Parsi and How to Deal with the Changing World Order

Parsi’s book, The Wrecking of the Liberal World Order, starts with “The Liberal World Order and the Broken Pact Between Democracy and Market”. His thesis is that since the 1980s, the Liberal World Order has been gradually replaced by the “Neoliberal Global Order”. He identifies four trends that are equally capable of “sinking our ‘Titanic’”, i.e. the Liberal World order that emerged from the post Second World War era: the crisis of American leadership, along with the rise of authoritarian powers Russia and China, in other words the top-down threats; the bottom-up threat of jihadist terrorism, that he calls “molecularization”; the “revisionism” of the United States, in other words Trumpism, and the “weariness of democracy, pressed between populism and technocracy”. These factors were part of a distinct political project bringing together international order, sovereignty and – crucially – the market economy. He regards Europe as potentially bringing these factors together positively, but Europe is too weak institutionally to take on this role.

The Liberal World Order described by Parsi involved five pillars. The first is a free, open market; the second involved using state sovereignty to “check and balance the ‘excesses of the market’; the third erecting a “rich, solid architecture of international institutions to make interstate cooperation possible and profitable”; including the lower classes, and strengthening and expanding the middle class. This involved a compromise between realism and neopluralism. The market itself would “tame” the excesses of state sovereignty that led to the Second World War. However, a range of pressures undermined this compromise, especially in the 1970s, including student radicalism, salary increases, downturn in production, the Eurodollar market, “the explosion of the U.S. commercial deficit and federal debt”, defeat in the Vietnam War, and the failure of Keynesianism to deal with high inflation and high unemployment, leading to the neoconservative revolution of Reaganism and Thatcherism, especially the drive to deregulation, blaming “big government” for the economic crises of the decade – from “market freedom” to “market dictatorship”.

In developing his theme, the book follows with several very well developed, in-depth chapters on the development and downfall of the Liberal World Order, starting with what he calls the “broken promises” that hijacked the lwo – promises of a “safer, fairer and richer world”. These involved, among other things, the failure of the “military tool” in the war against Al Qaeda, Afghanistan and the invasion of Iraq. Europe and the European Union were “literally torn apart”. This is followed by an analysis of the financial crisis and a polarisation of wealth distribution, run by an “hereditary meritocracy”. He notes that while a free market is grounded in inequality, democracy is “founded on the premise of equality”; the two must be developed together in order for the one to “correct the deficits and excesses” of the other. The market is its own worst enemy, with the privatisation of social risk through “asymmetries in our trends: The decline in information, knowledge and essential disposable income”; “those who have run a few rounds […] will be given much better odds to keep on winning.”

Subsequent chapters cover Parsi’s four trends in admirable depth. Chapter four addresses the decline of American leadership and the rise of China and Russia as authoritarian powers. He argues that this trend started well before the Trump presidency. “Concepts such as selective engagement, retrenchment, offshore balancing, and leading from behind were common in the eight years of the Obama administration, even before they were concretely – albeit tentatively – applied in Afghanistan, Iraq, Libya, Syria and even Europe, at least until the reappearance of the Russian menace”, limiting the room for multilateralism. Yugoslavia was something of a “tragic exception”. The lack of American intervention in Syria was a crucial example. These issues were more glaring after the election of Donald J. Trump, of course, exemplified by the unilateral American withdrawal from the Joint Comprehensive Plan of Action (jcpoa) with Iran, along with relations with Turkey and the Kurds, China and North Korea. In this context, as Parsi points out, the absence of Europe stands out.

Chapter five covers the bottom-up threats, which he describes as “molecularization” – not only jihadism but also the migration issue in the Mediterranean, which he describes as a “European fiasco and an opportunity for the Italian far right”. His knowledge of the Italian case is thorough and informative. Chapter six addresses the Trump Administration’s “drift from reluctant rule-maker to revisionist power”. He identifies Trump voters as “people who felt marginalized by the increasing financialization of the economy, the expansion of international trade, and the delocalisation of production, as well as by the impact of the ict revolution; they felt like exiled in their own country”. He attributes much of this to the “rentierisation” of the American economy, an issue to which we will return in our discussion of Martin Wolf’s book. In Trump’s eyes “there is no such things as partners, just rivals”. A key element is the “plutocratisation” of democracy, leading to populist reactions. This is followed by a very useful analysis of the situation in the Middle East.

Chapter seven looks at the consequences of these trends, which Parsi describes as the “occultation of the people” in the face of “competitive authoritarianism”. Parsi calls the overall trend the “dead-end street of sovereigntist populism”. Chapter eight addresses the challenges for Europe. The crucial goals are facilitating regional devolution, taming globalisation, guarding against protectionism, fashioning new financial rules, mitigating wealth inequalities, managing the rise of China and restoring US leadership. Europe, Parsi argues, has a key role to play in “restoring the balance between social and economic Europe” and restoring sovereignty. The reaction to the covid pandemic can show the way ahead, Parsi argues in Chapter nine. Thus, the three lines of reasoning of the book – the need to revitalise democratic regimes in order to rebuild an up-to-date involving a privileged relationship among transatlantic democracies and the importance of values as well as interests.

