“Globalization has acquired a bitter aftertaste”

Professor James, are we living in a more stable or more unstable world than twenty or thirty years ago?

Howard James: Since 2008 the world has become much more unstable than it was in the late 20th century. Historically speaking, it has often been the case that major financial crises had a destabilizing impact on politics and international relations, as the last one has had.

Where is that discernible?

There are so many indications! Emerging markets, which were growing quickly until recently, are having problems; examples include China and, to a greater extent, Brazil and Turkey. In industrialized countries, there are now many governments that are no longer able to explain their policies and win majority support for them. Brexit is a good example. Why did the British vote for it? It was partially a protest against the European Union, of course, but it was also a protest against a government that was incapable of providing a convincing explanation as to why globalization and migration are basically good for the British economy.

You see rising skepticism toward migration as an indication that broad swaths of the population have had enough of globalization?

Definitely. By the way, that is also a constant throughout history. Since Aristotle's time, we have seen resentment against products, influence and people who come from afar. The American Revolution in the 18th century started with the Boston Tea Party, a protest against the import of luxury goods from India and Great Britain by the East India Company. And during the period between the world wars in the early 20th century, there was a kind of wave of anti-globalization that targeted foreign products.

What is different today?

It's not so clearly about opposition to foreign products anymore; people are used to cheap T-shirts and Asian electronics and wouldn't want to go without them. Protest today is aimed more at cash flows, at banks, especially foreign banks, and at foreign creditors and lenders. It expresses itself in vague fears, for example fear of genetic engineering – and most especially fear of migration. This is often in areas where migration is not a problem at all, like in Mecklenburg-West Pomerania, Poland or Slovakia, where there are no large waves of migration.

What is at the bottom of this rejection of foreigners? A lower standard of living, higher unemployment?

I don't believe that it has to do with a lower standard of living. It is more the result of a changed environment. People's expectations of stability are frustrated.

How so?

During the second half of the 20th century, that unique period of economic prosperity, people could assume that they would work for just one employer. That has changed completely. Only those of us in academia still enjoy that luxury. Everyone else must adapt to changing jobs more frequently. This loss of security, this not knowing what the future will bring, has a very destabilizing effect. Globalization has acquired a bitter aftertaste.

Could it possibly be reversed?

Yes, quite clearly, we know that from history. The wheel of globalization has already been turned back from time to time – and today there is a lot of pull in that direction. Globalization is in much greater danger today than it was in the second half of the 20th century and the beginning of the 21st century.

You come to the conclusion in your work that many eras of globalization collapsed in the end due to military conflict. Do you see that risk today as well?

Unfortunately, yes. People tend to forget that the period from 1949 to the fall of the Berlin Wall was relatively stable, that war is an absolute disaster. 

The Cold War as a time of stability? You'll have to explain that.

During the Cold War, people knew quite clearly that the use of nuclear weapons would have devastating consequences. A Soviet missile strike on Frankfurt or Paris would have led immediately to a counter-strike. The great powers knew that they would be bombing their way to the end of civilization. Today there are many more smaller conflicts where the combatants have already said that the use of tactical nuclear weapons is no longer absolutely taboo. It's no longer possible to assess exactly whether that would elicit a reaction. That makes their deployment easier. That is a huge source of instability. We live in dangerous times.

Where do you see the unstable regions that could threaten escalation?

You can't reduce it to a single area. There is an arc of conflict that stretches from the South China Sea through Central Asia to the Middle East and North Africa. It's like a tectonic stress field.

Which era would you be most likely to compare to our current time?

I see many parallels to the time before the First World War. In 1914 many people assumed, by the way, that the world was so closely interconnected – by trade or by new means of communication – that a war was no longer conceivable. Many people thought at the time that it would only be a short, not very destructive war.

History does not have to repeat itself.

Of course, history never repeats itself exactly. But there are these general tendencies: an era of greater insulation and retreat follows an epoch of greater international cooperation and connectivity.

But humanity has developed since then.

Technologies develop, humanity does not.

Humanity's civilizing and economic progress doesn't count?

I see no signs whatsoever that people have become better, more intelligent or more peaceful. There's that famous book by evolutionary psychologist Steven Pinker, "The Better Angels of Our Nature," which argues that humanity has generally become more peaceful. Unfortunately, I do not share that opinion. There are sources of conflict that are inherent in human nature. Aristotle would be able to describe our current world just as well as a 21st-century philosopher.

What comes after globalization?

There will be a trend toward states becoming more insular, toward more self-contained economies, toward a society that is more restrictive when it comes to migration, the exchange of goods and capital flows. The call for a strong man will only grow louder. And there are historical precedents for this. Italian and German fascism, and Stalinism were also anti-globalization models. On a completely different, much less radical level, we can already observe such autocratic tendencies again today in Russia, in Turkey, in Eastern Europe. These tendencies are drawing more and more followers in Western Europe.

Isn't that paradoxical? We always assumed that the globalization of the last thirty or forty years would lead to more prosperity and less poverty in the world.

That is correct. Poverty has been greatly reduced in many countries, which is one of the major achievements of globalization. But as I already said, at the same time globalization has also increased instability and uncertainty. 

Particularly smaller states like Switzerland, Luxembourg or Singapore have profited from globalization. This anti-globalization trend, these tendencies to retreat: What do they mean for these successful, well-to-do small states?

