Populists and autocrats were victorious around the world in 2017. For answers we turned to the American political economist Francis Fukuyama, who once thought it was all over.

Home alone?

It’s all too easy to throw around terms like “historic” or “radical break.” Such rhetoric often only serves to camouflage a lack of real analysis. But for once, the year 2017 genuinely felt like a historic moment, as the world began to change faster than it has in several decades.

When Donald Trump bellowed “America First!” in his inauguration speech, it all started to seem real. Previously, many observers had convinced themselves that Mr. Trump would be transformed by the office. Now it’s become clear that the president wasn’t joking: He fully intends to up-end the liberal world order, established by the United States after the end of World War II in 1945.

Authoritarianism seems to be on the rise across the globe, with strongmen consolidating their hold, led in Europe by Vladimir Putin in Moscow, Recep Tayyip Erdogan in Ankara, and a wave of anti-democratic changes in Eastern Europe. The year 2017 seemed to mark the rise of closed societies instead of open ones, of rule over the people rather than rule of the people.

Who better to analyze this than Francis Fukuyama, the American historian whose book, “The End of History,” coined that phrase? Though this became a post-Cold War cliché, his idea survived: That liberal democracy was the only game in town, its challengers consigned to the trashcan of history. Now, suddenly, that idea seems both outmoded and hubristic. That’s something Mr. Fukuyama himself recognizes. “We are witnessing a period in which democracy is being threatened in way I have not experienced in my lifetime,” he said.

Similarly, his book was often quoted as an explanation for the triumph of neo-liberal capitalism — until after the 2008 financial crisis. Ever since, Mr. Fukuyama, now a professor of political science at Stanford University in the US, has been roundly criticized for his preemptive declaration. His view now is that "the system of globalization, as it was created, really was designed by the companies and the banks to suit their own interests."

If I had a criticism of Germany, it is that Angela Merkel has not been very tough on people like Viktor Orbán.

In another sign of how far his beliefs have shifted, Mr. Fukuyama thinks there’s a good chance Mr. Trump will be reelected. He also sees Trumpism spreading: “There are a lot of mini-Trumps coming up all over Europe."

Mr. Fukuyama warns that Europe is weak and divided, distracted by Brexit, the festering euro crisis, and the new autocrats of Eastern Europe. That includes Germany, in political paralysis and stymied by the rise of its own populist right. Those who once complained about Berlin’s hegemony may soon discover worse: a weak Germany. For all the praise heaped on Chancellor Merkel abroad, Mr. Fukuyama sees this as a serious problem. “If I had a criticism of Germany, it is that Angela Merkel has not been very tough on people like Viktor Orbán,” he said. “We need strong leadership in defense of these liberal values.”

Moving from the political upheaval of 2017 into the uncertainties that 2018 may bring, Handelsblatt asked Mr. Fukuyama what the European Union could do about the trials and tribulations of globalization? He shared his analysis of Donald Trump’s rise, China’s future threat, why Brexit is actually a blessing and how to deal with the EU’s growing number of autocratically inclined leaders.

Advice from Mr. Fukuyama: Globalization should be fairer, identity politics matter most and liberals need to stand up for what they believe in.

Handelsblatt: Do you believe that we are looking at the end of the era of globalization?

Francis Fukuyama: It depends. Because Britain and the United States have a different attitude towards it, in general, than Germany or Scandinavia. Their approach was always more enthusiastic, so they are facing the biggest pushbacks against [globalization], whereas continental Europe was never quite as enthusiastic. Therefore [you] didn’t suffer the same degree of disruption. For example, in Germany you have these active labor market policies to help retrain workers and you’ve got a much better relationship between unions and employers.

I think the system of globalization, as it was created, really was designed by the companies and the banks to suit their own interests. We accepted too much of this pure economic agenda, where all they wanted to do was maximize GDP. In the future you are going to have other stakeholders involved, ones who are worried about the environment or labor rights.

So it’s not the end of globalization but we can say that things are changing?

I think on an intellectual level there’s a big change in the way that economists speak about globalization, that is laying the groundwork for a different approach. Contrast what people like [economists and analysts] Larry Summers, Joe Stiglitz and Paul Krugman were saying about globalization 15 years ago with what they are saying now. We should pay attention to someone like Dani Rodrik at Harvard who is writing about how to make globalization fairer. This kind of thing will eventually be incorporated into public policy.

