A Turning Point for Globalization
Inequality, Market Chaos and Angry Voters
Resistance is growing in industrialized countries to the problems caused by globalization and free trade. Populists like Donald Trump have promised relief by erecting new barriers to unhindered trade. But it is a dangerous path. By SPIEGEL Staff
Who could have imagined in 2006 that such an outlandish billionaire like Donald Trump could become president of the United States? Who would have believed that the British would leave the European Union? Who would have thought it possible that a right-wing populist party in Germany would win over 10 percent support in several state elections?
Nobody. Ten years ago, the world was a vastly different place. In 2006, Germany lived through its "Summer Fairytale" of hosting the football World Cup -- an event that was, at the time, still untainted by accusations of corruption -- and presented itself as a cosmopolitan host. Russia was still part of the G-8 and welcomed world leaders to the summit in St. Petersburg. Pope Benedict XVI visited Turkey and prayed in the Blue Mosque. In Berlin, the first Islam conference took place, promoting better integration for the religion. A Romano Prodi-led alliance defeated the populist Silvio Berlusconi in Italian parliamentary elections. And international trade grew by 9 percent while the Chinese economy spiked by almost 13 percent.
Between then and now lie years of crisis. Banks and entire countries had to be bailed out, debt grew and faith in the economy and politics evaporated. Central banks chopped their interest rates again and again to stimulate the economy -- with modest success and significant side-effects: Debt continued climbing around the world while in industrialized countries, savers suffered and middle-class retirement funds in particular took a hit.
Now, in 2016, many people in Western, industrialized countries are worried about losing their jobs, their prosperity and that of their children. They see themselves as the losers of a development that has only helped the elite.
The belief that politics doesn't serve the body politic and that the economy doesn't serve the people has taken firm hold. That only corporations and the rich profit. And that globalization, with its open borders and freedom of movement for both goods and people, is to blame for it all. "Globalists" is the word Trump derogatorily uses for people who promote these values.
'Guarantee for Prosperity'
Populists like the new US president-elect want to introduce a much more closed society of customs and fences. Trump wants to end globalization and "put America first."
In his farewell speech before the United Nations General Assembly in September, outgoing US President Barack Obama resisted that message. The international community of today, Obama said, is threatened with all manner of bigotry, including religious fundamentalism, aggressive nationalism and economic protectionism. It is an approach, he said, that is driven by "a crude populism -- sometimes from the far left, but more often from the far right."
He then went on to deliver a passionate appeal for free trade and open markets. "As imperfect as they are," he said, they are the guarantee for prosperity. Isolation and attempts to defeat globalization, he said, were self-defeating. "Today, a nation ringed by walls would only imprison itself."
The fact that the world has come closer together has improved the lives of billions of men, women and children, the US president went on. In the last 25 years, the number of democratic countries in the world has almost doubled while the share of people living in extreme poverty in the world has plunged from almost 40 percent to less than 10 percent. For Obama, such progress allows for only one conclusion: "We must go forward, and not backward."
But Obama was also critical. Growing support for those who would criticize globalization, he intimated, must be taken seriously by political leaders. Too often, people's real problems have been neglected and their concerns ignored. "Those trumpeting the benefits of globalization have ignored inequality within and among nations," Obama said.
It is a realization that has been too late in coming. For a long time, supporters of globalization assumed that the advantages of world trade equally benefitted all. That was naive. There are winners and losers, real and imagined. The real losers have lost their jobs because their companies couldn't compete internationally. The imagined losers believe that without competition from foreign companies, they would have become more prosperous. Some blame adversity from overseas for their own failures or incompetence.
End of Globalization?
Now, though, those who have lost out are striking back, first in Britain and now in the US. And Italy and France could soon join them.
It is a fact that globalization and free trade have increased global prosperity, but they have also increased inequality in the world's wealthiest nations. They have made the biggest companies more powerful, because business operates globally while politics tends to be a local or regional affair, and made the world more vulnerable to crises, because everything is networked and the debts of American homeowners could lead the entire world to the brink of collapse.
