The Covid-19 crisis has dealt a decisive blow to the political forces that sought to advance economic cosmopolitanism over the nation state.
In the new politics, consumption will be subordinated to production – even if the present economic slump across the world has been generated by governments annihilating consumer demand through lockdowns – and recovery will be dependent on its revival. A consumption-centric politics, which privileges low prices, presumes that only the present matters. But we now live in a world that must engage pre-emptively with the risk of repeated lockdowns. For nearly two decades, cheap labour in China drove consumer prices down. But when goods are produced in a world of fear and geopolitical rivalry, the origins of goods, and not just their cost, really matter.
The pandemic will accelerate the growing primacy of geopolitics. Donald Trump’s election in 2016 represented a clear break with international economic liberalism. He did not create strong protectionist pressures in American politics, which had begun to assert themselves at the end of the Obama presidency. But Trump did direct that discontent about global trade against China. He reoriented the US towards open technological competition with Beijing, and told the EU and Britain they would have to adjust towards this strategic rivalry or face the consequences for Nato. In the wake of the pandemic, there is even less possibility that any European country, or the EU as a whole, will be able to chart an independent course that privileges economic relations with Beijing, however much they may wish to.
Within the EU, economic borders and internal geopolitics will reappear. The difficulties of keeping fully open borders in the Schengen area have been evident since the 2015 migrant and refugee crisis. The single market has proved more robust, but it too will become a site of political contest. With its rules on state aid partly suspended, governments that can finance corporate and national bailouts will do so. Indeed, more than half of the emergency state aid the European Commission has approved is funds provided by the German government to German firms. Now the eurozone crisis has also returned, national trade surpluses and deficits will continue to generate demands for more symmetrical burden-sharing across member states.
As the pre-eminence of the nation state is reasserted, politics within nation states – especially multinational states, such as the UK, and federal states, such as the US – are likely to experience fierce disputes about political authority. This is already evident in angry debates in the UK and Spain – each facing long-term serious secessionist challenges, from Scotland and Catalonia – about who decides when and how lockdowns should end. In the US, individual states have been largely left to enact their own health responses to Covid-19. Yet they are all financially dependent on the federal government. The huge growth in borrowing prompted by the crisis is likely to aggravate these simmering tensions over sovereignty and whose taxes pay for what.
Nonetheless, certain features from the pre-Covid-19 political landscape will remain. Nation states may be resurgent as the only sites of political authority that can command the political loyalty and coercive power required to implement shutdowns. But they cannot fund themselves from the taxes their citizens pay. Only the US has a central bank that can act as a lender of last resort to support the dollar borrowing through which many banks and corporations across the world function.
All democratic nation states must borrow in international capital markets, and the most prosperous in Europe, especially Germany, need to maintain a credit line with the US Federal Reserve. For the moment this dependency is not a political problem. But while letting central banks take the strain of more debt is a necessity, it is one that will fuel demands for more democratic control of monetary decision-making without changing the international conditions around debt.
This partial rupture in an internationalised economy is not new. The American and British architects of the postwar Bretton Woods monetary system supposed that a distinction between trade and capital flows – such that freer trade did not have to mean the free flow of capital across national borders – would stabilise democratic nation states. We appear headed for a political world that revives the same distinction but the opposite way around.
A version of this politics, where trade is restricted but money moves freely across borders, played out in the 1920s. Its dangers are abundant. But so is any notion that central banks have rendered international financial markets immaterial. In many ways, the democratic nation state never went away. But as a tax state that could significantly redistribute income and wealth to suppress the dangers of debt-fuelled politics, it did. Internationalised debt politics is here to stay.
Helen Thompson teaches at Cambridge University and is a New Statesman contributing writer
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