China's population pyramid. The crisis of the 2020s will be triggered in part by the end of cheap imports from China and the return of inflation.
New Year's 2021. Little seems to have changed over the past three years. Technologically, there are more smart devices to entertain you or to help you with your work. Economically, things are supposed to be better, but that's not your impression. Politically? Not much either. Most of eastern and central Europe has gone nationalist, but they always were, weren't they? There's Italy, where Berlusconi governs with two nationalist parties, but isn't that a rerun of what he finagled two decades earlier? Finally, North Africa is in the news, but no one seems to know what's going on there.
Yet something is afoot. A friend makes a remark he never would have before. He of all people! At the health club you try to follow the news on TV, but it seems harder to follow than usual. You're thinking of traveling abroad, but it's more complicated, supposedly because of the terrorist threat ...
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The Crisis of the 2020s will not be readily apparent when the decade begins. Nationalist parties will be in power over most of Europe, but the Western European "core"—the United Kingdom, France, and Germany—will still be postnational. Yet even there nationalist parties will have made inroads at the regional and municipal levels. These electoral successes will be self-reinforcing, with one leading to another, especially in regions that are culturally and linguistically similar.
But this nationalist consensus will have to reckon with an opposing consensus that is already in place and likewise self-reinforcing. This postnational consensus took shape in the 1940s, when elites throughout the West blamed nationalism for the Second World War and the preceding depression. It grew stronger in the 1950s and 1960s with competition by the two superpowers for the hearts and minds of emerging nations in Asia and Africa. The Cold War had the perverse effect of making the United States and the Soviet Union mirror images of each other, each trying to preach its own universal gospel to the unconverted.
This elite consensus entered a new phase with the end of the postwar boom in the 1970s and a slowdown in economic growth throughout the West. This slowdown has been attributed to several causes:
- The postwar boom was driven by low prices for raw materials, especially oil. In the 1970s oil prices spiked, as did prices for other key commodities.
- The postwar boom was also driven by population growth—the baby boom. Young adults spent more on housing, children's clothes, educational supplies, and other family-related purchases. They also became more willing to invest in the future, both personally and collectively, since they were literally investing in their children. During the 1960s fertility rates declined dramatically, and by the 1970s declines in school enrolment and household spending had become noticeable.
- A backlog of technological innovation had piled up during the Great Depression and the Second World War. By the 1970s this backlog was largely gone.
- Thrift and saving had become ingrained during the depression and the war. By the 1970s the culture had shifted toward greater acceptance of living beyond one's means.
These causes should be viewed with some caution, since the slowdown happened across very different political and cultural contexts in North America, Western Europe, and Japan. It also happened in the Soviet Union and Eastern Europe. Slow growth may simply be the historic norm, and economies return to this norm as they mature. In any case, policy makers are less interested in causes than they are in solutions, and to find solutions to slow growth they have consciously or unconsciously turned to postnational thinking for inspiration.
A slowly growing economy isn't necessarily bad for the average person. Because population growth has likewise slowed throughout the West, economic growth, however sluggish, translates into more wealth per capita. Because companies can no longer count on a growing market, they have to compete much more with each other for market share, thus improving the quality of the goods and services they offer. They also have to compete for a limited supply of labor, thus bidding up wages and raising productivity through automation and robotization. Japan has taken that path, and it isn't doing so badly despite the doom and gloom one hears. Labor scarcity means that 74% of Japanese aged 15 to 65 have a paid job—well above the OECD average of 67%. Only 1.2% of Japan's labor force has been without work for a year or longer—below the OECD average of 2%. Also, Japanese life expectancy at birth is 84 years—well above the OECD average of 80 years.
Slow growth may not be bad news for the average person, but it is for the rentier class—those whose income comes not from work but from dividends, interest, and speculation. When economic growth falls to 2 or 3% a year, this becomes their return on investment. It's not enough to live on, at least not in the style they're used to.
The rentier class has thus pushed Western governments to make the economy grow faster than it normally would. Since the 1970s, growth has been spurred through financial stimuli of one sort or another: tax cuts, deficit spending, lower interest rates, and monetary expansion. This is still a popular response, but the shortcomings are now well-known. The immediate one is inflation—in the 1970s inflation rose to double digits throughout the West. It has since been contained by a mix of money supply management and globalization, i.e., outsourcing jobs to low-wage countries and insourcing low-wage labor for jobs that cannot be outsourced (agriculture, construction, services). In the U.S., massive low-wage immigration began with the Reagan amnesty of 1986, although this outcome was emphatically denied at the time. Upward pressure on wages has further slackened with the decline in unionization, itself largely a result of globalization, particularly the loss of jobs in manufacturing and the shift to less easily unionized jobs in services. Finally, immigration itself has been seen as a way to stimulate the economy through increased aggregate demand, particularly for real estate and construction.
While these stimulus measures help to spur growth over the short term, the outcome seems more dubious over the long term. Today, interest rates are at record low levels throughout the West, and immigration is running at record high levels—in the U.S., legal immigration alone is over three times what it was in the 1960s. Yet year-to-year economic growth is much lower: 1.6 to 2.5% in the 2010s versus 2.3 to 6.5% in the 1960s.