In short, globalization is responsible for a host of problems that would otherwise not exist. And it is therefore in the process of gambling away the trust of people around the world. Already today, global trade growth has slowed and state interference is on the rise.
The world finds itself at a turning point. It must try to eliminate the drawbacks of globalization without destroying its advantages. If, on the other hand, protectionism and populism gain the upper hand, there is a danger that global prosperity could shrink. The age of globalization would be at an end.
That age began in the 1970s when China returned to the global stage and revolutionized the geographic division of labor with its huge army of cheap workers -- a trend that accelerated once the Berlin Wall and the Iron Curtain fell. From that point on, companies began producing their goods in places where wages were lowest, which destroyed vast numbers of jobs in industrialized countries. At the same time, climbing demand from developing economies likewise led to more jobs in the industrialized world. "The feeling was: We're making water into wine and growth is unlimited," says economist Henrik Enderlein, who leads the Jacques Delors Institute in Berlin.
That feeling, as became evident on the morning of Sept. 8, 2008, was disastrously misleading.
That was the Monday that investment bank Lehman Brothers filed for bankruptcy in New York.
William White saw the disaster approaching. Formerly the chief economist of the Bank for International Settlements (BIS), sometimes referred to as the central bank for central banks, White has analyzed the causes and consequences of the financial crisis in greater detail than almost anyone.
A wiry man with silver hair and sparkling eyes, White is sitting in jeans and a plaid shirt in the bar of the BIS athletic club in Basel. Former colleagues of his are swimming in the pool outside and White remembers co-writing an essay with one of them about the illusions that European politicians indulged in prior to the introduction of the euro.
Central Banks Open the Spigots
As early as 1996, White was critical of Alan Greenspan, who was head of the US Federal Reserve at the time, due to his ultra-loose monetary policy with which he had hoped to unleash the financial markets. He also warned of the coming crisis on the mortgage market long before Lehman went belly up.
But few were interested in what the economist had to say at a time when the apparently all-powerful financial industry was driving the economy around the world. Once Lehman collapsed, however, that industry threatened to implode and take the global economy along with it, not unlike an immune system that turns on its own body and destroys it.
Within just a few days, a life-threatening paralysis gripped large segments of the financial world with myriad banks, both large and small, facing collapse. The flow of money, which up until that point had moved around the world at increasingly rapid rates and seemed to promise endless growth, essentially came to a standstill, threatening to halt factory production and supply-chain deliveries across the globe, from rural Germany to low-wage manufacturing hubs in China.
For globalization, the Lehman Moment was a turning point -- and the consequences were clear to finance ministers and central bank heads from industrialized nations when they met that autumn in Washington for the annual meeting of the International Monetary Fund (IMF) and the World Bank.
"We must restore faith in the financial system," they said at the time. But they failed to do so.
Governments and central banks drew the wrong conclusions from the Lehmann shock -- because they themselves are part of the problem.
"You have to put the central Banks on the list of those that caused the financial crisis," says White, "along with bankers, politicians, economists and the people, all of whom played a role."
The cardinal sin, he says was "that the central banks incorrectly appraised the extent and the consequences of globalization. And they reacted incorrectly to it."
Drastic Loosening of Monetary Policy
The flood of products from Eastern Europe and Southeast Asia in the 1990s pushed prices down, particularly as more and more economic sectors introduced state-of-the-art technologies and digitalization. "The central banks didn't recognize the depth of this supply shock," White says. "They continued trying to stimulate demand, but the problem was, and remains, oversupply."
Even the smallest indication of crisis was enough for the Fed to slash interest rates and for other central banks to follow suit. It began with the drastic loosening of monetary policy following the 1987 stock market crash and it has continued right up to the present day, as central banks deploy 0 percent interest rates and make unimaginably large bond purchases in an attempt to stimulate growth and inflation.
