The neoliberal globalisation started with the Reagan-Thatcher revolution back in the 1980ties, accelerated during the Clinton presidency in the 1990ties and culminated with the devastating international financial crisis in 2008-2009, where its risks and limitations became evident.

Apart from the 2008-2009 financial crisis, it is claimed that the abandonment of neoliberal globalisation is due to several other factors:

• The Covid epidemic. It demonstrated the fragility of the global supply chains that resulted from the outsourcing inherent to globalisation. This was suddenly considered an unacceptable security risk.

• The rise of China as the world’s leading industrial and increasingly high-tech powerhouse, based on economic planning and industrial policy. This is considered a threat to the US hegemony and as opening the road towards a multipolar world.

• The negative political effects of globalisation in the developed countries. Inequality has increased and many well-paid jobs disappeared and were substituted with low paid ‘gig-economy jobs’. This has caused anger among the poorer sections of the population (Hilary Clinton’s ‘deplorables’) and the rise of unconventional political forces (discourteously called “populist”).

• The Green Transition. It has turned out not to be possible to promote this transition only based on market conform CO₂ taxes and/or CO₂ trading.

All this might have contributed, but I think the most single most important is the rise of China, threatening the Western Powers’ hegemony. A decade ago it was common for economists and politicians to claim that there was no reason to fear China, as its rigid State-led economic model was inferior to the Western Powers’ innovative and dynamic free market economies. China’s authoritarian economic model was wasteful, producing cheap, inferior copies of Western products, unable to innovate, and would eventually fail. You can still find this type of statements, but they are less common lately. The rise of China is the main reason that neoliberal globalisation is suddenly not considered in the interest of the Western Powers any more.

This means that the main driver for the political shift away from neoliberal globalisation is fear. Fear of the new and unknown multipolar world order and what place the Western Powers would have in it. And a certain degree of hatred towards those who have upended the good old neoliberal world order that has served many in the advanced economies so well, not least the wealthy. And, perhaps not surprisingly, it is accompanied by claims about the need for rearming. Fear of losing a privileged position and use of violence often go hand in hand.

This doesn’t mean that globalisation will disappear, it will just change. As a result of the increasing use of sanctions, the world economy is becoming increasingly fragmented. Countries will continue to trade, and hence enjoy the benefits from trade, but they will be more critical regarding who they trade with and what they trade. An economic world order where high-tech sectors such as semiconductors, software, artificial intelligence, pharmaceutics, space and aviation industries and so on are monopolised by a few transnational conglomerations based in the rich countries, will not be easily accepted any more. Other countries will claim their share.

Industrial policy in countries on their way up is costly, as when China creates the airliner Comac 919, its alternative to Boeing 737 or Airbus 320. This may be bad for these companies, but for the rest of the world it means more choice, and probably lower prices. The airliner is still heavily dependent on parts from Western countries, among these the engines. But that will probably change over time. Photo from wikipedia.

A more fragmented world market will imply a costly duplication of many product developments, but it will also imply more healthy competition and less concentration of power. As an example, the development of new airliners that China and Russia presently are undertaking to compete with Boeing and Airbus is a costly endeavour, but for people everywhere in the world it will mean more choice and probably lower prices. The same is the case for China’s development of chips to compete with Intel, AMD and Arm. Or China’s recent release of the Artificial Intelligence DeepSeek to compete with OpenAI/ChatGTP. And so on. In a decade or two we can probably add India to this list of new competitors. Instead of wringing the hands, the world should rejoice.

The Biden administration wanted to create a simpler two-string version of globalisation: continued neoliberal globalisation in a select group of ‘democracies’, basically NATO+ with the addition of some compliant developing countries, but isolate this from the ‘dictatorships’ (Russia and China). The problem with this new globalisation model was that most of the Global South was not willing to play along (India, Indonesia, Brazil, Vietnam, South Africa, Nigeria and so on). They are perfectly happy with more choice, cooperating with both NATO+, China and Russia according to what they consider most convenient.

Former president Biden proposed to create an alliance of Democratic Countries, as a repetition of the cold war split of the world in West and East. It didn’t get much traction as most of the Global South was not interested. Photo from Institut Montaigne.

Presently, the US and EU are jointly sanctioning China to try to impede the development of a serious competitor, and they are both undertaking industrial policy to strengthen their position in key sectors, mainly high-tech, the US aggressively (mainly with the Chip Act and the Inflation Reduction Act - which has a little of every thing except measures to reduce inflation) and EU timidly. Exactly how President Trump will continue this policy is not clear. He seems to prefer tariffs on imports and make ‘deals’ with big American companies benefiting from the tariffs, rather than provide subsidies and tax exemptions for selected industries (I have described the EU’s policies in an earlier article).

Where does this leave us?

Definitely, some level of economic planning and ‘dirigisme’ is back, both in the advanced economies and in the Global South, and it will not go away any time soon. If we look beyond the NATO+ strive for maintaining their dominance over China, Russia and most of the Global South, there are reasons for this, which have nothing to do with neither Covid nor green transition or democracy vs. authoritarianism.

What happens is that modern technology by its nature tends to create monopolistic markets. Apart from what is called ‘natural monopolies’ (roads, railways, water supply, electricity supply and so on) the ‘old’ way of creating monopolistic power was mainly through economies of scale: the bigger the scale, the lower the cost of producing say a bag of cement or a car. Economies of scale in production is still important, but other factors are now just as important. The research and development cost of many new technologies, say a new space rocket, a new airliner, a new process for producing quantum chips or a new drug, is often enormous, which means that the companies that are first in the market and have incurred these highs costs (economists call it ‘sunk costs’), will easily become monopolies or quasi-monopolies, as it will be difficult for newcomers to break into the market. Another more recent source of monopoly is ‘network effects’, which is particularly important in social networks. The larger the scale (audience) the bigger the attraction, and the more difficult for other companies to create competing networks. These monopolies tend to be concentrated in a few advanced countries, and are an important source of their wealth. So if another country wants to get its share of the pie, it requires economic planning and industrial policy.

Neoliberal globalisation is in crisis, but neoliberalism is still alive and kicking in the rich countries: deregulation, the rejection of collective (state) ownership, almost free capital flows, the dominant role of financial capital and investment funds, extreme inequality and so on. None of these have been seriously challenged. At the same time, the situation presents new opportunities and risks for common people in the advanced economies. There is an opportunity for the creation of better paid quality jobs, but as big amounts of capital are required for this new industrial policy, it is also a possibility that the whole thing will be taken over by financial capital. The huge national and international investment funds would happily finance all these investments, if the governments will guarantee the return (‘de-risking’). So it is unfortunately probable that the costs will be ‘socialized’ and the gains will be ‘privatised’.

In other words: business as usual.

In a subsequent article we shall take a more thorough look at this.