You bring up an important point. You could truly call those small states the winners of globalization. In addition to those you mentioned, they also include New Zealand, Ireland and for a time, even Lebanon and Kuwait. People tend to forget that the latter two countries were also stable and successful, until they fell victim to their dangerous surroundings.

Paraphrasing Schiller, even the most industrious cannot live in prosperity when their surroundings take a turn for the worse.

That is currently a real risk facing Singapore and Switzerland. It would be foolish to believe that Switzerland could be unaffected by a more unstable Europe. When collapse and radicalization are occurring beyond your borders, there will of course be blowback in Switzerland too. But can I return briefly to your previous question about the winners of globalization?

Please.

If you had asked me during the 1990s who would profit most from globalization, I would have said the small states that are particularly dependent on international exchange. Since the terrorist attacks of September 11, 2001, and even more so since the financial crisis of 2008, however, we have observed a new version of globalization, one that is bound up with political and military power. Today it's more China and the US that appear to be the winners of globalization.

You know Switzerland well. It is extremely stable politically and economically, as well as socially successful. What do you, as an economic historian, see as the reasons for that?

It's interesting that there are several forces at work in Switzerland that are in principle centrifugal: multi-lingualism, the city/country divide, religious differences – the minor civil war in the 19th century, the Sonderbund War, that was also a religious conflict. How did Switzerland get a grip on these centrifugal forces? With good institutions. With political responsibility. With representative government on all political levels: municipal, cantonal, national. Democracy in Switzerland developed in a more stable direction than in most other European countries.

In what way?

In Europe outside of Switzerland, people had been long accustomed to changing from center right to center left and back again. When they were not satisfied with the government, they simply voted for the other party. The parties of the center became more and more alike. In Germany, for example, there are almost no differences anymore between the SPD and the CDU. So voters are turning to more radical options at both ends of the political spectrum.

What do anti-globalization tendencies mean for the future of Switzerland as a financial center?

The country's extraordinary political stability is surely positive, along with the traditional stability of the Swiss franc. For generations now, it has been one of the most solid currencies in the world. The greater the fear of a big collapse, the more that Russian, Chinese and citizens of other countries want to put their money in safe countries like Switzerland. It will not be easy for Switzerland as a financial center, however. With every previous wave of anti-globalization, capital flows were nationalized as much as possible so that the citizens couldn't take their money to another country.

Are these low interest rates a historical rarity?

There have been real negative interest rates fairly often in the last sixty, seventy years. In the 1970s, for instance, after the oil crisis, nominal interest rates were rather high. But inflation rates were so high that in many countries, real interest rates were negative. Negative nominal interest rates, however, like we have today in Europe and Japan, are unique. Only Switzerland imposed them once, in 1978. That of course unleashes great fear. 

How do we get out of this situation now?

It won't be easy. With each attempt by the US central bank to increase interest rates, you very quickly see the negative effects on emerging countries. It's like taking a powerful medicine and being unable to stop because you've become addicted; the consequences of stopping would be painful and unbearable. Low interest rates are also a debt trap for governments. They make themselves increasingly vulnerable if or when an end comes.

What do you think leaders will try in order to kick this "addiction"?

Perhaps the 1950s and 1960s can be taken as a guide. It was a very successful time economically, although the capital markets were very insular. It might seem attractive to introduce strict capital controls on a global level in order to stabilize the international market. That would make it much easier to service each country's own public expenditures and debts within the national context.

Do you regard that as probable?

There is a certain logic to it. And there are few alternatives.

Is that an ominous scenario?

Certainly. It would further reverse globalization and continue to dissolve international cooperation.

In your research, you conclude that in times of crisis, family-owned companies have a stabilizing impact. Can you expand on that?

I started by asking why family capitalism developed so much more fully in Continental Europe than in Great Britain or the US in the 18th and 19th centuries. I attributed that to prolonged political instability in Europe. If you cannot trust the state, who do you trust? Your relatives. It is a good solution for certain services and industrial products that are based on longevity and sustainability.

In your book "Family Capitalism" you show that women played an enormously important role in the economy during that period.

Many European industrial enterprises were directed by women at that time. The French and German iron industries would have been inconceivable without them.

How did that happen?

They were almost all widows who took over the family enterprise after the death of their husbands and managed them very successfully. In Germany, for example, Therese Krupp or Aletta Haniel; in France, Joséphine de Fischer de Dicourt of the De-Wendel dynasty and of course Barbe-Nicole Clicquot-Ponsardin, whose Veuve Clicquot champagne is still worldfamous today. The women guaranteed continuity across generations. During times of crisis, these "DNA chains," as I call them, held not only those family companies together, but the capitalist economic system itself.

Women did not play such a significant role in those companies later. What happened?

The corporation. The corporation, by the middle/end of the 19th century, provided an institution that could legally ensure a company's continuity. Women weren't needed any longer. They were virtually excluded from what became a man's world.

You have a gloomy view of the world situation. Do you see any positive elements?

I see hope, for example, in the medical field. Radical innovations are possible there. There is already talk of the possibility of effectively fighting Alzheimer's. That would be an enormous breakthrough.

_{The interview was conducted on September 5, 2016.}