The paper argues how the present leading global development system – the neoliberal globalization, through seven main profit-aimed fundamentalisms ruins the West, Russia, and the majority of developing world, and acts in favor of China and belonging countries. The position of the entire European continent additionally aggravates its historical delay in the field of advanced and future technologies, industries, and services, as well as the present war in Europe. Shall we Europeans find enough wisdom to cooperate and cohabitate, or will there prevail a kind of miserable co-existence on this continent ordered by external masters in the future?
Neoliberal globalization is ruining the West and changing the world
More than a decade ago in the book »Forces Shaping the EU« I have defined the evolution of the EU (EEC) in the following way: During the first four decades of its existance it appeared as a homogenous New Europe in the scattered world. Later, within the prevailing role of the neoliberal globalization as a dominant global development system, it evolved into the Old, selfish, and scattered Europe in the globalized world. Therefore, it is worthwhile to present briefly the core of the main profit-aimed fundamentalisms of the neoliberal globalization, which brought the present world on the brink of total environmental collapse, intolerable societal, political, and economic relations and the threat of global war.
Neoliberal globalization emerged in capital rich Western countries, mostly in the US2) and UK, and has been acting to the detriment of the West and the countries of developing world, which remains totally dependent on the global capital. This world includes the US and the predominant part of both Americas, the majority of the EU, Russia, as well as the prevailing part of other developing countries. A noticeable exception are the Scandinavian consensus societies. However, it has been working in favor of the countries with their own development vision, strategic targets, as well as their sufficient financial strength and independent policies. Among this world we might include first of all China as well as the growing share of countries within the political and economic sphere of this financially strong "world factory."
The subordination of the EU to the global neoliberal capital towards the end of the last century was the main reason for the change from convergent to divergent development, and the actual split of this integration into the advanced centrum and North and the lagging behind South and East. The main reason for this process has been the growing difference in the quality of development levers (according to J. Stiglitz: capital formation, knowledge, technology, innovation, infrastructure, institutions, environment, social cohesion), 3) and the characteristics of the prevailing governance. The lagging behind part of the EU has been tolerating a high level of corruption, nepotism, and decision making by bureaucracy, lower level of economic efficiency and value added per worker and investments, lower support to R+D and innovation, as well as the excessive brain drain. Their progressive indebtedness was punished by the global capital in the recent financial crisis, which resulted in their insufficient development.
The advanced part of the EU built mostly on higher level of knowledge, productivity and demanding economic structure, promoted by technology and innovation. However, as a result of excessive investments outside of the EU (mostly in China) a high share of abundant profits of the big capital ended in the tax oases 4), inflicting insufficient investments in the less developed parts of the EU and especially a progressive delay of the EU in the advanced and future technologies, their industries, and services. Because of the split and the growing delay of the EU in the advanced and future technologies, including some sectors of defense, the EU progressively loses geopolitical power, in spite of its leading global position in the environmental, societal, and social leadership position. Such a situation endangers the realization of the present development vision of green, digital, and social EU.
Main fundamentalisms of the neoliberal globalization
The profit-aimed fundamentalisms as financial, environmental, and consumption, the social-, technological-, and innovation-divide, as well as the militarization, is ruining the West in various ways. In the field of societal relation and social cohesion primarily in the US, and by retarding the technological advance in the EU. However, the neoliberal globalization caused even much greater developmental and environmental damage to the majority of developing countries, and especially to Russia.
The main interest of the leading financial powers was to rise endlessly the profits at home and globally. The ground for such expectations was the global functioning of openness and competitiveness with thousands of multinational companies (MNC), progressively managing information and communication technologies (ICT). In these processes the US and UK, as well as the most developed states supported the concentration of banks and financial institutions. This has widely opened the door to the MNC on the global markets in the area of investments, trade, environment, technology transfer, innovation, know-how, as well as the access to labor. The array of financial powers to rise the profits on the global level could expand through unprecedented speculations, followed by financial, social, societal, and economic crashes worldwide, which started in 2008. However, the central banks of the leading countries refilled the banks with fresh money to continue the game.
In the name of global profits the forests have been disappearing not only in Brazil and Indonesia, waters, seas, lands, oceans, and air got progressively polluted, the access to drinking water frequently prohibited, what presently endangers more than 2 billion of global population and threatening to sharply increase this number in the future. Bad water perspective in the majority of developing world has been primarily the result of the weak finance and bad water management. Although the ecological footprint is incomparably higher in the advanced world, the environmental disasters and disposal of water are far more critical in the developing world.
Employing the ICT and robust transportation the global shop-chains are bringing food from elsewhere, regardless of the quality and ecological footprint, frequently eliminating domestic agriculture. They are efficient and profitable; however, in the long run they are costly and destructive, in particular for developing countries.
