EmergingMarkets

Populist attacks on institutions as a reaction to the hyper-globalization

This article explores the discrediting and decommissioning of the institutional foundations of the economy by populist leaders and its impact on economic performance in major emerging market economies (EMEs). One situation that justified these attacks that also attracts public support in recent years is argued to be the devastating effects of the global economic and financial crisis on developing countries (DCs) in general.

By Ibrahim Ozturk 

During the heyday of globalization, since the 1980s, the major emerging market economies (EMEs) not only increased their share of the global gross domestic product (GDP) in terms of purchasing power parity (PPP) but also achieved a remarkable “convergence” (Lee, 2018; Lee, 2013) in terms of per capita GDP to that of the average developed country. Their share increased steadily from 36 percent in 1980 to 58 percent in 2016 (OECD, 2018). However, recent challenges like the Covid-19 pandemic and economic crisis have eroded optimism for the continued convergence. 

Around the world, economic problems are attributed to the excesses of globalization. In a crisis like the Covid-19 pandemic or the 2008 economic crash, citizens of nation states might view their plight as being like a small boat sailing through a rough storm; whatever measures they take on the boat will not save them. These perceptions have helped various populist parties ascend to power or become coalition partners all over the world in the recent years. Although different economic, political, cultural, and security concerns shape populism across the right-left political spectrum, in this article, we will explore populism in selected EMEs without making a right-left distinction. We’ll look at the BRICS (BrazilRussiaIndiaChinaSouth Africa) countries and the MINTA (MexicoIndonesia, Nigeria, TurkeyArgentina) countries, all known as both middle income and populist countries—and all candidates to fall into the “middle income trap” (Kyle & Gultchin, 2018). As the main argument of this article, our sample set shows that populism and institutional erosion coexist, with the former causing the second. 

After summarizing the major repercussions of hyper globalization on developing countries (DCs) and looking at the domestic political reaction to this process, the third section will focus on the attacks made by populists on institutions, including the visible erosion of governance indicators in the sample country groups. The last part summarizes the main conclusions. 

Impact of Globalism on National Economies

The failure of DCs to manage the challenges posed by the rising “multiplex world,” a term recently coined by Acharya (2017), prepared the ground for populism and allowed populist parties to make electoral gains not only in DCs but also in several developed ones. As Rodrik (2018) puts it, to the extent that radical globalization works against ordinary households at the micro-level and violates the independence, autonomy, and sovereignty of nation-states at the macro-level, it fosters feelings against openness, globalization, and also large regional agreements. However, objective and speculative factors in the rising objections should be adequately addressed. 

First, as the Great Recession of 2008-2010 showed, because of their weak institutional governance, democratic check and balances, and excessive dependence on external markets, (particularly in finance), DCs cannot isolate themselves from the contagious effects of an erratic crisis in major capitalist countries. In addition to the ongoing harsh global competition, the economic recession of 2008 and subsequent fiscal crises have led to mass unemployment and distorted income distribution; together, they increased the perception of economic insecurity in DCs. 

Second, there are also perceptions that large companies or international organizations use free trade and unconstrained financial and fiscal agreements to constrain national governments in legislating socially desirable policies against their perceived interests. For instance, austerity programs implemented after 2008 worked against the most fragile segments of society, those living on a low and fixed income. 

Third, new technological shifts of the fourth industrial revolution like automation, robotics, artificial intelligence, cyberspace, big-data, and cloud technology have created downward pressure on the wages of low-skilled workers in non-export and import-competing industries. Capital mobility, which allows businesses and entrepreneurs to move to different countries where factor prices are lower and income and corporate tax are more competitive, creates downward pressure on the wage level of the less skilled labour force and kills local employment capacity. Overall, under excessive globalization and turbulences, income distribution skews in favour of large company owners and highly skilled workers, mainly in the export industries (Li, Hou, & Wu, 2017; WEF, 2017).

