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61 54 48 Manufacturing 53 47 34 Satisfaction about the state of the country 40 38 26 Export destination 35 33 26 Foreign lending 61 82 39 Foreign direct investment 73 71 51 Military spending 68 65 50

The weakening of the West

      In the 1990s, the West represented 60 percent of the world’s economic production and 50 percent of its manufacturing, with around 13 percent of the world’s population (see table 1.1). In the subsequent decades, that dominance diminished. It coincided with a decrease of public satisfaction with the state of the country (US only) and of trust in politics.

      Economic weakening has important external consequences. The smaller a country’s share in the world economy, the more difficult it becomes to wield influence, because partner countries find alternative customers for their exports, alternative lenders, and alternative investors. In the last decade, table 1.1 shows, an average country still had around 26 percent of exports bound for the West, 39 percent of its loans coming from the West, and 51 percent of its foreign investment. The West remained a crucial economic partner. But its position was clearly eroded. This was also true for its military power. The global preponderance enjoyed in the years after the Cold War drew to an end and this relative weakening inevitably empowered other countries as security actors.

Despite economic decline, Western economies were resilient. Trade grew and so did domestic production. But it is clear that economic growth between 2010 and 2019 remained slower than in the previous 20 years (figure 1.2). The resilience of trade, an important element of globalization, did not always coincide with strong production growth. Western countries participated intensively in globalization, but their economies started to grow more slowly. There was also a large gap between globalization and production on the one hand, and the real disposable income of households on the other. The real disposable income is what households can spend, corrected for inflation. If incomes increase, but products and rent become more expensive, the real disposable income increases much more slowly or might even decrease. Particularly the poorest 40 percent suffered. Their real disposable income has had virtually no growth since 2000. Over the 30 years, their real disposable income growth was just 25 percent.

      Figure 1.2 Selected growth indicators for the West (%)

      Note: Figures for EU28 and US. All income figures are inflation-adjusted. The income figures for the bottom 40 concern the unweighted average of real disposable incomes for the US, the UK, France, and Germany.

      Sources: WDI, BEA, SOEP, INSEE.

Western countries experienced a decline of their power and a growing gap between economic growth and purchasing power. The full impact of this weakening was mitigated by growing external debt. The majority of Western countries imported more than they exported. Later, we will discover that these imports primarily concern fuels from Russia and the Gulf States, consumer goods from China, and cars alongside other machines from Germany. If we accumulate the current account deficit throughout the three decades, it amounts to US$14 trillion, five times the size of the economy of the United Kingdom (figure 1.3). The current account includes trade and investment incomes. Germany and the Netherlands were key exceptions with large surpluses. Large, structural deficits can spark painful adjustment crises in the long run. Think of the tale by Jean de La Fontaine, about the ant and the grasshopper. When the cold winter kicks in and the industrious ant is not willing to help, the vulnerability of the grasshopper becomes visible.

      Figure 1.3 The evolution of the net international investment position (US$ bn)

      Note: US and EU countries. Germany and the Netherlands are set apart given their exceptionally large surplus.

      Source: WDI.

The limits of globalization

      The erosion of economic power notwithstanding, the West remained an important consumer market. In the 1990s, a core foreign policy theme was conditional engagement: access to the Western market in exchange for accepting Western rules and values, including free trade, democracy, and the rule of law. Striking, however, was that the countries profiting the most from the age of globalization and the openness of the West were not the democratic countries.

Authoritarian countries, especially China, rapidly expanded their share in Western imports from 15 percent in 1990 to 34 percent in 2012 (figure 1.4). The countries growing their export revenues from the West the most were thus not necessarily free, democratic countries, but often authoritarian countries. Conditional engagement was self-deception.

      Figure 1.4 Share of authoritarian countries in total imports of EU and US (%, EU is extra-EU)

      Note: Coding for authoritarianism based on World Governance Indicators (accountability and rule of law).

      Sources: WGI and UNCTAD.

Figure 1.5 shows that economic openness advanced between 1990 and 2010. Afterwards, its advance slowed significantly and even tapered off. More remarkable is the fact that political openness hardly increased during these 30 years. Of all the countries in the world, at most 46 percent could be defined as free. Of all the people in the world, at most 40 percent lived in a liberal democracy. The peak of democratization was around 2008. Afterwards, not only did economic globalization stagnate, but democracy receded slowly as well. There is thus not much evidence that globalization promoted democracy in the world. Economic openness, if it ever truly existed, did not lead to political openness. Still, this tune was repeated by Western politicians again and again.

While the world was celebrating the high age of globalization, even physical walls returned. Altogether, over 13,000 kilometers of walls and border fences were built between 1990 and 2019 (figure 1.6). By comparison, the Berlin Wall was just 155 kilometers long; the whole Iron Curtain, the fault line between the Soviet Union and the West, was about 6,800 kilometers. Walls have emerged in every region: Europe, Asia, Africa, and the Americas. The idea that commerce would level out borders and

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