During economic upswings, officials didn't do nearly as much to avoid overheating. "On balance, interest rates continued to fall," White explains. "They allayed their own concerns by pointing to the fact that there were no signs of inflation -- which was a consequence of globalization -- and disastrously ignored the other consequences of their actions."
Instead of increasing consumer prices, today we are instead seeing rapidly increasing prices for stocks, bonds and real estate -- and climbing debt.
Prior to the Lehmann crisis, it was American home prices and the debt of destitute home buyers that led to the disaster. Anger was, justifiably, directed at unscrupulous bankers who had transformed the brick-and-mortar real-estate industry into a virtual game of global roulette. But even then, the fuel was supplied by the central banks in the form of cheap money.
When talking about how little politicians and economists have learned from the Lehman bankruptcy, sarcasm creeps into William White's voice. In Atlanta, Georgia, he was recently awarded the Adam Smith Prize for his unconventional thinking and in his acceptance speech, he excoriated the mistakes made by mainstream economists and monetary policymakers.
"These people give me this prize, but none of them seem to want to change anything," White says. "Instead, they keep digging us deeper and deeper into the hole we're in."
The IMF, in fact, determined that global debt didn't actually fall in the wake of the financial crisis.
Indeed, it now stands at $152 trillion worldwide.
Very Real Dangers
The decoupling of the monetary system from the real economy is thus continuing apace and economists like White believe that the extremely high level of debt is hampering the economy, slowing growth and increasing the danger of a new financial crisis.
Debt is climbing most rapidly in developing countries while the economies of countries like China and Brazil have become so large that crashes there would have significant repercussions for established industrialized nations. The dangers are very real: From 2016 to 2018, companies in developing nations must issue new bonds to cover $340 billion dollars in debt, most of it in foreign currencies.
Money is rocketing around the world faster than ever, but it mostly goes in the same direction.
"When the mood is optimistic, investors all plunge into riskier assets. If it becomes negative, they all pull their money back out," complains White. "Mostly, central banks are responsible for the moods."
Just one year ago, China, Indonesia and Thailand had been largely written off by international investors, with the Shanghai stock market crash in summer 2015 having led investors to pull their money out of the region. Recently, though, large mutual funds have rediscovered their enthusiasm for developing economies and capital is returning. Investors are able to get higher returns on their investments in these countries than they can obtain in Europe, for example, where they sometimes even lose money thanks to negative interest rates.
An influx of liquidity from abroad rapidly heats up the economies in the countries in question -- and they crash even harder once the capital is pulled out again. Such capital flight can result from something as seemingly innocuous as the US Fed deciding to inch up interest rates.
Even the IMF, one of the most passionate supporters of unfettered globalization, has become more pensive. In a June paper bearing the self-critical title "Neoliberalism: Oversold?," the IMF seemed to take a step back from its aggressive calls for the unshackling of international financial markets.
In reference to the free flow of capital, the authors write: "Although growth benefits are uncertain, costs in terms of increased economic volatility and crisis frequency seem more evident." Since 1980, the study continues, there have been 150 instances of "surges of capital inflows" in more than 50 emerging economies. "About 20 percent of the time, these episodes end in a financial crisis, and many of these crises are associated with large output declines."
The Growing Gap between Rich and Poor
The report also notes that, in addition to a shrinking economy, these crises also lead to an increase in inequality in the countries affected. As numerous scientific studies have shown, excessive inequality between rich and poor limits growth, "the very thing that the neoliberal agenda is intent on boosting."
Determining whether globalization is in fact the cause of growing inequality is far from straightforward. There are, after all, other forces at work in the restructuring of the global economy.
One of those is digitalization. Michael Förster has been researching the issue for decades for, among others, the Organization for Economic Cooperation and Development and is respected globally. But even he doesn't have a straightforward answer. "As clear as it is that the gap between the rich and the poor is growing, " he says, "the reasons for this development are less obvious."
The standard indicator of inequality used by experts like Förster is the so-called Gini coefficient: A value of zero would indicate that everyone earns the same while 100 would describe a situation in which one person earns all income and everyone else gets nothing. When calculated across all 34 OECD countries, the Gini coefficient has risen from 29 to 32 percent since the mid-1980s. "There is hardly a country in which inequality has fallen in this time period," Förster says.
