Responding to Paul Mason’s latest essay for openDemocracy, Tomas Hirst argues that globalisation should not be blamed for decades of domestic policy failure.

I expected to find much more to disagree with in Paul Mason’s recent essay, “The second trench: Forging a new frontline in the war against neoliberalism”. But after reading the essay, it struck me as measured, interesting and thoughtful on the whole. However, I found it frustratingly vague in its policy conclusions – which I suspect to be a feature, not bug, of the analysis.

To start with, let’s recall Mason’s five-point analysis of what has gone wrong in the aftermath of the Great Financial Crisis:

Rising inequality boosted by the surge in asset values triggered by quantitative easing. Entire sectors dominated by rent-seeking monopolies. A global financial elite clustered around the defence of its strategic privilege – which is to keep its wealth in offshore jurisdictions and unavailable to the tax collectors of nation states, and therefore immune to redistribution. High under-employment and precarious work, as millions of people are employed in what David Graeber calls “bullshit jobs”; real wages failing to keep up with the rising asset wealth of the 1%; and a historically low wage share. A global market that has begun to fragment along regional and national lines; the stalling of trade liberalisation treaties; the Balkanisation of finance systems and the information economy; and the beginnings of an open trade war.

Of these, point 1 is probably the most common and unfortunately least-well supported of the contentions. Income inequality in the UK (net of taxes but before housing costs) did not rise over the post-crisis period but in fact fell as a consequence of bigger hits to higher income earners from the crisis and policy measures including raising the tax-free personal allowance. However, it is reasonable to argue that income inequality, which rose rapidly in the 1980s, remains too high and that wealth inequality is also too high. According to a 2016 paper in Fiscal Studies, the wealthiest 1% of households hold about 20% of household wealth, the top 5% of households hold approximately 40%, and the top 10% hold over 50% of wealth.

Yet, even there it’s not absolutely clear that wealth inequality has “surged” as Mason would have it even in Piketty’s data, though there is compelling evidence that extraordinary monetary policy since the crisis has exacerbated the intergenerational wealth gap.

Moreover, there is an open question as to how we account for the effects of quantitative easing depending on whether you think the programme will result in a permanent increase in the money supply or if it will be unwound, meaning the wealth gains were merely temporary. And we must also deal with the counterfactual problem – what would have happened to the UK economy without the Bank of England’s asset purchase programme?

I am not saying that the UK has an optimal distribution of wealth. Quite the opposite: falling house ownership rates mean there is a generation that will be unable to benefit from collateral value of housing to secure credit, meanwhile overall UK households remain grossly over-invested in residential real estate – a fact that poses huge portfolio risks and creates awful incentives for policymakers. Instead, I’m saying that we should try to keep our arguments as close to the data as possible in order to ensure that whatever policy suggestions we make fit the facts, rather than making the facts fit the suggestions.

On point 2, I think it’s reasonable to fret about the increased concentration of large companies enjoying quasi-monopoly or outright monopoly power within their industries. Indeed Goldman Sachs has even taken a look at the subject and concluded that “a combined drag from the rise in concentration [of products and labour] to annual trend wage growth of around 0.25pp”.

Since we don’t really disagree on either point 3 or 4, I won’t spend a great deal of time on these points, but I think both worthy of serious political consideration. Point 4 in particular poses one of the greatest challenges for policymakers in the 21st century – how to address increased bifurcation of experience and outcomes in labour markets without either low-pay, precarious employment conditions or persistent high unemployment.

Instead, I want to spend the remainder of this article looking at his fifth point: the fragmentation of global markets and the rise of protectionist nationalism (or should that be protectionism under the guise of nationalism?). Because here is where I think Mason and I are further apart in our analyses.

Mason sees “the rise of authoritarian nationalist projects” as the inevitable consequence of a combination of the failure of neoliberal globalists to provide a compelling narrative about how their policies would improve people’s lives, driving them instead to “populism and xenophobic narratives” expounded by cynical elites looking to take advantage of rising mistrust with the establishment. Or, as he calls it, something of a “reversion to type” for a certain set within the elite who can accommodate both globalist and nation-centric versions of power so long as they remain close to the top of the pyramid.

In this, he appears to be channelling the work of Dani Rodrik, Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University, who has been arguing that the populist backlash against globalisation was “perfectly predictable” as the regressive redistributive effects of liberalisation “swamp the net gains” for the majority.

Both Mason and Rodrik argue for a “limited retreat…from some aspects of globalisation” and reassertion of national economic sovereignty in order to curb the “excesses” and/or the “rigidities” of the current system.

That sounds like a perfectly reasonable suggestion, at first glance. However, as far as I can see, it is impossible to analyse the distributional impact of globalisation without reference to explicit decisions taken by domestic policymakers to redistribute income upwards.

There certainly are aspects of international trade deals that deeply unpopular with supporters of greater political accountability. Not least among these is the creation of so-called “investor-state dispute settlement procedures” or ISDS whereby certain investors can claim monetary compensation from nation states in cases decided by arbitration panels that sit outside the jurisdiction of the countries in question if a country is seen to alter domestic regulatory and/or tax policy in such a way as to impede the terms of the treaty.

The issue for campaigners is not that such arbitration procedures serve no purpose, but that their operations are conducted outside of democratic scrutiny and accountability (by necessity). As Rodrik puts it: “it operates outside accepted legal regimes, gives arbitrators too much power, does not follow or set precedents, and allows no appeal”.

The dogma of capital account liberalisation so prevalent in the ‘90s has also come under, in my view, reasonable scrutiny as it has become increasingly apparent that some capital controls can be of significant benefit to developing countries, especially in managing hot money flows.