How could globalization be fairer?

There are a couple of ways this could happen. One is chaotic, where a populist party comes in and starts dismantling stuff in very damaging ways. A better way would be that the existing architects of globalization get scared of that and begin to police themselves better.

There is still too much gaming of the system. It’s too easy for very rich individuals and companies to avoid taxes, to launder money. Again Europe is doing a better job of this in certain ways — but every European country is also a sinner.

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Some would also argue that globalization is responsible for the rise of populism around the world, including in the US. What does globalization have to do with the attraction of voters for autocratic leaders, like Donald Trump, or Vladimir Putin in Russia, Viktor Orbán in Hungary and even Recep Tayyip Erdogan in Turkey?

There are three causes for the rise of populism. Globalization, as we are quite aware, has been very beneficial to all the countries that participate in it but it has not been beneficial to every individual in every country. So there are a lot of working class and middle class people who have been losing jobs to China, India. Bangladesh, Vietnam and so forth — and that’s fairly well understood.

The second driver is political. A lot of democracies have been having a hard time making decisions – although that is not true of Germany, which has maintained a fairly strong consensus over the last couple of decades. This weakness in decision making gives rise to the demand for a strong leader to tackle those obstacles to decisive governance.

The third driver is cultural which I think is most important. There is a feeling that people are losing control over their cultural destiny. Identity issues are really critical to this. A lot of economic unhappiness actually gets translated into identity issues — because if you lose your job, you also lose your status and your dignity.

And you believe that immigration plays a major part in the latter? There is certainly a lot of debate in Germany about this.

I am very positive that what Angela Merkel did [in terms of opening borders to refugees in 2015] was a very admirable thing. But it was also a little bit unrealistic. The Schengen system [of free movement across borders] is not sustainable unless you have some controls over the external borders of the EU.

So how can we challenge the allure of the populists and authoritarians in Europe?

The people who believe in a liberal order have to be much more forthright in defending it. They need to say yes, this is good thing, we want a society that is tolerant, we want economic integration and we think it will be good for everybody. That also includes being willing to criticize countries that are willing to violate those norms.

If I had a criticism of Germany, it is that Angela Merkel has not been very tough on people like Viktor Orbán, or the Law and Justice Party in Poland. There are states in the EU that are really violating some of the basic political norms that are the basis of membership in that community. We need strong leadership in defense of these liberal values.

Yet in the US, Ms. Merkel has been named the new “leader of the free world” by some media outlets.

I am not criticizing her overall performance. I think she has done an admirable job. But in these specific cases — and it is not just her, it is the rest of the EU as well — she has not been terribly hard on the likes of Viktor Orbán or, another example, [Prime Minister] Aleksandar Vučić of Serbia. There are a lot of mini-Trumps coming up all over Europe, and I think because of the EU’s internal problems, a lot of European leaders have been distracted.

It’s a very worrying trend that seems to be going in the direction of the kind of political leader who makes all these populist appeals and lies very easily. It started with Putin and [former Italian leader Silvio] Berlusconi. The EU needs to be tough on them.

Yes, those [defenders of liberalism] are in a weaker position but the response should not be to give up. I am not sure weakness is inevitable. After all, [French president Emmanuel] Macron surprised everyone by winning. And Europe is actually growing, there is a positive economic story here.

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Could Mr. Macron’s election be a game changer for the EU?

Potentially it could, although possible cooperation is more problematic now, after the German elections. The way anything has gotten done in Europe is by Franco-German cooperation. But Merkel is weaker now than she was before the election and as for Macron, we will have to see if he survives these labor market reforms. It’s not going to be easy for them.

How do you think the planned British exit from the EU will impact European unity?

I actually think Brexit has also been good for Europe because it looks like it’s just going to be a disaster for Britain. It is becoming clearer and clearer to people in Britain that leaving the EU is going to be extremely costly. It’s pretty hard to reverse globalization. They are not going to get anything like the terms they are hoping for, where they simply replace the EU with a bunch of bilateral trade agreements. The chances of that happening are almost zero. And it looks bad for any country that thinks it can get out of Europe on similar terms.