The gap between the rich and the poor, in other words, has increased almost everywhere, if not at the same rate and not always as one might think. While the Gini coefficient has climbed significantly in the more capitalist US, in Sweden, despite the country's egalitarian tradition, the jump has been even greater.
In Germany, by contrast, where the debate over inequality has been raging for some time, the development has been less severe. Indeed, the rise has come to a virtual standstill since 2005.
Nevertheless, the top 10 percent in Germany earn seven times the income of the bottom 10 percent.
Clear Losers of Globalization
Ironically, one significant reason for the broader growth in inequality is the rapid divergence of salaries among top earners. It's not just that the rich are becoming richer, but that the super-rich are becoming super-richer.
Many members of this top 0.1 percent, who have seen their earnings multiply several times in recent decades, are financial industry executives or founders of startups. They are the superstars of globalization because they profit from it to a greater degree than others.
The clear losers of globalization, meanwhile, are workers in traditional economic sectors, particularly in the United States. According to a study by economists David Autor, David Dorn and Gordon Hanson, the increase in imports from China alone has resulted in the loss of 1.5 million manufacturing jobs since the early 1990s. In total, some 6.9 million industry jobs were lost in the US between the early 1990s and 2011. Economists often point to the advantages such developments bring to a nation's economy as a whole -- lower prices for goods and new foreign markets for products manufactured domestically, for example -- but that doesn't help those who have lost their jobs. They feel as though their political representatives have forgotten them.
In Germany, the number of globalization losers is lower because open markets provide a significant boost to the country's export-oriented economy. But jobs have been lost here too as entire sectors, such as the textile and toy-making industries, have emigrated. Middle-class incomes have also stagnated in Germany.
The consequence has been a widespread feeling that the system isn't fair and that globalization primarily helps the elite and large corporations, which keep growing in size and wealth. "Many people are unhappy," European Union Competition Commissioner Margrethe Vestager of Denmark said at a September symposium in Washington, DC. "They see the executives and shareholders of big companies getting richer, and they ask -- is this economy for everyone, or only for a lucky few?" Open economies in a globalized world only have a future, she said, if they are good for everyone.
The Danish commissioner isn't afraid of confronting the most powerful corporations in the world in pursuit of that mission. Apple, for example, managed to funnel $215 billion-worth of more-or-less untaxed profits to a Caribbean tax haven using all sorts of tricks, including many billions that the company earned in Europe. Vestager has now demanded that Apple pay 13 billion euros in back taxes.
Tax havens are the tumors of the globalized world. Oligarchs and Mafiosi use them for shady deals while ostensibly reputable companies and corporations take advantage of them to avoid contributing their fair share to society in the form of taxes.
The 30 most assiduous tax evaders among top US corporations have stashed $1.65 trillion in overseas tax havens, partly in response to a US tax code which requires them to pay an almost 40 percent tax on every dollar they earn, even if it is earned abroad. They are hopeful that president-elect Donald Trump will reduce what they see as a prohibitive tax burden.
In Europe, corporations take advantage of tax loopholes that individual countries have created.
Such countries hope that their generous tax codes will attract foreign companies, as Ireland was able to do with Apple. The Netherlands, Luxembourg and Belgium have struck similar secret deals with companies like IKEA, Starbucks, Fiat and Amazon. Countries everywhere resist slapping higher tax rates on corporations because they never know when the finance minister of a neighboring company might lure them away with a better deal. German companies like BASF, Bayer and VW are also well-versed in the art of booking their losses in places where the tax rate is highest and profits in places where the tax rate is lowest.
Those seeking to take action against the cartel of tax dodgers can count on trouble. As Vestager prepared her decision against Apple, the US Treasury Department threatened retaliation in August, saying it would "consider potential responses." The Business Round Table, an association of CEOs of top American companies also warned in a letter to German Chancellor Angela Merkel that if "legal certainty" wasn't restored, it would jeopardize foreign investment in Germany.
