Table of content
1. With the glasses of liberal theory
2. The Liberal International Order (LIO)
3. Why inequality matters
3.1 The elite decides the endowment of the welfare state
3.2 The rate of inequality is a decision
3.3 Different states, different inequality
List of figures
The social scientists of the Varieties of Democracy came to the finding, that "the level of democracy enjoyed by the average global citizen in 2020 is down to levels last found around 1990" (Varieties of Democracy 2021). This means that it is on the same level as at the beginning of the unipolar world order, which was led by the United States for the last 30 years. According to V-dem, all the gains of liberal democracy achieved in this epoch diminished. The euphoria about the democratization of post-Soviet states in Europe and parts of Asia as well as some post-colonial states in Africa gave way to a hangover in 2021. The hangover is characterized by authoritarianism, nationalism, and illiberal democracy (Lührmann and Hellmeier 2020). Joe Biden, the president of the U.S., addressed these challenges in his first speech about foreign affairs: “American leadership must meet this new moment of advancing authoritarianism, including the growing ambitions of China to rival the United States and the determination of Russia to damage and disrupt our democracy” (Biden 2021b). The specialists in International Affairs, John Ikenberry and John Mearsheimer mentioned inequality as one reason for the decline of the liberal international order in their recent works “The End of Liberal International Order” and “Bound to Fail” (Mearsheimer 2019; Ikenberry 2018). The US President shares this view as he said at the Munich Security Conference: "We have to ensure that the benefits of growth are shared broadly and equitably, not just by a few" (Biden 2021a). The core of this draft is about examining inequality on an economic and a political level.
The idea for this work came during the lecture of Ikenberry “The end of liberal international order?” (2018) and Mearsheimer “Bound to Fail: The Rise and Fall of the Liberal International Order” (2019). Both scientists mention inequality as a threat to liberal democracy and the Liberal International Order (LIO)1 but do not elaborate on this point. The subject of inequality is not a pure political theme. It is more an economic theme that became a political theme. The research question of this draft is “Why does inequality put pressure on the Liberal International Order?”. The assumption is that the range of inequality is a political subject, which was handled differently over the last 70 decades. To draw inference on the impact of inequality on the stability of the LIO this paper builds on the work of Heise and Khan, Ikenberry, Moravcsik, and Mearsheimer. Moravcsik provided with his work “Taking preferences seriously” the liberal theory to this draft. The theory chapter is followed by a definition of the LIO which is based on Mearsheimer “Bound to fail”. In the chapter “Why inequality matters” the draft shows with the help of the paper of Heise and Khan “The Welfare State and Liberal Democracy” how economic inequality relates to political inequality. In the following chapter, a historical review shows the development of inequality and how it is connected to the decision of the elite. In the chapter “different states, different inequality” there is a closer look at role model states of the ILO: U.S., France, Sweden, and Poland. The data for the research on inequality in these states is from the World Inequality Database (WID). One Co-director of the WID is Thomas Piketty who also contributed some data and his evaluation to this draft. The conclusion points out why inequality put pressure on the international order and gives a short outlook to actual political action against inequality and further fields of research. It has tried to consult authors with different points of view to become a balanced paper. For example, Parmar with a postcolonial, Stokes with a liberal approach, or the German historian Winkler with a more conservative view.
1. With the glasses of liberal theory
Theories of International Relations help to understand the world and they should be treated like differently coloured lenses. They construct what we see. As Steve Smith said: “If you take one theoretical position you’ll see a certain set of events, if you (…) take another theoretical position you’ll see a different set of events” (Smith 2014). To examine the implications of political and economic inequality, the liberal theory of Moravcsik is chosen, with his glasses and his theoretical position it is possible to see why inequality leads, because of different interests, to different actions of individuals and societal groups and how this, in turn, influences politics (Moravcsik 1997, 517). The behaviour of self-interested actors who try to succeed, alternate between cooperation and conflict. Liberal theory notes three conditions under which conflict is likely: Divergent fundamental beliefs, conflict over scarce material goods, and inequalities in political power. Borders, culture, fundamental political institutions, and local social practices are summarized under “fundamental beliefs”. Conflict over scarce material goods is the reason for economic inequality. Political inequality is also a result of the inevitable competition within society. People tend to collaborate when social incentives exist to exploit utility to the maximum. Before one societal group could reach the natural upper bound of the utility, counterforces of other societal groups and the risk aversion of individuals lead to an equilibrium that foster the welfare of the society (Moravcsik 1997, 517). The condition “Inequality in political power” is of particular importance for this thesis and thus is explained more in detail.
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As the liberal theory rests on a ‘bottom up’ view, the liberal state rests on a bottom-up system.2 The government policy is the aggregation of identities, interests, and power of individuals and groups inside and outside of the state apparatus. Those individuals, but especially the interests collectivized in associations pressure the central decision-makers to pursue policies consistent with their preferences. A relatively inegalitarian distribution of property, risk, information, or organizational capabilities, leads to the suboptimal point of overrepresenting the interests of one societal group (Moravcsik 1997, 518).
