When Capitalism Beats Itself

There is something tragic about history. When the Berlin Wall fell almost 34 years ago, the leitmotif that had been proclaiming the promise of salvific markets everywhere since the early 1980s got its turbo boost. After that, there was even more liberalisation and new wonder worlds were created in the financial markets. And China was to join in – with its accession to the World Trade Organisation. With this, the most populous of all countries was also injected economic liberalism – and was supposed to become democratic.

There is now a lot of evidence that the resentment that is spreading in Western countries today is essentially fuelled by a feeling of powerlessness, which is not insignificantly caused by this “hyper-globalisation” (Dani Rodrik). In 2016 Donald Trump won especially in the regions that were hit by the China shock. People in the former industrial regions of northern England voted decisively for Brexit.

It is also no coincidence that the AfD is having its greatest successes today in the regions that experienced the most violent upheavals and loss of control after the fall of the Berlin Wall. Entire industries were abandoned there, as practised by the Treuhand in the spirit of contemporary economic liberalism, because the market would take care of it. This still has an impact today, because it shaped the fate of entire families and two generations, sometimes devastatingly.

The irony of history, wrote FT columnist Gideon Rachman recently, is that China, contrary to what the market liberals once thought, has not become more democratic. But its economic success has contributed to the fact that in the Western democracies that once came across as role models, there are now populists everywhere who pose a threat to democracy. And that in the US not only Donald Trump but now also Joe Biden are focusing on protection and industrial policy: the impressive end of the “free-trade” era.

If the impotence of the hyper-liberalisation that took off three decades ago is a significant reason why liberal democracies are in such crisis today, the task 34 years after the fall of the Berlin Wall is above all: to make people feel that they and their politicians are once again in control of their own destiny. Which speaks in favour of what US President Joe Biden is currently trying to do: to loosen dependence on China (and others) through massive state aid – and to ensure that industries are created again and investments are made in a climate-neutral economy.

Robert Gold at the Kiel Institute for the World Economy has tried to find out whether this helps to reduce discontent: by systematically investigating the extent to which EU regional policy in the favoured regions has led to populists doing less well there. He will present the results – in our next New Economy Short Cut on 19 October at 4.30 p.m. Register here!

From then on into next year, we will focus on these very questions – and whether what is already being referred to as Bidenomics is the answer to the wave of populism that is having an impact everywhere three decades after the fall of the Berlin Wall. And whether, in the end, it will be enough to stop Donald Trump in November 2024.

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