This may well be an opportunity for Europe to move on some of the underlying problems [with the multi-national union]. Many Europeans think too much in economic terms, they don’t think enough in identity terms. There was this idea that Europe represented a transcending of all the national identities of members states, so people wouldn’t be Italian or German or French, they would all be Europeans. But Europe never really invested in a European identity, in what that really meant. There was no pan-European education, not one thing about what it really means in substantive terms, to be European.

Let’s return to your homeland. What do you think made the election of Donald Trump possible?

There is an underlying economic and social shift that has occurred. The losers of globalization were not well organized or mobilized before. In fact I was surprised that, after the 2008 financial crisis, you didn’t see more populism. It has taken eight years for this to materialize.

The other big problem I think is on the left. Because the left in Europe and in the United States has been in trouble for a long time — for example, the SPD in Germany has lost 15 points or so in a generation, the socialists in France have been virtually wiped out, and in the US, the Democratic Party has been losing ground. The left should have benefited from all these financial crises but instead it was the right wing parties who did.

I think there are complex causes for that. The left had made their peace with capitalism and they didn’t seem to be offering any realistic alternatives. Even if they did, it wasn’t convincing. Bernie Sanders, for example, wants free, government-funded higher education. A lot of people like that idea but it is unrealistic.

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As it is right now, Mr. Trump isn’t doing badly on the economy.

American economic growth is now up to 3.5 percent and it may even hit the 4 percent Trump was promising. A lot of this is not Donald Trump’s doing, but it will be to his benefit politically. Some of this improvement is based on the expectation of tax cuts but that is not going to be sustainable. It is coming at the wrong time in the economic cycle. We have already had expansion for eight years and we don’t need further stimulus. I think it’s all going to end in a very unpleasant crash at some point. Unfortunately that crash may not come until after mid-term elections next year, or even after the 2020 elections, which may mean that Donald Trump will be re-elected.

Do you have any idea when some sort of crash might happen?

That’s the thing with these financial crashes, nobody anticipates the shape it will take — and that’s why they happen. The ground work is being laid for one though. They are deregulating the financial sector — all the controls in place after the 2008 crash are now being dismantled. Financial institutes have become very complacent given the stability of the last few years and they will start taking risks; the economy could start overheating.

The crash could start anywhere: It could start in Asia, it could start in Europe. The world is so interconnected it is hard to anticipate where the problems come from

How does China fit into all this: Will they become the next economic world leader now that the US is pursuing a strategy of withdrawal?

China is a serious competitor because they have proven they can master the questions of economic growth, technological modernity and so forth. In 20 years they may be the dominant economic power. However historically it has been very hard for an existing international system to accommodate the rapid rise of a single country — that is, in a way, what happened to Europe with Germany in the late 19th century. That rise couldn’t be accommodated peacefully.

The Chinese are trying to project soft power in ways that are more subtle than the Russians, but they could be just as dangerous. The Chinese government is buying media properties and technology companies and there is this slow, very careful accumulation of influence in the West that is a real challenge. There are a lot of things we could be doing about this. They don’t play by these open rules, so I don’t see why we should.

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You are a leading advocate of democracy as a political system. Can you give us three reasons why Europe should keep faith in this form of government, at a time when many are questioning it?

The first is about the question of power. A democracy is not just about popular choice, it is also about a constitutional system that limits power. We have these fundamental checks on power. The second thing is that an important part of being a whole, individual person is the ability to exercise choice. If you only have economic freedom, but you have no political freedom — like in China — I don’t think that’s fully satisfying. And thirdly, I do believe there is a kind of universal dislike of tyranny. People don’t want governments that violate their fundamental liberties.

So you don’t doubt democracy?

I think we are witnessing a period in which democracy is being threatened in way I have not experienced in my lifetime. The real threat is an internal one, with the rise of these populist nationalists who I think are threatening to undermine not liberal democracy, but the liberal part of liberal democracy.

That is to say, democratically-elected leaders are trying to undermine the rule of law and the open international order that the United States, along with European allies, has played a role in establishing over the last two generations. That is what is going on in Poland and Hungary. These governments have popular support, it is genuinely democratic. But what’s being dismantled are the liberal institutions and the rule of law.

This is not the first time this has happened but it is being fueled by globalization. Almost every democratic country is now facing a populist movement that threatens to upset the consensus.

This interview was conducted by Jens Münchrath, co-head of foreign affairs and Anke Rezmer, who covers the investment fund industry for Handelsblatt out of Frankfurt. To contact the authors: [email protected], [email protected]