The NLG has been exerting growing social divide everywhere, progressively in the developing world. The long-term GINI coefficient and social cohesion trends show that the US decisively, and some other developed states as UK, Germany, and France to a lesser extent, have been losing their status of the welfare state. Even much worse has been the social divide in the BRICS countries, except China. To the contrary, the Scandinavian Consensus societies successfully resist these trends. During the last two decades the social cohesion trends worsened in the US from 6 to 4,5 in the UK, Germany, and France from 6,5 to 5,5 in Southern Europe from 6 to 5, and in the Balkan countries from 5 to 3,5. But they remained unchanged in China at 7 points and in Consensus societies at 7,5 out of 8 points.
Finally, the neoliberal globalization brought further escalation of military budgets even after the cold war. The military lobbies became the most powerful in the countries of the advanced and developing world. The insane armaments presently endanger all civilizations and the entire planet. According to Bloomberg, in 2022, Russia and the US possess about 6000 nuclear war-heads each with the power of about 1000 t tnt (the power of two bombs thrown on Japan, 1945 was 15 – 20 tnt!).
Regarding innovation and technological divide, the European continent is not much different from the global situation. The highly transparent, progressively consensus-based and highly innovative, competitive economies and humane societies are typical for the Central and Northern part of the EU. To the contrary, the less transparent with rather autocratic governance, with great power of bureaucracy and high level of systemic corruption are the weaker economies and less democratic societies of the majority of the South-Eastern part of the EU. The correlation coefficient between corruption and innovation, which decisively divides the EU into the prospective and non-prospective part, amounts to 0,94! The message is clear: corruption is destroying innovation performance.
The member states with systemic corruption are losing between 3% and 6% of their GDP, while in the potential member states corruption and politically influenced corporate management eliminates about 10% or more of their GDP. As a result, their investments into R+D have ranked between 0.5% and 2.0% of their GDP; in the potential members from the Balkans this figure is even below 0.5%. As a rule, the brain drain from these countries has been constantly very high, while the structural change and value added growth among the lowest in the world. While the majority of Asia, not only Republic of Korea, most impressively China, and progressively also India, succeeded to reverse these trends, the EU is facing a demanding challenge to follow the global trends in this field. Without fast improvement in the proper governance in the lagging behind part of the EU, the present vision of the green, digital, and social EU does not look very encouraging.
Additional type of corruption has been taking place in the richest members of the EU, with the remarkable exception of the Consensus societies. It has been the transfer of excessive part of profits and abundant capital to the tax oases. This type of corruption reduces the investments activities in the lagging part of the EU, but also in the area of creating venture capital in the entire EU, which is 6 times less than in Consensus societies or in the US. However, decisive for the future development of the EU are appropriate investment in the advanced and future technologies, industries, and services where the EU is gradually losing the position in relation to the US and China. These technologies are not only crucial for the economic advance and digitalization, knowledge economy as well as for the future defense 6), where, in the language of experts, the codes are becoming more important than bombs. And, by growing the technological advance, the financial and other motivations of the state are increasing, too 7). However, the ill designed neoliberal system of the EU enables to an irresponsible management to sell 100% of the largest German (European) firm for artificial intelligence and robots, Kuka, to China.
Some consequences of the NLG until now
The NLG mostly hits the country of origin – the US. In the 60’ and early 70’ this country has been the mightiest and highly homogenous welfare state in the world. Then, the wages began to lag behind the productivity for the next half a century; the middle class has been shrinking, the poverty growing, while the financial crisis alone bankrupted about one million of farmers and small firms. The dimension of financial speculations could be seen through the 663 billion loss of the Leman Brothers bank at the time of its bankruptcy, as well as the level of financial corruption in the country where the No. one Wall Street guru Mr. Madoff personally stole through the stock exchange more than 60 billion US $. The military lobby through all this time participated in the insane armament race with the SU/Russia, as well as repeatedly initiated/engaged in military conflicts around the world. 8) The profit, according to the power of the Wall Street, still remains the basic business target, also in the advanced and future technologies, while the balance of payment deficit remains rather constantly at about 1000 billion US $ per year - mostly as a consequence of trade imbalance and excessive military budgets. Recently, technologically leading country with the most armed population became socially (GINI, social cohesion) and politically dangerously divided.
During the last quarter of the 20th century, mainly because of the subordination of the EU to the neoliberal global capital, the EU entered the period of more and more divergent development. These conditions led to the informal split of this integration into the technologically advanced and innovative Centrum and North and the lagging behind, rather corrupted South and the majority of East. The growing thirst for profit pushed a good deal of profits and of the abundant capital of the rich Europe into the tax oases. The result was the lack of investments into the advanced and future technologies and their industries and services, as well as insufficient care to improve the quality of governance in the lagging behand part of the EU and the Balkans in order to be able to accept higher investments.