Vestager countered that most of the decisions made on illegal state aid had targeted European companies. The European Commission is currently reviewing 1,000 arrangements made between EU member-state tax authorities and companies. Most, she said, had been done correctly, but there are still likely to be more cases brought.
The Growing Threat of Monopolies
There's a fundamental conflict between the EU and the US when it comes to competition law.
Commissioner Vestager is fully aware that many believe some companies have now become so big that they are beyond government control. "We need to prove that fear wrong," she says.
US competition authorities have a different view and are taking steps to protect technology giants like Google or Facebook as they build or expand their global networks. But Vestager and her 800 employees in Brussels are determined to intervene if they see a threat to competition.
Indeed, the competition commissioner has been investigating search-engine provider Google for years now with the goal of limiting its market power.
Internet companies have a tendency toward monopolies because they constantly attract more users, which in turn makes the companies more attractive to other users as well as to advertisers.
But this type of concentration is also on the rise in more traditional industries as well. Fueled with cheap money provided by central banks, companies are acquiring their competitors to become larger and more powerful. That creates pressure for other competitors to merge as well.
German pharma giant Bayer, for example, acquired controversial seed company Monsanto for $66 billion. In order to get the deal past regulators, Bayer CEO Werner Baumann argues that Chinese bidder ChemChina is acquiring Swiss pesticides company Syngenta and that two large American companies are also merging. Without the Monsanto deal, Baumann says, Bayer will no longer be competitive.
One person involved in the deal is set to win big: Monsanto CEO Hugh Grant has what is referred to as a change-of-control clause in his contract guaranteeing him a $135 million payout after the acquisition.
But is the acquisition beneficial to consumers? If things go according to plan, there will only be four dominant companies left in the world selling seeds and pesticides to farmers. Their research and the prices they charge will determine how well and how affordably the global population is able to feed itself in the future.
What to Do with the Stash?
The growing concentration of companies weakens competition and harms consumers while at the same time increasing their leverage against the state. It makes governments more susceptible to extortion when it comes to creating jobs or moving them out of a country -- and on questions of taxation.
At the same time, these companies seem incapable of finding productive things to do with the money they earn through the globalized economy. Why else would they stash their money or use it to buy back their own shares (which drives up share prices, thus helping the wealthy) instead of investing it?
That's also an indicator that competition isn't working properly in this digital and global age.
The growing gap between rich and poor, an unbridled monetary and financial industry, overly powerful corporations that are escaping national controls and shirking tax obligations: Against this backdrop, many people have lost faith in the idea that deregulated markets lead to broad prosperity. Instead they're turning back to the notion of borders and regulations -- and, from a variety of different positions, a countermovement against globalization is taking shape.
On one side, critics from the left have gathered. They have long viewed turbo capitalism as a threat and with TTIP and CETA, the free trade agreements between the EU and the United States and Canada, resistance found new symbols and massive support. Tens of thousands took to the streets in large cities across Germany to protest the trade agreements in mid-September and 12,500 Germans signed their names to a complaint submitted to Germany's Constitutional Court. But the court declined to issue a preliminary injunction stopping the German government from signing the treaty.
Not everyone who protests against TTIP or CETA is fundamentally opposed to free trade or globalization. What does unite protestors, however, is their lack of blind faith in the idea that free trade is always beneficial to all people at all times. They also fear that national laws and regulations will be sacrificed in ways that benefit a small number of companies.
The fact that negotiations take place behind closed doors and even members of parliament aren't provided with details serves to reinforce that mistrust. The information that has been leaked to the public has only further exacerbated those concerns. Still, it is unlikely that opposition to TTIP and CETA would have become so strong were it not for the significant loss of trust in globalization in recent years.
'An Unholy Alliance'
Now the anti-globalization movement is getting support from an altogether different camp.