State officials define state preferences based on societal interests and behave on those preferences in international politics. In contrast to other theories, liberalism suggests that preferences are independent of the strategies of other actors and before specific interstate political interactions. Attitude changes on the state level results in shifts in fundamental preferences and not on strategic circumstances like external threats, incentives or other foreign tactics (Moravcsik 1997, 518–520).
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Moravcsik divides the patterns of interdependence externalities into three categories with different potential for interstate coordination or conflict. First, where externalities of unilateral policies are optimal or insignificant for others, there are strong incentives for coexistence with low conflict potential. Second, where an attempt by dominant social groups in one country imposes negative externalities on dominant social groups in other countries, there is a high potential for interstate tension and conflict. Third, the most common case, states have an incentive to negotiate policy coordination to improve the welfare of both parties relative to unilateral policy adjustment (Moravcsik 1997, 521). Parmar explains, based on the theory of Karl Kautsky that the elites of different states form international “class-based alliances” to foster their interests against other domestic groups (Parmar 2018, 160). Trade agreements to profit from comparative cost advantages are an example of an exchange of policy concessions through coordination. If decision-making leads to trade protection, liberal theorists explain this by countervailing social preferences and unresolved domestic and transnational distributional conflicts (Moravcsik 1997, 521). Commercial liberalism as part of the liberal theory does not predict that economic incentives lead to universal free trade and peace through interdependence (Dunne 2019, 106). Market structures are variable for openness and closure. Socioeconomic interests set legitimate limits on markets through regulation. The provision of public goods is one social compromise in which markets are embedded and which regularly leads to market regulation. Changes in the structure of economies alter the benefits and costs of transnational economic exchanges and lead to new cost-benefit calculations by domestic individuals and groups. This leads to pressure on the government to adjust or block international trading conditions. As mentioned above, the political power is unevenly distributed and belongs much more to the actors who gain the net benefits of free trade. The net losers are also led by their interest to maximize their utility and try to associate to counter the inequality. The resulting domestic distributional conflict can lead to mercantilist policies if the net losers seek personal benefit at the expense of aggregate welfare (Moravcsik 1997, 515). When the government institutions are captured by particularistic groups, they employ them in their interests and pass the buck to others. This can lead to aggressive state behaviour on the international and domestic level. The more biased the groups represented are, the more likely they will support policies that impose high net costs or risks on a broad range of social actors. This behaviour is most likely in undemocratic or inegalitarian polities. If the popular commercial or ideational preferences are conflictual because of hyper-nationalism or mercantilist preferences, elite preferences may be more convergent than the popular ones. To go further, the creation and maintenance of regimes assuring free trade and monetary stability results from the ability of states to overcome domestic distributional conflicts (Moravcsik 1997, 532). To overcome the conflict, politics use pro-market state strategies which include spending on infrastructure, education, the military, as well as regulations, countercyclical fiscal policies, state business subsidies, and social welfare programs (Mousseau 2019, 165). Many of them are summarized as public goods. At least for supranational institutions like the European Union, it is essential to share the same social identity to have the same idea about the role of the government, about public goods, social policies, migration, and foreign policy. Where regulatory pluralism limits international cooperation, it weakens international institutions and free trade (Moravcsik 1997, 527). Strong international institutions and open borders fare core elements of the LIO (Mearsheimer 2019, 10, 21–26).
2. The Liberal International Order (LIO)
For Mearsheimer, the International Liberal Order was born in 1990 with the collapse of the Soviet Union and the shift from bipolarity to unipolarity (Mearsheimer 2019, 7–8). He suggests that an ideological order like a liberal or a communist is only possible during unipolarity when the hegemon, here the U.S., is also liberal (Mearsheimer 2019, 13–15). The former U.S. led “thick Western order” was a realistic bounded order and functioned as the grounding of the LIO (Mearsheimer 2019, 21). Essential bricks for the LIO are international key institutions, a substantial amount of further liberal democratic states, security cooperation and an open global market economy. The LIO aims to spread democracy, strengthen international dependencies and strong international institutions. The proselytizing is motivated by the idea of “democratic peace”, human equality and wealth for all (Mearsheimer 2019, 13–15). The institutions of the LIO are the World Bank, the International Monetary Fund, the Organization for Economic Co-operation, and Development (OECD). Agreements like the North American Free Trade Agreement (NAFTA), the Nuclear Non-Proliferation Treaty (NPT), or the Paris Agreement are another pillar of the order. The European Union is an important regional multifaceted institution in the LIO (Mearsheimer 2019, 21–26). NATO is not that easy to subsume under the LIO because only thirty states are allied without the big powers Russia and China. Also, many continents are not represented. Mearsheimer has a noteworthy point of view, as he sees the expansion of the NATO as an example of the U.S. and its allies to turn the former bounded order into a liberal international order. The NATO should become a global “security community” which is able to integrate the former members of the Warsaw Pact including Russia (Mearsheimer 2019, 23).