The developing world, influenced by the global capital, has been the greatest loser in the period of neo liberalization. Only the fact that these countries buy more than two thirds of all exported arms makes clear that militarization is the first priority of this world in relation to the needs of environment, education, medical care, social issues, and economic development.
Russia suffered mostly during the 90’ when the government under the rule of Mr.Yelcin, respecting the concept of the IMF with the suggestions of the American experts, decided to change entirely the hitherto political and economic system. Suddenly erased institutions of the planning system pushed the country into the financial, economic, social, and psychological chaos. This was the third collapse in one century (1918: revolution and survival from foreign attacks; WWII and Stalin with about 45 million lost lives; the 90’: fall of the GDP to about 50% of the former level. Renown German researchers (Reinert and Kattel) 9) suggested to Russian governments: “Don’t do what Americans tell you to do, do what they did”). Putin’s energy strategy, including the support to high-tech military programs, decisively saved the country. However, the country remained excessively energy dependent and the Russian multinationals mostly did not expand on advanced technologies and innovation, but more on natural resources and state monopolies, while the profits mostly ended in luxury of the rich. The progressively autocratic governance tolerated too high corruption, neglected the promotion of the basic development levers as capital formation, including the risk capital, technological advance, innovation, environment, up to social cohesion. As a result, the growth during the last decade has been insufficient. The GDP in 2019 reached only about 1,500 billion US $; at PPP terms about 4,000 US $ per capita with frequently obsolete technologies and weak innovation potential. Because the Russian economy is vitally dependent on exports of energy and on Western technologies, the present aggravation of sanctions might seriously add to the internal instability of the country. Therefore, the end of the present futile war in Ukraine is even more urgent for Russia than for the West.
The story of China with its own development concept has been completely different. Because of the irresistible thirst for profit by the Western businesses, accompanied by progressive global openness of China’s economy, as well as its astute foreign direct investment policy with the obligatory share of the investor, this country during the last four decades succeeded to manage practically all classical technologies and became the world fabric. In addition, through a coherent autocratic concept, China succeeded to unite the vision, strategic targets, interests, finance, and policies of the state and its financial power, the specialized domestic multinationals, as well as domestic universities and institutions, enabled by the top global knowledge. This synergy has been the ground of presently the most efficient innovation system, capable to promote strategically the advanced and future technologies, their industries, and services. Regardless of the huge environmental and other challenges this country is facing, China is firmly on the way towards the global leadership – following by India.
The present war on the European continent
According to the in-depth SWOT analysis of the EU and Russia, we could not expect a classical winner in this war between the invader – Russia, and the defender – Ukraine (The EU, West). The longer this war of conquest, based on some hundreds years obsolete imperial values, the more fatal will be the defeat of the European continent. Hitherto, in this war, the economic and commonsense arguments were not yet respected:
- Neither the short-term exploding energy costs in the EU, nor the longer-term elimination of the crucial energy market for Russia, including the energy price decrease in the forthcoming recession.
- The GDP strength on both sides, where the EU comes close to 20,000 billion euro and Russia to about 1,500 billion euro with rather low level of resilience of its economy, decisively dependent on oil and gas.
- The crucial issue has been the technology, hitherto mostly Western oriented. According to personal values and sanctions, a growing number of the leaders of Russian multinationals managing advanced technologies are leaving Russia, while those with profits, based mostly on national resources and state monopoly and oriented to luxury, are staying at home.
- The position of Russia and the US with about 6,000 nuclear war-heads each and other advanced weapons still keep the civilizations handicapped in their efforts to create environmentally sound and a more humane world.
- Although the peace is urgently required for both sides and for the entire world, the crucial issues of the expected long-term peace negotiations should be the values. The first one covers the elimination of the obsolete imperial values for solving political equality and national minority problems among the big and small nations, according to the norms of the UN and the 70 years of successful practices of the EU. The second one requires the elimination of the number one norm of the neoliberal globalization, which ranks the “profit first” in relation to strategic societal, environmental, democratic, technological, humane, and other values of the present civilizations, if they want to survive and exist in the future. The third one should be military denuclearization of the world.
- This war pushes Russia as a historically European country out of Europe, and at the same time Russia and the EU into the historical subordination to China and the US. The most widespread proverb among the nations teaches us: “We are choosing friends, the neighbors are given by the God”. Shall we Europeans find enough wisdom to cohabitate and cooperate, or shall we accept a kind of miserable co-existence on this continent - being ordered by external powers in the future!
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Note: The article was contributed by Dr. Lojze Sočan - Professor Emeritus of Ljubljana University