Under President Trump, there is little chance TTIP will be implemented because free trade and globalization are also favorite bogeymen on the right wing of the political spectrum. In Germany, for example, supporters of the right-wing populist Alternative for Germany (AfD) party, the anti-Muslim Pegida movement and other groups also joined the anti-TTIP and CETA protests, with their anger focused largely on immigrants, the European common currency and open borders, regardless whether for people or goods.
"An unholy alliance" has formed in Germany, says economist Henrik Enderlein, "a strange connection between structurally conservative leftists and nation-state romantics, who preferred things as they were in West German times."
Enderlein says a new political map is emerging, one that doesn't fit into the clean left-right model of the past. The new dividing line is between those who support and those who oppose an open society. Those skeptical of an open society in both camps are connected by their diffuse fear of being left behind.
This trend includes left-leaning parties like Podemos in Spain or Syriza in Greece, but also right-wing groups like France's Front National or the Finns Party in Finland. They have found common ground in their opposition to globalization.
For years in Germany, the new nationalists had difficulty gaining traction. Indeed, it was only after Chancellor Merkel welcomed asylum-seekers during the refugee crisis that they started to generate considerable support.
On the right wing of the political spectrum, it's the AfD, which has leveraged its anti-foreigner and anti-free trade rhetoric to seats in 10 state parliaments. On the left wing, there is really only one politician playing the role of populist: Sahra Wagenknecht, parliamentary floor leader for the Left Party, a far-left group that is comprised of the successor party to the East German Communist Party and West German leftists. Wagenknecht is the charismatic and highly articulate figurehead of the far-left movement.
At the end of September, she could be seen scurrying across the floor of the German parliament, her coat aflutter. She was running late for the presentation of her latest book.
Wagenknecht handed her handbag to the driver and sank into the backseat of a luxury sedan with wood veneer and TV screens. She was quick to point out that her East German Wartburg was in the shop, which is why she was forced to ride in such a vehicle.
The politician emphasized that she was no caviar socialist who preaches water but drinks wine.
Politically, she remains very far to the left, but Wagenknecht has also managed to pepper her positions with the kind of populist ingredients currently in vogue across Europe. She opposes the common currency, Europe's political union and uncontrolled immigration. "The eastward enlargement of the EU happened too quickly," she said in September. "It triggered migration flows that were used, above all, to apply downward pressure on wages."
In Wagenknecht's mind, the European principle of freedom of movement is an elite project. "People who live in expensive neighborhoods with high-paying jobs and high-levels of qualifications don't have to worry about competition from cheap workers," she said. "Nor does migration lead to higher rents or overstrained schools in such circles."
The Hard-Working vs. a Corrupt Elite
Anger at an aloof elite that no longer understands the fears of large strata of society isn't driving Wagenknecht alone -- it is shaping the self-image of the entire movement. The hard-working ordinary people versus a corrupt elite and a good-for-nothing lower class: For Princeton professor Jan-Werner Müller, that's the image the new movement has of society.
The fact that Wagenknecht's utopia no longer lies in a socialist future, but in the past -- more precisely in the early postwar years of West Germany -- also jibes with that image. It's the same period during the 1950s and 1960s that AfD politicians are also so fond of idealizing. The right-wing populists long for the Germany of postwar Chancellor Konrad Adenauer, who emphasized the values of home and family. For her part, Wagenknecht praises the "social-welfare state model of the postwar years," that made broader societal participation possible in addition to "swift economic upswings and rising mass consumption." In her speeches, she refers to it as the "golden era of capitalism."
That's the dangerous part of modern populism, on both the left and the right. It is fueled by the current crisis in globalization. But the answer it offers is backward-looking rather than constructive. Isolationism cannot be the answer in a Digital Age of borderless technologies.
The First Globalization
The line-up of today's globalization opponents is reminiscent of the 1920s, a time when both right- and left-wing populists expressed their displeasure over how life and labor had changed in the preceding decades. During the second half of the 19th century, global trade grew and economic activity sped up -- leaving people struggling to catch up and cope with the process. It was an era that historians today refer to as "the first globalization." The German Reich ascended at the time to become a leading player in the global economy.