During the 1990s many former Soviet states were included in the LIO and Russia was a disarrayed power. During this time there was a strong belief to integrate troubled countries outside of Eurasia into the new order (Mearsheimer 2019, 27). But the interventions in domestic politics of the so-called "troubled" states lead to resistance. The U.S. underestimated the power of nationalism and the belief in sovereignty and self-determination. A current view of Africa and the Middle East shows a disaster (Mearsheimer 2019, 28). Many former authoritarian states are now failed states and battlegrounds (Mearsheimer 2019, 49–50). But the order is not only threatened from the outside. Economic problems inside the order lead to financial crisis and the loss of faith in liberal democracy (Mearsheimer 2019, 38–42). In the aftermath of the global financial crisis of 2008, parties of the whole political right spectrum doubled their vote in many heartlands of the LIO including France, the UK, Sweden, Finland, the Netherlands, Portugal, and Japan. On a whole, the far-right vote tripled between 2004 and 2014 and two-party systems that were stable for decades were swept away (Funke et al. 2015, 15–16). Liberal democracy is, as mentioned above, the key pillar, the ideology on which the LIO settles (Mearsheimer 2019, 13–15).
3. Why inequality matters
In the first generations after WW2, it was attractive to be inside the western bounded order. Because it meant to be in a political and economic space where societies could prosper and be protected. This went hand in hand with economic security, stable employment and advancing living standards (Ikenberry 2018, 20). After the Cold War, the western-bounded order lost its identity as a western security community and became what Ikenberry, in opposite to Mearsheimer calls a “far-flung platform for trade, exchange and multilateral cooperation” (Ikenberry 2018, 20). The expansion in the number and variety of states: post-soviets, post-colonial, authoritarian states, new states etc. with weak new institutions like the World Trade Organization became the seeds of the different financial crises in the last decades (Ikenberry 2018, 20). For Ikenberry, liberal internationalism became a neo-liberalism framework for international capitalist transactions. “The connection between progressivism at home and liberal internationalism abroad has been broken” (Ikenberry 2018, 21). Neo-liberal means the reduction of liberalism to a commitment to capital and markets (Ikenberry 2018, 23). In this conclusion, Mearsheimer and Ikenberry agree.
What Ikenberry drafted above as progressivism, the economists Heise and Khan summarize under the welfare state. For them, the environment which made a welfare state possible was created by WW2. The warfare fostered societal solidarity, which included a commitment to accept high levels of taxation and income redistribution. The emergence of the Soviet Union as a counterpart to the liberal system made appeasement of the ruling elite and the working class more attractive. But social policies and social provisions are much older than the relatively new invention of the welfare state. The “poor law act” can be set as the beginning of social policies in the UK. The motivation behind all social policies was to stabilize an otherwise unstable society. They have been conceded by the ruling elite in their interest to appease the people and to integrate them into the power structure. This avoids the overrepresentation of some interests and stable the liberal system (Moravcsik 1997, 518). The common welfare state is more than the extension and development of social policies. Rather it is the summation and institutionalization of all such policies designed to provide and to finance social public goods, to collectively interfere in the free market transactions of individual agents to change market outcomes, and to democratize economic relations. The welfare state insured individual risks like sickness, unemployment, old age, and poverty through taxes and social contributions. Its institutionalized employment regimes covering labour markets, collective bargaining, worker participation systems, and macroeconomic policies designed to maintain high levels of employment. The welfare state shifted the power struggle from the streets into the parliament - from a social to a political conflict. The higher the power resources of strong labour movements with strong trade unions and with leftist political parties are, the better endowed and re-distributive the welfare state will be (Heise and Khan 2018, 224). The role model for this is Sweden with 31 years of left government until 1980 and the highest social expenditure with 24.85% of GDP in 1980. The welfare state was not the ideological weapon of “staunch fighters of the underprivileged” it was the idea of liberal economists like John Maynard Keynes and William Beveridge and intended to serve business interests (Heise and Khan 2018, 221–226). Heise and Khan mentioned that the endowment of the welfare state is a political decision, which is pushed by the power of individuals and social groups and translated into social policies by the domestic government. “Equality” and “justice” are criteria for liberal democracies but not for economic relations. The economy has to be weaved into the democratic system because economic relations are unequal “and need to be tamed by market regulations” (Heise and Khan 2018, 227–228). A relatively inegalitarian distribution of property would lead to the suboptimal point of overrepresenting some interests in the political system (Moravcsik 1997, 518).
1 The Liberal International Order (LIO) is an ideologic, unipolar international order led by the United States since the collapse of the Soviet Union. More in Chapter 2.
2 The liberal theory is often criticized to be more an ideology as a theory because it rests on the existence of a liberal society which is based on western culture (Parmar 2018, p. 154 and Dunne 2019).