published by Emerald Publishing later this year.

Picture by: Getty.