Fourth, given these factors, governments in DCs face the challenge of managing the distribution of the cost and benefits of national growth through an appropriate mix of taxes, safety nets, and subsidized public delivery of social services (health, education, low-cost housing) (Gill & Krahas, 2015). For instance, by considering the adverse impact of the pandemic on the poorest segment of society, which could trigger social unrest, the IMF, as the lender of last resort, called on governments to close the income gap between the richest and poorest by taxing wealthy businesspeople and spending more on the poor (The Guardian, April 1, 2021). However, contrary to those expectations, as Krugman (2008) has noted, neither governments nor the “winners” (i.e., entrepreneurs, companies) from free trade compensate the “losers.” The worst is that, as mentioned before, capital mobility or the fear for the so-called “capital flight” would undermine the existing premature efforts for the taxation of wealthy business globally to close existing income gap (Piketty, 2018; Piketty & Goldhammer, 2014). Rather the contrary, as recent experiences under pandemic have shown, the super-rich increased their wealth in many developed and developing countries (Financial Time, May 14, 2021), whereas the most vulnerable segments of the society have received quite unequal and inadequate support. This is because, on the one hand, the capital has various lobbying opportunities to soak up Covid cash; on the other hand, the businessman is “stateless” and therefore triggers the fear of abandoning the country because of more favourable tax privileges and financial supports elsewhere.

DCs have limited capacity to take advantage of the favourable global economic conjuncture and give back their gains before they are consolidated during the crisis. Additionally, they are exposed to the new problems mentioned above. While significant aspects of the negative repercussions are attributable to uncontrolled globalization, national governments are not entirely exempt from responsibility. As a result, the failure of DCs to properly manage globalization causes massive alienation and feelings of abandonment amongst the “silent majority,” preparing the ground for the exaggeration, falsification, and exploitation of problems and, therefore, manipulation of the electorate by populist politicians.

Populism as an Internal Reaction

As Luiz (2016) puts it, intensifying tension between the insiders or winners (the status quo) and the outsiders or losers of globalization determines the course of populism. Mudde (2004, 2007, 2013) and Müller (2016) underline the anti-elitist and anti-globalization characteristics of populist rhetoric. Some authors like Mouffe (2018) and Kaltwasser (2019) interpret populism as a reformist opportunity for democratic correction against the status quo and elites, and therefore, they present it as a member of the democratic club (Canovan,  2005). 

Mouffe supports populism because of its potential contribution to “radical democracy” through the mobilization of excluded sectors of society against the status quo. Following the same line of analysis, Jansen (2011, 82) contends that “a political project is populist when it is a sustained, large-scale project that mobilizes ordinary, marginalized social sectors into publicly visible and contentious political action, while articulating an anti-elite, nationalistic message that valorises ordinary people. It is therefore difficult to imagine democratic politics without populism. The dominance of a predominantly anti-populist logic may reduce politics to an administrative enterprise with over-proportionate input from colleges of experts and technocrats.” 

By looking at empirical data, it is necessary to question the ultimate goals of populists and to analyse where populist policies will go, regardless of their intentions, because of the “built-in mechanisms” they contain. Populism should be judged by its attitude when it consolidates its power and to changes through free and fair elections, rather than its idealistic and romanticized rhetoric before it comes to power and its actions during its initial years of inexperience (Lewis et al., 2019).

Rosanvallon (2006) argues that populism might take the form of a political expression in which the democratic project allows itself to be eliminated by a non-democratic ideology. With its orientation to make democracy less pluralistic (in political rights) and more inclusive (in the realm of social rights), contemporary populism is a fusion of nationalism (with its notion of the unified people) and authoritarianism (with its lack of tolerance for any alternative discourses). This suggests that populism is not just anti-elitist; it is anti-pluralist—and herein lies its profoundly undemocratic character (Weyland, 2020; Mueller, 2015). 

To sum up Norris and Inglehart’s (2019: 445) words, populism is an authoritarian philosophy and style of governance, in which “legitimacy flows from popular sovereignty and vox-populi, superseding minority rights, constitutional checks-and-balances, and decision-making by elected representatives.” Moreover, populists’ “divide and rule” strategy scapegoats marginalized groups, which serves to consolidate the leader’s power, to distract public attention from his failures, or to conceal from the people the nature of his rule or the real causes of economic or social problems (Munro, 2021).  In the context of this paper, populism is accompanied with stereotyping and stigmatizing “enemies of the nation”—other nations, international organizations, capitalists, or minorities. 

What are the effects of populism on economic development? 

The ultimate task in economic development is to achieve an inclusive, productivity-oriented and sustainable growth. Other main objectives include the generation of satisfactory income through employment creation and the prevention of erosion in the overall wage level without sacrificing macroeconomic stability. The question to ask here is, What are the available ideological and economic policy tools at the disposal of populists to manage external conditions and the resulting domestic imbalances properly? What is the capacity of populist governments to ensure sustainable, inclusive, and productive growth vis-a-vis hyper globalization?