But both Mason and Rodrik go further. In his essay, Mason talks about the desire of communities to exit “the globalisation of workforces through migration, or the privatisation of the public realm in the name of trade liberalisation, or the impoverishment of industrial communities through offshoring”, and elsewhere has discussed the need for Labour to ensure that the UK is not vulnerable to “neoliberal judges at the ECJ” in setting policy. Meanwhile Rodrik references the “alphabet soup of regulatory bodies…widely perceived as being rigged against ordinary workers” including “independent courts’ use of their prerogative of judicial review to promote civil rights, expand reproductive freedom, and introduce many other social reforms”.

Given how executive power is currently being wielded in both the UK and the US, one might question the wisdom of putting judicial independence in the same category as unpopular trade treaties. More broadly, given the case being advanced, we should be careful not to fall into crude majoritarian thinking that might threaten progress on hard-won minority rights simply because one group is currently seen as being in the political ascendency.

So, what does a “limited retreat” from globalisation really mean in this context and how does it both blunt the appeal of populism and increase democratic accountability?

The basic question we should look to answer here is whether a partial retreat from globalisation addresses the concerns of voters and whether it can be achieved in a welfare-positive or at the very least welfare neutral manner.

On the first, a recent study into the impact of globalisation by the IMF found evidence to support Mason and Rodrik in that it found diminishing marginal returns to increased globalisation and that efforts at redistribution via taxes and transfers had been “too small to offset the entire rise in inequality caused by globalisation”. We should be extremely wary of reading this result as suggestive that external constraints prevented national governments from enacting more extensive redistributive policies.

Meanwhile, the IMF paper shows that the gains from globalisation have been very real for developed markets and continue to be hugely positive for medium and low-income countries. For low income countries, a one point increase in globalisation is estimated to increase the total 5-year-period growth rate by about 2.2 percentage points, while for the average middle income country the expected growth effect would be 1.8 percentage points.

For those who claim to care about inequality, the impact of wealthy nations withdrawing even partially from international trade or imposing conditions such as no “social dumping” on trade deals could severely impair the catch-up income gains for some of the world’s poorest people. That in itself should give us pause for thought even before we look at domestic distributional issues.

Furthermore, while it’s true that for highly globalised, high income countries the benefit of additional trade liberalisation is found to be limited, that should not be read as implying that the downside to a retreat from trade openness would be equally small. For instance, a recent paper from the LSE estimates that welfare losses for the average UK household even under a soft Brexit Norway-style deal would be around 1.3% with losses rising to 2.7% if the UK trades with the EU under World Trade Organisation rules. The paper notes that effects could understate the impact on welfare significantly once the dynamic effects of Brexit on productivity via significantly lower business investment are taken into account.

This hit to households would come while Brexit is inflicting a likely supply shock on the UK economy as a whole, potentially hitting short-term growth and threaten to limit longer-term growth potential. Both would have the effect of lowering government revenues today and in the future. In other words, the cost of redistributive policies would be higher and the need for them somewhat more acute even under the most modest “retreat from globalisation” envisaged by Mason.

There is also very little discussion of what the mechanism for partial or temporary withdrawal from globalisation would mean in practice. Given just-in-time integrated supply chains, the likelihood of painful trade disruption from even the most modest retreat from existing trade arrangements may make it too economically and politically costly to countenance.

One significant point of concern in allowing the tide of populism to sweep in political reforms is that it is not at all clear to me that the compromise position between illiberal democracy and liberal autocracy necessarily yields greater democratic accountability or welfare enhancements. That is simply an article of faith that Mason and Rodrik would like us to believe.

For example, globalisation and technology clearly did have an impact on the ability of traditional trade unions to control the supply of skilled labour and it has proven extremely challenging for labour to organise itself across national borders. However, the resultant weak bargaining position of labour could well have been compensated for by setting and enforcing higher minimum wage laws, ensuring both out-of-work and in-work benefits were sufficient to avoid immiserating those at the bottom of the income spectrum and ensuring labour regulation was sufficiently robust to prevent increased flexibility from becoming a method of employers casualising their workforce.

None of that was blocked by the “neoliberal judges of the ECJ” – it was simply thought of as insufficiently important before the crisis due to the fast pace of real GDP growth and incomes, while after it has allowed the government to claim that it created an employment miracle. But it was always a policy choice.

It’s hard to see why we should believe that future governments will act more responsibly when loosed from their international obligations than they have in the past – especially given that recent electoral results have favoured parties that advocate weakening the social safety net and shrinking the state. In light of this, while Mason sees the ECJ as an impediment to radical Labour policies he might reflect on what effect removing the UK from its jurisdiction might have if a government came in intent on further weakening labour protections or human rights legislation.

So, while there clearly is scope of great radicalism in domestic policy, I cannot see the case for even a temporary retreat from the basic tenets of globalisation. Rather, the case that must be made is to ensure politicians accept that they are not operating under binding constraints imposed by some supranational treaty or obligation and cannot blame forces outside of their control for regressive policy choices – especially those pencilled in by the UK government during this parliament.

There is also little scope for the UK to address his concerns over the financial elite who hide wealth in offshore jurisdictions without greater international coordination on tax and transparency. Such coordination requires trust, which would be tested by a UK determined to prioritise sovereignty over cooperation and the narrow mandate of a single vote over decades of deep social and economic integration with neighbouring states.

And finally, to Mason’s point that “Europe has to be redesigned to allow state aid, nationalisations, the equalisation of social safety nets and minimum wages”, I would simply add that it is very difficult to aid in a process of redesign when one is walking away from the table.

Retreating from globalisation may seem attractive, but the resulting economic damage would hit the poorest the hardest. There is nothing progressive about that.