George Smiley finally gets his man at the end of John le Carré’s Karla trilogy, but is far from jubilant as the Soviet spymaster defects from East to West Berlin. Reminded by a colleague that he has won his cold war battle, Smiley replies: “Did I? Yes. Yes, well, I suppose I did.”
Smiley’s world-weariness was notable by its absence when the west finally claimed victory in the cold war 30 years ago this week. The Berlin Wall was a symbol of oppression. Its demolition was a euphoric moment.
But everything was black and white back then. Freedom had triumphed over tyranny. Washington had defeated Moscow. The market would extend into parts of the world where it had been off limits. The power of a united Germany would be diluted by a new pan-European currency. Victory for a certain set of American-inspired principles meant ideological conflict was at an end. The demolition of the Berlin Wall marked not just the end of history, but the end of geography and the end of politics as well.
That was the theory. But three decades on, Le Carré’s caution appears to be warranted.
Yes, there have been things to welcome. The liberation of eastern Europe is one. The lifting of well over a billion people out of abject poverty is another. New products that have enriched people’s lives, such as smartphones, are a third. The idea that everything about globalisation sucks simply replaces the fallacy that the market can solve everything with the fallacy that markets never work anywhere.
That said, the key assumptions of late 1989 have been found wanting. To the extent that there was a golden age of globalisation, it lasted a mere dozen years, from the raising of the iron curtain to 2001, when China was admitted to the World Trade Organization. During that period, the former Soviet Union was given free-market shock treatment, India dialled back on protectionism, and Beijing put out the welcome mat for western multinationals. It seemed a win-win game: China attacked poverty by moving people from the country into better-paid jobs in the cities; consumers in the west found that imported TVs, clothes and toys became cheaper. What’s more, downward pressure on the cost of living meant interest rates fell as well, making it cheaper to get a mortgage. House prices spiralled, but inflation stayed low.
Cracks eventually started to appear. For workers in the west, the cold war had offered two benefits. First, the existence of a rival to capitalism meant employers and governments had to offer higher wages and more generous welfare systems, or risk a popular backlash. Second, the fact that countries containing more than half the world’s population were off limits to the free market meant there was only limited scope for outsourcing jobs to countries where labour costs were considerably lower.
These restraints were removed in the 1990s, with predictable results. A more aggressive approach was taken towards welfare, manufacturing jobs migrated from west to east, and any remaining controls on the movement of capital were removed.
The 1990s saw the unlearning of the lessons of the 1930s, namely that uncaged finance was a dangerous beast, and that it was a good idea if workers could afford to buy the goods and services they were producing without sinking into debt. After a series of localised scares, the global financial system imploded in 2008. From the deep recession that followed there has been no meaningful recovery.
Clearly, the world in 2019 is not the one envisaged in the heady days of 1989. For a start, it is not unipolar. Russia under Vladimir Putin is a more serious threat than the Soviet Union was in its dog days, under Mikhail Gorbachev. Most of the decline in poverty since 1990 has occurred in China, which operates a form of totalitarian capitalism to rival the free-market US model. Both variants seem to have lost their mojo: US-style capitalism cannot seem to tolerate even modest increases in interest rates; Chinese-style capitalism flounders in the absence of state investment and easy credit. Instead of the rugged free market, we have zombie capitalism.
A decade of flatlining living standards has made voters far more questioning about the societies they live in. When they hear politicians say that globalisation is an irresistible force that cannot be reversed, they ask: why? When they are told that artificial intelligence will revolutionise the world of work, they ask: for whose benefit? Those who took the sledgehammers to the Berlin Wall believed that the future would be better than the past, and for them it was. There are plenty of people in developing countries – especially in Asia – who think the same way today. But in the west, faith in progress is far less evident than it was before 2008.
The upshot of all this is that free-market capitalism again faces an ideological challenge, and one that was not envisaged 30 years ago. The cold war was won because western capitalism proved better than communism at delivering goods for consumers. The events of 30 years ago created an ideological vacuum that is being filled not by Chinese-style capitalism but by environmentalism, a creed that does not accept the basic “more is better” tenet of capitalism. On the contrary, it says that adherence to this belief is killing the planet. Which is why it poses more of a threat than the real Karlas ever did.
• Larry Elliott is a Guardian columnist