Rodrik (2017, 2018) defines economic populism as “anti-establishment orientation, a claim to speak for the people against the elites, opposition to liberal economics and globalization (anti-foreign capital and companies), and often (but not always) an affinity for authoritarian governance.” With a similar approach, several economists who are also interested in economic populism (see Houle & Kenny, 2018; Dornbusch & Edwards, 1991; Kaufman & Stallings, 1991; Sachs, 1989) describe it as an “irresponsible approach” through redistribution of wealth and government spending. One critical issue is the pressure of “short-termism,” which is efforts by populists to meet short-term expectations they create. It is incompatible with the needed time dimension of structural reforms, which are costly initially but fruitful in the long run. The economic policy populists tend to follow is characterized by an initial period of massive spending financed by foreign debt and followed by a second period marked by hyperinflation and the implementation of harsh economic adjustments. 

Moreover, quite understandably, populist leaders focus on redistribution policies to improve the living standards of the so-called “silent and pure majority” against the “comprador bourgeoisie” or “corrupt elite.” However, as Pareto-optimality implies, when there are no effective external and domestic compensation mechanisms to make one better off without making someone else worse-off, populism relies on different bargaining strategies, sometimes even coercive policies, via highly politicized resource transfers across social classes. As will be discussed below, the excessive short-termism of populists also ignores inter-generational accounting principles and does not allow circumstances for the needed consensus and reform coalitions that increase productivity through technological transformation and upgrading human capital—and therefore achieving high-quality growth. 

Taken together, populism has problems with the principles of good governance, such as pluralism, participation, accountability, and transparency for market-based economic development. 

Populism, the Market, and Institutions

In the context of hyper globalization, the motivation of populists to discredit institutions reflects a lopsided view—that these institutions serve the elites, oligarchs, and international interests rather than the citizens. However, this approach does not fully capture the meaning, existence, evolution, and the role of institutions in economic development. As Polanyi (1944), North and Thomas (1973), and North (1997) showed quite succinctly, there is no development without robust institutional design defining the rules of the game. Markets are not God-given, but they are “designed” with the help of institutions. 

As North (1990: 3) contends, “institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence, they structure incentives in human exchange, whether political, social, or economic.” More recently, Rodrik et al. (2004), Acemoglu et al. (2005), and Acemoglu and Robinson (2012) showed that societies with more flaws tend to have much “worse economic institutions” than those that don’t. This takes us to the role of politics in the design of institutors. As Dore (1986) showed in Japan’s economic development, and more recently, as Wen (2016) proposes quite assertively for the Chinese economic transition“market creation” needs political coordination and capacity to set proper priorities and reach a workable compromise among the major stakeholders. 

To start with, by denying institutional check and balances (i.e., the separation of the legislature, executive, and judiciary) and the autonomy of several key institutions such as the central bank, statistical institutes, court of auditors, and competition board, in the name of sovereignty and people’s self-determination via elections, populists take a strong anti-institutional stance. This stems from their belief that unelected national or supranational institutions serve the interests of the corrupt elite, global companies, and developed countries at the expense of the pure people. Reflecting the same position, populists also oppose the oversight of international anchors over their governance. They go further and also discredit science and scientific evidence/findings as untrustful and declare “folk wisdom” as more valuable. 

Such denials of science, professionalism, expertise, and institutions means that populists underestimate the importance of contemporary governance, which strives to bring solutions to conflicts of interest through different institutional designs and innovations that can alleviate problems of collective action and participation. Given the fact that political parties lose importance and elections serve the leader’s authority when populists are in charge, populist opposition to the autonomous institutions in favour of popular sovereignty cannot be easily interpreted as an indication of a “democratic corrective” or a process of “creative destruction” for better outcomes (Peruzzotti, 2017; Edwards, 2010). 

