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Amid geoeconomic disruption and geopolitical competition, the alternatives are stark: democratic socialism or barbarism.

The return of great-power competition is shaking the international order. Geoeconomic disruptions transform the world economy. This creates risks and opportunities for social democracy.

Asia benefits from China’s economic dynamism. China invests heavily in connectivity and supply chains in the region. At the same time, its neighbours hope to benefit from the ‘China plus one’ diversification strategies of western powers and their regional allies. If managed correctly, geopolitical competition can be good for development.

There is a risk, however, that geoeconomic disruptions could make the ‘flying geese’ development model obsolete. Over the past half century, consecutive waves of developing countries have leveraged their comparative advantage of cheap labour to attract foreign investment, boosted exports to generate high growth and integrated into global supply chains to catch up on industrialisation. But robots and algorithms are undercutting the comparative advantage of low wages in emerging economies.

Moreover, to prevent supply-chain disruptions, as experienced during the pandemic, companies have begun to foster resilience through ‘near-shoring’ production facilities closer to their home markets. Accelerated digital automation will even allow them to ‘reshore’ to high-wage industrialised heartlands.

Finally, nervousness over geopolitical vulnerabilities drives ‘friend-shoring’ to like-minded countries: those which have chosen ‘the right side’ of geopolitical competition stand to benefit from investment flows, while those on ‘the wrong side’ may find themselves cut out of global supply chains. Similarly, politicisation of market access—those who follow national guidance can come in; others are out—threatens to throttle export engines.

Correspondingly, the geopolitically motivated weaponisation of technology transfer hampers catch-up industrialisation. If the strategic competition between China and the United States escalates further, countries and companies may have to choose between this market or the other, this infrastructure or the other, this technology sphere or the other. At the end, polarised blocs could once again emerge, imposing immense opportunity costs on development and prosperity for all.

Communalist politics

Some of these geoeconomic risks can be hedged against through shrewd balancing, while short-term growth bumps can be overcome by intelligent adaptation of the development model. In the medium term, however, in many developing countries the economic engine is likely to stutter, with significant economic, social and political consequences.

Just how vulnerable developing countries are to economic disruptions and sluggish growth has been shown by the downturn caused by the pandemic and the war in Ukraine. The devastation of livelihoods has pushed millions back into poverty. When the economic pie is shrinking, social groups turn on each other to defend their share and the political logic shifts from win-win to zero-sum.

If ‘us’ versus ‘them’ is the only game in town, the ground is fertile for right-wing, communalist politics. Framing ‘the other’ as the bogeyman, nativists can secure their grip on power against democratic competitors, opening the door for authoritarian, ‘strong man’ politics. Inflaming economic and cultural conflicts between groups constituted in terms of identity can easily slip into intercommunal violence.

As plenty of evidence from Asia shows, ethnic tribunes do not even shy away from pogroms against members of minorities if this advances their electoral and wider political fortunes. In multi-ethnic, multi-religious societies, communalism can trigger secessionist movements threatening to rip the country apart. The associated violence then allows the autocrats to securitise politics and finalise their capture of the state.

For the identitarian left, this should be a warning: if cultural differences between groups so constructed dominate the conversation, those who have the ability to mobilise the majority will prevail, with devastating effects on vulnerable minorities and often fatal consequences for democracy. When politics follows a tribal logic, the right always wins.

Democratic universalism

To prevent such a slide into authoritarian communalism in fragile democracies, social democrats need to stick uncompromisingly to democratic universalism. Contrary to the identitarian-left approach of securing privileges for one’s tribe, democratic universalism means fighting for equal rights for all.

In the place of communal pandering to base instincts, social democracy must appeal to the common humanity of all. Instead of the politics of division and strife, it needs to foster social cohesion and solidarity. In contrast to nativist nationalism, a progressive patriotism allows for a positive allegiance to a social democracy that gives equal opportunities and capabilities to all of its citizens to thrive and prosper.

To avoid economic distortions, development models need to be adapted to rapidly shifting global and regional opportunity structures. This is as much an intellectual as a political challenge. As all change inevitably creates winners and losers, those who benefit from the status quo can be expected to resist a shift in the development path.

Here social democracy needs to stay clear of the transformation trap. Avant-garde, ‘move fast and break things’ approaches have proved fatal. Rather than delivering disruptive change, ‘radical wing activism’ tends merely to alienate allies and agitate deniers, leading at best to political stalemate—at worst inviting right-wing backlash or authoritarian backsliding.

Social democracy needs to broker the social compromises required to build a broad, cross-milieu alliance for structural change. Against the resistance of the status quo alliance, a shift in the development path will only be feasible with the reassurance no one will be left behind. On a material level, this means compensating the losers of change. Culturally, instead of shaming those who have reservations, social democracy needs to display respect for the lifestyles and achievements of all social groups and citizens.

Paradigm shift

Globally, the geopolitical competition between the US and China creates a fundamentally different economic environment. With the return of the primacy of security to economic governance—expressed in the geopolitically motivated return of industrial policy, export and investment controls and trade, technology and currency wars—the era of neoliberal globalisation is over. Both China with its dual-circulation economy and the US with its Inflation Reduction Act have reversed their economic policies.

Decision-makers in Beijing have clearly understood that, given geopolitical headwinds, the workbench of the world has to mitigate its overdependence on exports through greater emphasis on domestic demand. And the US push to bring back industries signals the end of a globalisation driven by offshoring.

How serious this paradigm shift is could be witnessed in the backlash against Huawei’s bid to provide 5G communications infrastructure as well as the pledge of ‘Chip 4’ allies to decouple their semiconductor industries from the Chinese market. In both cases, geopolitically motivated security considerations trumped market logic and the interests of powerful private-sector actors.

On the main battlegrounds of strategic competition, the (security) state is regaining primacy over the market. The world economy no longer follows the logic of cost efficiency but one of resilience and security. Those who wake up too late to this new reality do so at their peril.

Keynesianism is back

After four decades of neoliberal, supply-side economics, the need to shore up aggregate demand—public consumption and investment as well as private consumer demand—is back. This opens the door for a Fordist wage policy, putting money in the pockets of consumers. Labour, for decades exploited as a commodity, can become a strategic asset.

The geopolitical necessity to bring back critical industries and assert control over private technology transfer and investment strengthens the role of the state in economic security. Long relegated to a role of saviour of last resort in the case of financial crisis, Keynesianism—with its emphasis on demand-led growth and counter-cyclical macroeconomic policies—is set to return to centre stage. After the end of neoliberalism, the long-forgotten economic model of social democracy has a fighting chance to become the paradigm for the post-globalisation era.

At this historical juncture, the choice ahead could not be starker. One path, authoritarian communalism, could rip apart the social fabric and lead to the collapse of democracy. The other, democratic universalism, keeps social peace—the political precondition for any bid to shift the development path. Shaping this contempoary ‘great transformation’ is a race against time, because geoeconomic disruptions rapidly corrode the opportunity structures for development.

At the same time, the end of neoliberalism offers a once-in-a-half-century opportunity to return to a demand-led, Keynesian development model. Social democracy must rise to the occasion and seize this moment.

Marc Saxer is head of the Friedrich Ebert Stiftung Office for Regional Co-operation in the Asia Pacific.

This article was originally published on Social Europe.
Views in this article are author’s own and do not necessarily reflect CGS policy.