Liberal democracies are on the decline worldwide, and more and more are turning into illiberal democracies. This is shown by the analyzes of the British think tank Chatham House. Many therefore see autocratic Russia’s war against Ukraine as a further threat to democracies.
However, the war could be a turning point in global systems competition that underscores the economic strengths of market economies and democracies. The prerequisite for this is that Western democracies learn the right lessons, reform economic globalization and strengthen the rule-based global order.
30 years ago, the American political scientist Francis Fukuyama caused a controversial discussion with his thesis of the “end of history”, according to which liberal democracies would prevail as the dominant political order in the long term.
Today, some see his thesis as refuted, especially since countries like China with autocratic systems have had enormous economic success and Western democracies – from Hungary to Poland to Brazil – are increasingly restricting fundamental freedoms.
In fact, Western democracies, most notably the United States and those in Western Europe, have made two major mistakes over the past three decades. One is the assumption that liberal democracies would assert themselves in an increasingly global world because they and their market economies create greater economic prosperity and thus enable freedoms.
Globalization has brought prosperity
However, China’s supposed success is no proof of the failure of liberal democracies in open market economies. Rather, the relevant distinction is between good and bad government, in both democracies and autocracies. Numerous Western democracies have refused important reforms – failure in climate protection and failure in social transformation are just two examples.
The second mistake was the belief that globalization would make wars like the one we are now witnessing in Ukraine impossible. Many therefore see globalization as a failure and speak of a coming deglobalization, in which nation states will increasingly shift their economic activities back home, isolate themselves and work towards the greatest possible degree of autonomy.
However, such a response would be a huge mistake, because globalization has created tremendous wealth around the world and greatly reduced poverty in many countries, not just China.
And globalization is now proving to be the sharpest sword in Western sanctions against Russia: Russia’s isolation from trade and the Western financial system will push the country into its deepest economic crisis since the collapse of the Soviet Union – and could be the beginning of Putin’s end regime.
Don’t play social groups off against each other
The correct economic-political answer to the war should therefore not be a retreat into the national and into protectionism, but the reorganization of globalization. It must be made more social and at the same time smarter. Turkish economist Dani Rodrik criticizes what he calls “hyper-globalization” – the abuse of economic integration that has left many social groups as losers.
For example, social and political polarization played an important role in Brexit and the election of Donald Trump. In the future, globalization must be designed in such a way that the benefits are distributed over as many shoulders as possible, social groups are not played off against each other and not a few violate the rules – be it in tax law, in labor market policy or in competition policy.
And globalization must be made smarter. The greatest strength of liberal democracies is the rules-based international order they have created over the past 70 years. This has brought a high degree of transparency and demands accountability from governments and those in power. Common rules were and are the basis for the economic success of globalization.
We need a value-oriented foreign trade policy
However, these rules are either increasingly circumvented or undermined by autocratic regimes. In the past 30 years, Germany in particular has too often sacrificed a rule-based, value-oriented foreign trade policy for short-term economic interests. For example, it was too tempting to open up new sales markets in China instead of agreeing on common rules or upholding values.
Many autocrats – above all Russia’s Vladimir Putin – have come under increasing pressure in the corona pandemic and in the military conflict, mainly due to economic weaknesses and the failure of their own system. Above all, China’s Communist Party and its rulers have been able to expand their power over the past few decades because they have been able to demonstrate economic success with sharply rising incomes and jobs.
If this economic success is endangered, the power of the dictators will also crumble. Economic sanctions are so threatening for Russia and China not only because of their social consequences, but also because they further undermine the supposed legitimacy of the political systems in already very difficult times.
The war against Ukraine has led to an astonishing unity and determination among Western democracies. Germany and Europe should build on this and push for fundamental reforms of globalization and the rule-based international order.
Close partnership between the EU and the USA
It is not enough that we set ourselves high standards with regard to data protection, human rights, security, social standards or ethics. Rather, the goal must be for the global community to agree on common rules for dealing with one another and in the global economy. To this end, Germany should commit to a much more value-oriented foreign trade policy and implement it together with our partners in the European Union.
Such a reform also requires a closer partnership between the US and the European Union in order to jointly set the global standards of coexistence for us, but also for autocracies and illiberal democracies. Then there would be legitimate hope that the global trend of “democratic recession” that the British think tank Freedom House speaks of can be stopped and – triggered by Russia’s war against Ukraine – even reversed.
Marcel Fratzscher is President of the German Institute for Economic Research and Professor of Macroeconomics at Berlin’s Humboldt University.
More: United in the West is the order of the day.