However, autonomous institutions, based on professionalism, expertise, and division of labour, play a crucial role in fulfilling citizens’ collective demands through pre-determined and agreed-upon rules and delegation mechanisms such as free and fair elections (Bezes & Le Lidec, 2016). Several uncertainties that come with the weakening of autonomous institutions, and reliance upon ad-hoc rules, arbitrariness, and irregularity, include the lack of predictability and short-sighted decision-making which result in lower investment, misallocation of resources, and finally, lower growth (Acemoglu et al., 2013; Helpman, 2008; Kartik & Sideras, 2006; Rodrik, 2000 & 2012; Yıldırım & Gökalp, 2016). 

A striking example of this is the attempt to limit central bank autonomy, which, most of the time, results in the loss of price stability as politicians run expansionary macroeconomic policies to fuel short-term growth at the expense of fiscal and monetary discipline (Edwards, S. 2010; Learner, 2019). The suggestion is that the autonomous but accountable and transparent institutions have the most credibility within modern governments—and therefore, governments should avoid interventions in fundamental institutions, such as the judiciary or Central Bank as well data monitoring agencies, like public statistical institutions that are empowered to produce scientific, impartial, and reliable data. 

Table 1 shows how authoritarian populist governments undermine the quality of institutions. It summarizes the broader categories of governance (composed of political participation, rule of law (ROL), stability of democratic institutions, political and social integration, socioeconomic development, monetary and fiscal stability, private property, welfare regime, economic performance, and sustainability) in BRICS and MINTA country groups. Numbers in red highlight an alarming situation and underline an obvious institutional erosion in all these countries, but particularly in Russia, Nigeria, Turkey, and China. 

Considering the high level of arbitrariness and one-man rule in populist governments, rule of law evolves as the most crucial parameter for institutional robustness. Therefore, the ROL criteria given in Table 1 is supported by a further sub-set of measures in Table 2. The World Justice Project (WJP)’s ROL index in 126 countries consists of the following aspects: constraints on government powers, absence of corruption, open government, fundamental rights, order and security, regulatory enforcement, civil justice, and criminal justice. This index shows similar results for upper middle-income countries (UMI) as of 2020. There is no single country over $12,535 per-capita GDP with an average WJP score below 0,50. UMI countries exhibit dramatically lower score in the ROL index and appear to be the most probable candidates to remain stuck in the middle-income trap. 

Conclusion

Populism signifies a significant deviation from institutionalized governance due to its reliance on a leadership cult of the strong man. Populism has developed partly as a reactionary movement to undisciplined globalization and the destructive impacts this has had on national and local economies. Globalization transmits its adverse impacts onto national economies through several linked threads such as trade diversion, unfair import and superior export competition, erosion of employment and income, distortionary patents, and financial instabilities. Additionally, there are perceptions that also foster the rise of populism—specifically that local bourgeois or “self-serving, corrupt elites” have successfully aligned their interests with global capitalism at the expense of the most vulnerable segments of society. For instance, constraints such as austerity or belt-tightening programs caused by the global economic crisis prevented governments from supporting the most fragile members of society. On the contrary, big companies were given priority and were rescued during the crisis, because they were “too big to fail.” Poorer segments of society felt abandoned and alienated. The result has been the rise of chronic income inequality (Pastor & Veronesi, 2020).

Populists instrumentalize these external impacts and domestic reactions to legitimize their distrust in supranational institutions, which urge national governments to further checks and balances and reforms and strengthen local autonomous institutions. Populists also fear that elites can capture autonomous institutions and therefore discredit their role in economic development. 

However, this road leads to low productivity and slow and unstable growth. The divisive rhetoric populists use to seize power causes deep fragmentations across societal fault lines and prevents the formation of national coalitions, which are needed to upgrade the economy through collective action and participation as well as sometimes painful and complicated reforms. Relatedly, the incompatible time dimension in unstable societies also makes politicians highly oriented toward short-term fixes; therefore, long-term structural reforms, with high ex-ante cost but ex-post return, are ignored.

In the absence of institutional checks and balances and reforms and efficiency pursuits, populists give priority to high growth and income redistribution through highly politicized resource transfers. Ignorant of economic efficiency criteria and high growth through expansionary monetary and fiscal policies, populist governments end up with unstable prices, domestic as well as external deficit, and permanent fiscal and financial crises such as currency shocks. 

Populists come to power by exploiting global and national grievances and also offer various favours to voters; the process results in worse economic outcomes, which pushes populist leaders to employ even more “divisive” rhetoric and policies through creating “enemies” both inside and outside the country in an effort to hide their incompetence and legitimize their governance. These findings should negate the optimistic view of populism as a democratic corrective against the status quo. The recent assault of populist regimes on democracy and the market economy shows that they are increasingly distancing themselves from democracy and the market economy to become even more authoritarian.