The economy seems to habituate to these stimulus measures. We thus have the apparent paradox of more and more stimulus producing less and less growth. This paradox has three causes:
- People take further growth for granted, particularly in their willingness to go into debt. Growth becomes a Ponzi scheme.
- Uninterrupted growth leads to accumulation of inefficiency. Without periodic recessions to remove wasteful companies and work practices, the economy becomes less productive.
- Sources of immigration have shifted to cultures that are less oriented to the market economy and to the values that make it possible. Historically, most economic growth has been within two culture areas: Europe, especially northwest Europe, and East Asia. These cultures are characterized by high levels of trust, high future orientation, and low willingness to use violence for personal disputes (Clark 2007; Clark 2009; Frost 2015; Frost 2017; Frost & Harpending 2015). Most immigrants to the West no longer come from either culture area. As a result, trust is declining, fear of violence is increasing, and more resources are being earmarked for external behavioral controls (police, private security), which are replacing the internal behavioral controls that used to be enough. Transactions now have to be double-checked for evidence of fraud, theft, or counterfeiting, with the result that economic activity costs more and in some cases is no longer worth doing.
For the near future, Western policy makers will continue to follow the postnational consensus, not so much because they believe in it but rather because they are immersed in it and have little exposure to alternate views. This echo chamber will, in fact, cause the prevailing consensus to become more radical over time. One example is the recent call from Canada's council of economic advisers for a sharp rise in immigration:
The 14-member council was assembled by Finance Minister Bill Morneau to provide "bold" advice on how best to guide Canada's struggling economy out of its slow-growth rut.
One of their first recommendations, released last week, called for a gradual increase in permanent immigration to 450,000 people a year by 2021 — with a focus on top business talent and international students. That would be a 50-per-cent hike from the current level of about 300,000.
The council members — along with many others, including Economic Development Minister Navdeep Bains — argue that opening Canada's doors to more newcomers is a crucial ingredient for expanding growth in the future. (Blatchford 2016)
This is the backdrop for the Crisis of the 2020s. On the one hand, the postnational consensus will continue to radicalize in the core countries of the Western world. On the other hand, a very different consensus will dominate most of central and eastern Europe, with inroads being made into France and Germany. These opposing consensuses will diverge more and more, if only because mutual antagonism will make dialogue impossible.
The crisis itself may be triggered by one or more factors:
- Inflation will return after a four decade absence. China's supply of cheap labor is drying up, and alternate sources, such as Africa, will prove unsuitable. Prices for certain commodities, especially food, may also rise. This will be pivotal because globalism has gone unchallenged among the elites largely because it has delivered on its promise of inflation-free growth.
- There will be a growing realization that the new migrants to Europe have a different work ethic. They will end up being tax consumers rather than, as hoped, tax payers. Forget about them paying for your pension and health care.
- The French presidential election of 2022 will be much closer than the one in 2017, the result being a narrow defeat or a narrow victory for the Front national. Either way, the country will become ungovernable. A similar situation may or may not develop in Germany after the 2021 federal election.
- NATO may try to intervene in one or more countries in eastern or central Europe.
The actual trigger will matter less than the instability of the world-system. This instability will cause even minor conflicts to escalate, either within the Western European core or, perhaps, in response to a failed intervention in Eastern Europe.
Such escalation will be demanded by those who support the postnational consensus, yet it will work to their detriment. A world-system is stable only if, as Wallerstein (1974) argued, it meets three conditions:
- Military strength is concentrated in core societies
- Ideological commitment to the system is pervasive, i.e., "the staff or cadres of the system (and I leave this term deliberately vague) feel that their own well-being is wrapped up in the survival of the system as such and the competence of its leaders. It is this staff which not only propagates the myths; it is they who believe them."
- Peripheral societies are unable to unite against core societies.
Conflict, especially armed conflict, will destroy the illusion that the postnational consensus is a consensus and thus the only sensible way of viewing reality. Uncertainty and disenchantment will spread even among "sensible" people. Furthermore, if military strength no longer remains concentrated in the core, being used, for example, to intervene in the periphery, there may not be enough people in uniform anymore to defend the entire world-system. Defeat in one country may lead to a chain reaction where one country after another defects to the other side.
References
Blatchford, A. (2016). Finance Minister's key advisers want 100M Canadians by 2100, Thestar.com October 23
Clark, G. (2009).The Domestication of Man: The Social Implications of Darwin, ArtefaCToS, 2, 64-80
Clark, G. (2007). A Farewell to Alms. A Brief Economic History of the World, Princeton University Press, Princeton and Oxford.
Frost, P. (2017). The Hajnal line and gene-culture coevolution in northwest Europe, Advances in Anthropology, 7, 154-174.
Frost, P. (2015). Two Paths, The Unz Review, January 24
Frost, P. and H. Harpending. (2015). Western Europe, state formation, and genetic pacification, Evolutionary Psychology, 13, 230-243.
Wallerstein, I. (1974). The rise and future demise of the world capitalist system: concepts for comparative analysis, Comparative Studies in Society and History, 16(4), 387-415.