Whether this is possible is of course problematic, and the problem is that, as the old saying goes, “You can’t turn back the clock.” We will see the same issues addressed below in our review of Martin Wolf’s book. The world has changed in ways that, in my opinion, make Parsi’s (and Wolf’s) normative prescriptions harder and harder to achieve. Quinn’s and Babić’s books raise different and more searching normative and policy questions.

Wolf and the Crisis of Democratic Capitalism

Wolf starts off with a range of similar themes, but looks more closely at the way the relationship between capitalism and democracy developed historically since the First Industrial Revolution. He argues that democracy and capitalism “have something in common: the idea of equality of status.” However, that equality of status has very different and competing characteristics. In democracies people have “the right to have a voice in public affairs”, while in a market economy “everybody has the right to buy and sell what they own.” This of course creates conflicts of interests when buying and selling what people own – however that is defined in law – comes up against what their “voice in public affairs” leads to a range of regulations that are meant to stabilise markets, produce goods and companies that work in the public interest. As is well known and is at the core of economic and political philosophy, economics and politics “intertwine”; Wolf calls them “symbiotic twins”. The key link between them is constituted by the nation-state in the modern world. In a lengthy and well analysed Chapter three, Wolf covers the evolution of democratic capitalism.

He further traces the problems created by cross-border capitalism, leading to a range of economic failures that have undermined the role(s) of nation-states and are leading to “status anxiety” and populist reactions. “It’s the Economy, Stupid,” the title of Chapter four, chronicles the range of populist reactions to these changes, especially as they have led to increased inequalities and, in chapter five, the rise of “rentier capitalism” – including the shift from the production of goods to the production of services, “in which it is relatively hard to raise productivity.” The “rentier economy is complex, including “financialization, corporate (mal-) governance, winner-take-all markets, rents from agglomeration, weaknesses of competition, tax avoidance and evasion, rent-seeking, and the erosion of ethical standards”. Each of which he covers at some length in Chapter five. International trade, he states, is “more of a scapegoat than a huge problem”. Thus the question is increasingly “can the center hold.” “The perils of populism” are on the rise.

However, having spent the first three-fifths of the book, the rest concerns “Renewing Democratic Capitalism”, the theme of Part iii. This is where Wolf shifts from analysing the transformation of capitalism and the structural shifts that have entailed the crisis to his normative approach that underpins the rest of the book. As he states in the Prologue to Part iii: “The democratic societies that have been most successful in achieving these objectives”, i.e. “successful renewal” as in earlier eras, “are those I would call ‘welfare capitalist’” – including “social democracy” and the “social market economy” in Europe and “liberalism” in the United States, i.e. “the market with the state.” He proposes “reform, not revolution.” He then goes on to argue in favour of continuing economic growth rather than “de-growth” and defends markets for imparting crucial information. He argues for “piecemeal social engineering” and in Chapter eight praises the approach of Franklin Delano Roosevelt in the 1930s, with the following revisions:

1. 1.A rising, widely shared, and sustainable standard of living
2. 2.Good jobs for those who can work and are prepared to do so
3. 3.Equality of opportunity
4. 4.Security for those who need it
5. 5.Ending special privileges for the few.

This, he says, “will require significant taxation.” He argues that this requires systemic robustness, but he believes the American/Western democratic capitalist system is sufficiently resilient and accountable for it to happen. The role of the public sector will be a crucial factor here. He then goes in more detail into his five revisions, which he sees as the way to what he calls a “‘New’ New Deal”. He blames “premature austerity” and too heavy a reliance on monetary policy such as quantitative easing. He prefers (as hinted at above) a “more aggressive fiscal policy and espouses a version of Modern Monetary Theory. He opposes relying excessively on credit-fuelled private demand and central-bank-fuelled government demand. It is crucial for both private and public sectors from financing credit demand and focusing on innovation and investment, again both public and private (supported by the government, of course). High-income countries need to play a leading role in such issue-areas as the energy transition. Indeed, globalisation has played a positive role in that “countries that opened themselves up to trade and inward direct investment did far better than those that did not.” Sovereigns need to reach agreements with other sovereigns. The World Trade Organization and the Basel Accords have been significant in this development, minimum standards require regular updating. “Portfolio equity and debt bank finance, and short-term capital flows are relatively less desirable … forms of economic openness.”

Wolf goes through a wide range of policies he favours in ways too complex to discuss here, from “rounding out the welfare state” to student loans and debt, insuring against old age, adjusting to import competition, ending special privileges for the few, regulating monopoly, corruption, taxation, reforming government, ensuring accountability, revitalising media, supporting democratic capitalism in the world, “cooperating, confronting and competing with China” rather than a “new Cold War”, and “restoring citizenship.” It’s an astounding list of objectives. And in a world where even mild “Bidenomics” creates deep opposition, the Republican Party in the House of Representatives wants to cut Social Security and Trumpism is still powerful, it seems a very desirable set of developments from a liberal or social democratic perspective, it seems difficult to imagine it succeeding.