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China-BRI

Populism and the rise of hybrid governance models: Saving the multilateral cooperation

As compared to the existing top-down and rigid hierarchical governance models, the hybrid governance models (HGMs), which allow loose and minimal institutional structure are in continuous flux, more flexible and adaptable to the external shocks. However, an inherent weakness in that “hybridity” approaches is their equalization of the irregularity, arbitrariness, and uncertainty with “high adaptability,” which invites populism into the discussion. 

By Ibrahim Ozturk

Introducing the Problem

The limited capacity of the current liberal multilateral order (MLO) to properly address challenges such as successive financial crises, worsening income distribution, increasing migration, climate change, environmental degradation, pandemic, and unbalanced trade structure between different countries and regions have stimulated debates that neo-liberal globalization has reached its limits (Mearsheimer, 2019; Rodrik, 2020). These problems have put the existing multilateral organizations, such as the World Trade/Health Organizations, the IMF/WB, the UN, and the EU, which possess the global public good (GPG) characteristics for collaborative solutions, under immense stress. 

On the one hand, excesses of unmanaged globalization have limited nations’ sovereignty, independence, and autonomy. However, global companies have remained immune to proper regulation. Existing mechanisms are not sufficient to motivate them to behave in the benefit of stakeholders. Therefore, mentioned failures have triggered a process of “governance crisis,” populist waves, and the search for alternative governance in the periphery as well as in the centre (Acheria, 2017 & 2018, Subacchi 2020). Increasing number of alternative regional or national cooperation models are emerging with both potentially positive and negative ramifications (Johnston, 2018). As taken together, populism and hybridity increasingly motivate new approaches to the state-economy-market-company relations at the international, regional, national, and even corporate levels (Aiginger, 2020). For instance, different varieties of the “parastatals” are rising recently in the field of state-owned enterprises, sovereign wealth funds (SWFs), and special economic zones (SEZs) (Khanna, 2012).[1]

Under the observation that populist hybrid regimes offer individual, or at best, regional solutions, rather than providing more comprehensive and participatory solutions to existing problems, this article proposes that the MLO should be reformed to make it more participatory, fair and transparent. The view defended here is that the rising hybrid regimes should be effectively amalgamated into the existing MLO to address the underlying reasons that motivated their rise. However, in the absence of a decisive and a benevolent hegemonic leader that requires a “collective leadership” to manage the mentioned “creative destruction” for the upgrading of the rule-based, multilateral liberal statuesque. The recently ratified such comprehensive agreements between Japan and the EU to fill the leadership gap that arose after the withdrawal of the US in the field of global cooperation and even damaging it under Trump’s rule may evolve into a new stage with the return of the Biden government to international cooperation mechanisms after the US elections. 

After discussing the nature of emerging populist-hybrid regimes as well as the characteristics of the needed hybrid governance (HGMs), recent attempt of Japan and the EU will be very briefly mentioned to highlight the importance of collective leadership in strengthening the existing MLO and open the door for their reformation finally.

On Hybrid Regimes and Populism

After the hyper-globalization era of the 1990s, when unfettered free markets dominated, the so-called post-Washington consensus came during the 2000s, this time with more emphasizes on macroprudential regulatory institutions (mainly) in the financial, social, and distributional sectors. Finally, a new phase of global (dis)order is emerging, called the age of hybrid norms and fragmented governance. By describing it as “multiplex world”, Acharya (2017: p.7) goes on to identify it as follows: “… [It refers] broadly to formal and informal interactions among states and other actors, at global and regional levels, based on common principles and institutions that are not dominated by a single power or group of powers. Instead, leadership is diffuse and shared among actors that are not bound into a hierarchical relationship linked to differential material capabilities.” 