Newly established companies in the areas of machine building, electrical technology and the chemicals industry soon became global players, capturing markets around the world.
Technological progress gave birth to a constant stream of new products that were exported: ships, turbines, chemicals. Free trade was on the rise and the exchange of goods and capital surged. To a certain extent, the planet became a smaller place. Shortly before World War I, 21 percent of all exported industrial products originated from Germany. The only country that exported more was Britain, with 26 percent. But these dynamic developments ended abruptly with the outbreak of war. Globalization suddenly came to a standstill, with the process even reversing itself at the end of the 1920s as the Great Depression and the global economic crisis set in.
From 1929 to 1933, the volume of global trade shrank from $3 billion to $1 billion. The important industrialized nations tried to secure their salvation by pursuing protectionist trade policies.
In 1930, US Congress increased tariffs on more than 20,000 imported goods -- and, by doing so, provoked the affected countries to raise levies in retaliation. Britain abandoned the gold standard to make it easier to devaluate the pound and thus make its goods comparatively inexpensive. The economic policy at the time was known as beggar-thy-neighbor, which meant trying to fix your own economy by destroying those of countries next door.
Exports also fell dramatically in Germany, with the volume dropping from 13.5 to 5.7 billion Reichsmarks. Industrial production fell by 40 percent, leaving masses of people unemployed.
Trust in the prosperity-generating power of free trade and open markets had been shaken.
Culturally, many people felt overwhelmed and social transformation couldn't keep up with technological progress, even though this process had begun decades before. "There were a few delays before criticism of industrial modernity began expressing itself," says Paul Nolte, a professor of history at Berlin's Free University. He says he sees a similar lag today.
As a species, classic industrial workers have been perceived as threatened since the 1980s, but it was only recently that left- and right-wing anti-globalization forces started articulating their anger over this loss, says Nolte. "It's only now that this shock is truly getting digested."
But other analogies to the Weimar Republic years are also emerging. During the most recent election in the city of Berlin in September, the center-left Social Democratic Party (SPD) got only 22 percent of the vote, with six parties entering into the city-state parliament, including a strong left wing (with the Left Party at close to 16 percent) and right wing (with the AfD at 14 percent). Erosion of the strength of the country's traditional mainstream parties, the SPD and the conservative Christian Democrats (CDU), combined with the rise of third parties is evocative of Germany in the 1920s.
Then as now, distrust of institutions grew, including democratically elected bodies and their representatives. Then as now, there was a growing sense of longing for security and a self-sufficient economy. Then as now, companies, particularly big ones, faced criticism because they appeared to put profits above all else, including the interests of workers or the places where the companies were located.
Americans, meanwhile, began criticizing the power held by large corporations at the end of the 19th century -- the so-called trusts in the oil, steel and railway industries in the United States.
The robber barons -- the Rockefellers, the Vanderbilts or the Carnegies -- controlled markets seemingly at will and built up true empires.
It took broad public protest before the US took action to limit these companies. The anti-trust laws created at the time are still applied today when, for example, the Federal Trade Commission investigates a company like Google over potential abuse of its market power, as it is currently doing.
Similar efforts are needed again today, but on a global scale. The global economy can only recover if we succeed in pushing back against financial speculation and limiting the power of corporations. Of paramount importance, however, is regaining the trust of the people. The burdens need to be distributed more fairly. At the most recent G-20 meeting, Australian Prime Minister Malcolm Turnbull, a former banker at Goldman-Sachs of all people, warned of the need to "civilize capitalism."
That, argues Berlin economist Enderlein, is the third phase of the current era of globalization.
The first lasted until 2006 and marked years of unbridled growth. Then came the second phase, the years of the financial and euro crises. Taxpayers assumed the lion's share of the costs and burdens, and the elites got away relatively unscathed. "That had far greater effects than we realize," he says.
Phase Three of Globalization
So now we've reached phase three: It's time to reshape globalization. If we do see the kind of reverse in globalization that many fear following Donald Trump's election, Germany stands to be a major loser.