What are the Alternatives to the “‘New’ New Deal”?

There seem to be no holistic normative approaches to the arguments made in quite different ways by Parsi and Wolf about the reviving of democratic capitalism in a new version or versions of the post-World War ii “liberal world order”, to use Parsi’s term, or the “‘New’ New Deal” that Wolf proposes. Given the embeddedness of neoliberalism since the recessions of the late 1960s and 1970s, the transformation of the world political economy into a complex heterarchical quasi-system that embeds capitalism in ways that see it as a “new anarchy”, the predominance of financialisation, and, increasingly the huge technological shifts of the past three decades, leading to the rapid growth of artificial intelligence, it is difficult to imagine a future that is not increasingly unstable and crisis-driven. The last two books I will be looking at here take somewhat different views on this situation, but they do overlap in certain ways.

Babić takes a more optimistic position but from a very different angle. He argues convincingly through a range of case studies how states and markets are not that different in how they operate in a more open, interconnected and what we call heterarchical world political economy. In particular, he regards capitalism as being fundamentally underpinned, shaped, and made effective and profitable by states, i.e. that what we are dealing with is the transformation of state capitalism itself, capitalism created and shaped by states for their own purposes. However, this transformation makes states operate in new ways given the requirements of competition and competitiveness in the 21st Century world. Indeed, what we are dealing with today is transnational state capital. States as owners of capital through Sovereign Wealth Funds, transnational State-Owned Enterprises, cross-border development banks, and other structures and processes “have relatively new tools at their disposal.” We are dealing here with competition states in a more open world, and they are the most successful capitalist actors today. He develops a typology of different “strategies” ranging from purely financial to more “controlling” interests. He identifies a “transnational agency space” that is superseding territorial boundaries. These different “opportunity structures” are “channels through which states as owners can invest outside their own borders”. He argues throughout the book, especially in chapter six, that “different scales of the local, national, international and transnational can be intertwined when it comes to movements within the transnational agency space.” In other words, state power and neoliberal globalisation are interconnected and interdependent.

In this context, he is concerned with states as owners of capital not with wholesale, unitary actors. However, not all states are “competing states” (a term he refers to the “competition state”). “Rather, on the contrary, the competing state requires a set of instruments and assets that are not available to most nation-states globally.” Competing states want to attract capital and increase productivity in competition with others.” And it is this process that is reshaping world politics as well as world political economy. Resource-rich economies with oil extraction revenues, massive foreign exchange reserves and high-value revenue-generating commodities lead to the predominance of a “very unequal state form” rooted in all the corporate ownership claims a state possesses. In Chapter three, he aggregates all these state ownership ties at the state level. In Chapter four he deals with the controlling strategies of China, Russia, Germany and France, then goes on to examine Norway “as the most prominent and powerful example of this type of state as owner”, and then goes on to look at Singapore and the role of financial strategies. Chapter six looks at the consequences of these strategies for Covid-19, geonomics and climate change. He argues that “neostatism” would lead to an effective loss of structural power in important markets and sectors – a phenomenon I would compare to Brexit and Trumpism. And as for governance, “there is no international framework governing state-led investment.” The neoliberal world political economy is governed directly and indirectly by states as owners of capital.

Slobodian comes from an alternative analytical perspective, examining the ways that market radicals have promoted a world without democracy altogether. In particular, he identifies the fundamental underlying structures of the 21st century as zones, not states or pure market sectors. The book covers a number of fascinating case studies – many Hong Kongs, the metamorphosis of the City of London, “the Singapore Solution”, the “Libertarian Bantustan” of the Eastern Cape of South Africa, the roles of specific “fractured sovereignties” around the world from the ussr to Nevada and Texas, the role of the “New Middle Ages”, setting up “your own private Liechtenstein”, Somala, Dubai, ”Silicon Valley colonialism”, and “a cloud country in the Metaverse”. In the conclusion he also addresses the issue of technology. “As manufacturing grew more automated, and advances in artificial intelligence promised a ‘man-machine symbiosis’ on the horizon, democracy no longer made sense. It was an antique ideology, an artifact of an earlier, superseded moment I the history of capitalism …”

But this did not undermine the role of states. It has just transformed them. Rather it has involved the building of sub-state and cross-state zones not dissimilar to the roles of states in Babić’s analysis. In Slobodian’s words, “Zones are not turning the world into a patchwork of a thousand private polities in dynamic competition. They are strengthening the position of a handful of state capitalist superpowers. […] zones are tools of the state, not liberation from it.” And the process goes on. Parsi’s view that the Liberal World Order can be recreated or Wolf’s view of the “‘New’ New Deal” do not address the complex transformations from below – i.e., heterarchy.