Given these approaches, hybridity represents the absence of a dominant and coherent paradigm advocated by a coherent core. Rather the contrary, competing norms coexist and challenge one another. As Jessop (2013: p.8) underlines, “governance models and structures are characterized by different and changing degrees of hegemony and hierarchy, overlapping spheres of influence, national components and transnational influences, interdependences and pockets of self-containment, embryonic and dying regions, marginal spheres and areas of confrontation.” In such a conjuncture, the rise of pluralistic and diversified governance structures is necessary and unavoidable. As viewed from this perspective, the clash of norms opens up new opportunities for more pluralistic patterns of globalization such as hybrid governance models (HGMs) and carves out precious space for emerging countries (Menard, 2004, 2010)

EU Commission President Ursula von der Leyen and EU Council President Charles Michel hold a news conference after a summit with China’s President Xi Jinping, in Brussels, Belgium on September 14, 2020. Photo: Alexandros Michailidis

However, this outlook calls for different institutional responses to cooperation strategies to reflect the proliferation of transnational challenges, the diffusion of new ideas, and the expansion of actors and processes envision. As compared to the existing top-down and rigid hierarchical governance models (i.e., the EU or former Soviet models), the HGMs, which allow loose and minimal institutional structure are in continuous flux, more flexible and adaptable to the external shocks. However, an inherent weakness in that “hybridity” approaches is their equalization of the irregularity, arbitrariness, and uncertainty with “high adaptability,” which invites populism into the discussionIn the given context, it might be fair to define HGMs as populist regimes because of their divisive rhetoric of “we” and “others” and the way they criticise the global order. Both of them strongly express their emphasis on independence, autonomy and national interests. The HGMs seek to legitimize their underlying ideology through “the West versus the rest” rhetoric, and accordingly, they criticize the global establishment as serving predominantly in the interests of developed countries.

Notwithstanding, such legitimate criticisms of the MLO give a pseudo message that both HGMs and their populist ideologies can serve as a “democratic corrective” to the statuesque. On the contrary, again on a pretty legitimate ground, populist rhetoric of the HGMs can be seen as demagogy in a post-truth world towards consolidating the power of the “one-man rule” inside and authoritarian regimes outside through appealing to and claiming to embody the will of the people, nations, and therefore sustaining several authoritarian tendencies (Weyland, 2021). The gist of the point is that in the context of governance, the long-term issue concerns its sustainability. In contrast to the predictable, transparent, accountable, and rule-based institutionalized governance, the so-called HGMs open the door to a heavy populism, which generally attributes domestic problems to the “external enemies” or “imperialists” for the sake of self-legitimation (Öniş & Kutlay, 2020). Conditional upon the political needs and priorities, that antagonism can be easily and pragmatically extended other areas of international fragmentation, such as trade wars and economic protectionism.

A brief reference to China’s state capitalism and its implications on the dissemination of the Belt and Road Initiative (BRI) can help to understand the inherent populism tendencies involved in HGMs. China has so far adopted a more selective approach to globalization in line with its underlying model of authoritarian capitalism. Overall, reflecting the opportunism and pragmatism of China, three dimensions of its political economy can be linked to the HGMs, as argued in this paper. 

First, outside, China demands and requests for a greater say in the existing international institutions through modestly reforming the basic institutions of the MLO, such as World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) to better reflect China’s increased economic power and status had encountered rejection and resistance by the US since 2010 until the related reform package passed in 2015. While the vested interest was hindering the long overdue reforms, China’s push for a regional institutions such and the BRI and The Asian Infrastructure Investment Bank (AIIB), within which it would be dominant or at least have considerable impact was a reflection of Beijing’s frustration over the Western, especially American, dominance of the existing international multilateral bodies. In that context, reflecting both the emerging global conjuncture and his personality, Xi Jinping’s thought or doctrine has shaped China’s development and global engagement for decades to come, and perhaps longer.

Second, inside, China builds an authoritarian regime under rigid control of the Communist Party, which is facilitated by increasing digitalization of the governance processes. Among other things, it legitimizes several unfair trade practices, which are inconsistent with free and fair trade, including tariffs, quotas, currency manipulation, forced technology transfer, intellectual property theft, and distortionary industrial subsidies to the SEEs. Both the US and the EU have declared that these policies have built Beijing’s manufacturing base, at the expense of its competitors. 