Phase three starts at home, in each individual country. Well-conceived tax and transfer systems can hinder further growth in the gap between rich and poor. Going by the Gini coefficient, average incomes in Germany are almost at the same level as those in the United States -- at least before taxes, social transfers and pension payments are made. But once that redistribution takes place, the country's salaries are 10 percent lower than those in the US.
Countries also need to do more to ensure that those being left behind by the forces of globalization are provided with things like a sustainable social safety net and a minimum wage to prevent them from falling further. Most of all, states need to invest in education so that as few people as possible fall victim to structural change.
But that will require the kind of money that corporations are currently denying governments. That's why preventing tax evasion will be one of the most important tasks in the coming years. US economist and Nobel Laureate Joseph Stiglitz has even called for the elimination of tax havens and for the European Union and the United States to apply a minimum tax rate of 15 to 20 percent to all multinational companies. The idea sounds revolutionary in its simplicity. It's about shifting the burden of proof: Companies would be forced to prove that they did, in fact, pay reasonable taxes on their profits. Otherwise, they would have to pay tax in a different country.
The implementation of this idea, though, will remain a utopian fantasy as long as individual countries continue to pursue their own interests. The US government doesn't even want to accept EU demands that Apple pay back taxes. Washington does, of course, want to see companies like Apple and Google pay more taxes, but back at home in the US. In the era of digitalization, it is also almost impossible to determine where the money for many products was actually earned -- and thus, where the taxes should be paid.
A tightening of competition law, as complicated as that might be in the era of globalization and digitalization, is likewise necessary. Small Internet and pharmaceutical companies are often swallowed by large conglomerates, sometimes even for prices in the lower double-digit billions, before they have the chance to become any kind of threat to these bigger firms. The cartel authorities often have their hands tied when it comes to developments like the acquisition of WhatsApp by Facebook or LinkedIn by Microsoft because cartel law is frequently still based on old world paradigms whereby the leading factor is the size of revenues generated by a company.
On both the issue of taxation and competition, the EU and the US appear to be irreconcilable antagonists. American politicians accuse Europeans of trying to protect their uncompetitive Internet economy using illegal means. Meanwhile, EU politicians counter that the United States is weakening the ability of European companies to compete in the form of draconian fines of the kind imposed on VW in the Dieselgate scandal and that currently threaten Deutsche Bank.
Europeans view these developments as acts of revenge tied to the procedures taken against Apple and Google and as harbingers of a possible trade war.
"We need a secretariat for international economic and currency relations, an independent authority that considers the overall interests of the open economic world," says economist Enderlein. He argues there should be something like a secretary-general for the global economy.
Unfortunately, that's a pipe dream. Organizations are already in place like the International Monetary Fund, in which each country can represent its individual interests. And there are also regular meetings of the G-7 and the G-20 member states that seldom deliver anything beyond non-binding exchanges of views.
What's missing are global mechanisms "for getting a handle on global problems," says William White. The problem, for example, that the central banks lower interest rates and, by doing so, shore up their own economies at the expense of their competitors. "It might make sense to develop something like Bretton Woods again," he says, referring to the site in New Hampshire where World War II victors agreed to a new global financial order. It was aimed at creating a system of fixed exchange rates pegged to the dollar to ensure stability and prevent extreme imbalances in the global economy and to prevent competitive devaluations.
These are precisely the problems the global economy is struggling with today. Back then, the international community agreed to a solution. Today, though, we once again find ourselves with a need for strong global institutions and global rules. In other words: We need a little more globalization in order to preserve the positive forces it represents and to eliminate the drawbacks.
Otherwise the negative forces may gain the upper hand and we may find ourselves one day reflecting back to 2016 and asking ourselves: Who could have imagined in 2016 that something like this would happen?
By Sven Böll, Martin Hesse, Alexander Jung, Armin Mahler, Christoph Pauly, Christian Reiermann, Michael Sauga and Wieland Wagner