Third, the BRI, which evolves at the interface of China’s state capitalism and the liberal world economy, represents a modern form of old-historical tributary realm of influence, with the ultimate objective of expanding China’s influence. In other words, China invents the BRI as a “Chinese way of rule breaking, second stage towards hegemony before the final stage. President Xi states that: “We should not be a bystander or a follower, but an active participant and leader. We need to let more of China’s voices be heard and more Chinese elements to be noted in the process of making international rules, to maintain and expand China’s interests in pursuing development…in the future, the Chinese nation will forge ahead like a gigantic ship breaking through strong winds and heavy waves.”[3]

Notwithstanding, as compared to what other great powers (the UK, the US) did throughout the 19th and the early 20th centuries, when they were hegemonic powers, Chinese way might be more peaceful way of expanding her realm of influence by providing some kind of regional public goods such as infrastructures, security alliances, financial networks and so forth. Since 1980s, when Deng Xiaoping initiated China’s gradual reform and opening era, state economic enterprises’ (SEZ) governance model has been closely supervised and gradually evolved through a “trial-error” and “learning by doing” process. That experience has partly shaped China’s state capitalism both inside and outside. Reflecting all these experiences, through the BRI, China’s expands its foreign economic policies and external reach. It is disseminated by the Chinese leadership as a model Chinese way of cooperation in doing business (Grimmel & Li, 2018).

Recent observations on the functioning of the BRI in infrastructure development across Eurasia and Africa since 2014 show that China’s insistence on an institution-less and contingency model of governance has created many problems. As BRI’s fragmented, multi-centric, multi-layered, and multi-pivotal sub-networks of interconnected and interwoven regional and international contact and diplomacy have not allowed the third parties’ participation with the credibility and experience of international best practices to oblige and engage Chinese companies in a rule-based, win-win game. Therefore, it has failed to fulfil a needed GPG for practical cooperation in bringing solutions to the global infrastructure gap. It neither performs an ex-ante rule-based contracting, for instance, at the stages of tendering, funding, construction, and operation nor an ex-post performance based-analysis to accurately measure the cost-benefits of the services it provides. 

It seems that the current harsh competition between the Western paradigm of governance, which supports rule-based, structured, and centralized cooperation, and the Asian (and increasingly Chinese) models that promote flexible and non-structured contingency models would determine the future course of the expected forms of governance.

Japan’s Prime minister Shinzo Abe is welcomed by former EU Council President Donald Tusk and former EU Commission President Jean-Claude Juncker at the EU Japan leader’s summit meeting in Brussels on July 6, 2017. Photo: Alexandros Michailidis

The EU-Japan’s Cooperation: Balancing Hybrid Governance

China’s efforts to export its systemic aspects through BRI with the mentioned institutional loopholes and implementations have triggered dangerous retaliatory acts from the US, increasing requests from the EU for further reciprocity wide range of economic activities and opposing waves in many developing countries. The BRI case shows that recently evolving HGMs need some transferable institutional lessons from the Western experience of public good provision. 

In an environment of fragility created by the US’s withdrawal from multilateral cooperation mechanisms in the Trump administration and China’s efforts to expand its disproportionate and unilateral sphere of influence to fill this gap, cooperation between countries with a shared vision, such as Japan and the EU, is critical in providing the leadership required for the production of Global Public Goods (GPGs). After long years of passive position, both Japan and the EU have taken a more active initiative through several comprehensive agreements to create new opportunities and somehow balance China in the Asia-Pacific region and other critical geographies.

A recent EU-China policy paper clarifies the position of the EU visa-a-vis China as follows: “In different policy areas, China is simultaneously a cooperation partner, with whom the EU has closely aligned objectives. A negotiating partner with whom the EU needs to find a balance of interests. An economic competitor in the pursuit of technological leadership. Finally, a systemic rival promoting alternative models of governance,” (EU-Commission, 2019).

Under mounting lobbying from the industrialists, Germany also pronounced its “strategic industrial policy” to create “national winners,” and Brussel adopted measures to force China for reciprocity and fair competition. It can be argued that eventually, China reacted positively. After almost eight years, the EU and China have finalized the Comprehensive Agreement on Investment by the end of 2020, which was first proposed in 2012 and have arrived at a common language acceptable to European approaches, norms, and values. That shows, if the EU acts as a unified actor, similar to the US, it has an opportunity to exploit international pressure on China (Berkofsky, 2019).

On the other hand, after the highly ineffective “Silk Road Strategy” announced by the Hashimoto government in Japan in the mid-1990s to fill the gaps that emerged after the collapse of the Soviet Empire (Öztürk, 2006), Japan has recently taken a similar position with the EU. Through the partnership for quality infrastructure, Japan offers collaborative opportunities, fair distribution, and a level playing field for all (Pascha, 2020a, 2020b). These similarities motivated two like-minded soft powers to take joint and decisive steps. To that end, Japan and the EU have signed strategic, economic, and digital agreements with the potential of protecting and promoting free trade, multilateralism, and the rules-based order. They want to develop multilateral international cooperation mechanisms in geographies where China has been quite active through its BRI, not only in Asia but also in the Europe-Balkan region and Africa.

Ongoing efforts for inclusive partnership between the like-minded actors, such as Japan, EU and multilateral organizations (i.e., the World Banka, multinational companies, civil society organizations) would create the required synergy for the needed public goods for cooperation with hybrid characteristics provided they fulfil the following properties (Berkowsky, 2020; Söderbaum, 2015).As Evenett and Baldwin (2020) correctly note, there is an obvious need for alternative ‘interface mechanisms’ (i.e., the BRI) that allows different forms of capitalism to co-prosper. Second, global and regional problems require international consensual compliance between different coalitions in creating alternative and more efficient public goods (Kaul, 2013). Third, as they are still needed with their proved performance after World War II, the MLO should be amended through viable reforms rather than thrown aside. 

To synthesize these three factors, HGMs with GPG characteristics should be more open, transparent, accountable, and inclusive; on the one hand, and also reflect the facts, figures, norms, and civilizational values emerging in the new geo-strategic geographies, on the other. Having possessed these properties, the new HGMs conserve the West’s contributions while allowing the East’s indigenous contributions.

In that context, by considering the risks, uncertainties, complications, and fragilities of the current global power shift from the West to the East (Allison, 2017), the opportunities and threats in creating alternative HGMs through a comparative institutional approach should be sought. In that context, the EU-Japan cooperation mentioned above might offer a “buffer mechanism” to refrain from a dangerous East-West divide by proposing a more balanced and integrated approach to the needed and desired global governance reform (EU Parliament, 2020; Berkowsky, 2020). The rise of that synergy, however, depends on several factors, ranging from the harmony of cultural texture between Asia and Europe to the ongoing regionalization experiences in Europe, which is passing through new challenges, and in Asia, that has reached a new height with the ratification of recent free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP, 2020; EU Parliament, 2021).

Conclusion

This article argues that neither the current MLO nor the new populist and ideological approaches that reflect some aspects of “arbitrariness” and “contingency” under the so-called HGMs that are emerging in many countries is capable of solving participation constraints for international cooperation by addressing main principle-agent problems amongst the major stakeholders. The article believes that the creation of alternative GPGs for effective, inclusive, equitable, and sustainable cooperation through relevant HGMs is possible and needed. Provided that they combine the norms, values, and principles of both the West and the East in cooperation, they can more easily address existing challenges in development-related sustainable infrastructure projects such as transportation, communication, cybersecurity, data flow, energy, and industrial locations. 

Similar to the transformation of the European Coal and Steel Community (ECSC, 1951) into the current EU over time, it can be expected that a new multilateral cooperation mechanism that starts in a relatively narrow area of infrastructure would eventually reach a tipping point to transform into the expected GPG. Considering the lack of required leadership that has resulted in the current global “reform fatigue,” a comprehensive economic, strategic, and cyber agreement between Japan and the EU, two “like-minded” entities, would help to supply some of the needed and expected GPGs in the manner mentioned above.

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[1] Parastatals are wholly or partially publicly owned but often privately managed; they include wealth funds, extractive companies, utilities, administrative and judicial centres, export-processing zones, and urban-development authorities that run—with little or no democratic scrutiny—some of the most significant pools of money and sites of growth.

[2] Known as “Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era.” In Chinese,  习近平新时代中国特色社会主义思想.

[3] On the other hand, despite such an “over-determination” to lead the new stage of global power shift, BRI has not a well-thought and well-prepared architecture. Such developments as global economic crisis, American containment policies, and several domestic economic challenges forced China to announce BRI to stimulate domestic demand and find external export markets in developing countries, mainly, through large-scale overseas (infrastructure) investment. See Jinping, Xi. (2014). A speech at the Collective Learning Session of the Politburo of CPC Central Committee, Dec. 5. The Governance of China. http://english.scio.gov.cn/featured/xigovernance/2018-11/28/content_74217442.htm (accessed on March 12, 2021).