Karl Polanyi against the ‘free market’ dystopia - László Andor (Social Europe)

Karl Polanyi against the ‘free market’ dystopia

László Andor

Social Europe, 23rd April 2024 

https://www.socialeurope.eu/karl-polanyi-against-the-free-market-dystopia

Sixty years on from Polanyi’s death and 80 since his classic text appeared, it is time to reassess the Hungarian social scientist’s legacy.

In April 1944, Karl Polanyi published his magnum opus. He died precisely 20 years later, on April 23rd 1964.

Polanyi might seem an enigmatic figure in the social sciences: he became influential well after his death and his fame is the result of a single book, The Great Transformation, which came to inspire a new generation of intellectuals in the neoliberal era. For a thinker identified with the phrase ‘double movement’, this double anniversary provides an opportunity to reflect on his life and his outstanding contribution to political economy.

A life in three chapters

Polanyi’s life is like a trilogy. The first part is his upbringing, youth and study in Hungary, his developing political consciousness and experience. The second begins with his departure and includes the decades of European emigration, when the rise of fascism is the key issue for politics, economics, society and eventually the fate of the international order. Volume three is his life in the United States, where the ageing Polanyi continues his research in economic history and anthropology while engaging in the intellectual dialogue on the cold war and ‘peaceful coexistence’ with the Soviet Union.

Polanyi grew up in Budapest, speaking German and Hungarian—and very quickly learnt English, French, Latin and Greek as well. As a student, he was influenced by the great Hungarian intellects of the time: Ervin Szabó and Oszkár Jászi. The librarian Szabó was a father figure for Marxists, anarchists and syndicalists, while Jászi was the beacon for progressive liberalism. Polanyi became the first leader of the Galileo Circle, committed to collective learning and activism.

By the time of the war, Polanyi considered himself a liberal socialist, in the footsteps of German thinkers such as Eduard Bernstein and Franz Oppenheimer. In 1919, he left Hungary to receive medical treatment in Austria. Meanwhile, a shortlived Budapest Commune was overthrown and displaced by a ‘white’ counter-revolution, making return impossible. In ‘red’ Vienna, Polanyi and Ilona Duczynska married (in 1923) and he started working as an editor of the prestigious economics journal Der Österreichische Volkswirt (Austrian Economist). He became a critic of the market-fundamentalist ‘Austrian school’ of economics, represented among others by Ludwig von Mises and Friedrich Hayek.

The move from Austria took three years for the whole family, but Polanyi had to leave quickly after the Nazi takeover of Germany (1933). In England he worked as a journalist and a tutor, carrying out extensive research and collecting most of the materials for the book. The move from England to the US was also very complicated, since Ilona was not given a US visa (due to her earlier political activity and independent-minded communist outlook). Eventually, they ended up living in Canada, from where Karl commuted to New York to teach. Columbia and Chicago universities were practically competing for him. Columbia offered more and Polányi found himself in company with the crème de la crème of post-war American sociology: Robert Merton, Seymour Martin Lipset and C Wright Mills.

In the 50s and 60s, Polanyi turned to economic history and anthropology, which produced his book Dahomey and the Slave Trade (published posthumously in 1966). But he also engaged with the key debates of the time: the effects of new technology, industrialisation and modernisation in economic sociology and the cold war in international relations. He worked hard to launch a new journal, Coexistence, with collaborators such as the Cambridge post-Keynesian economist Joan Robinson. He aimed to bring together authors from east and west, deepening mutual understanding and convergence, but a terminal illness prevented him from seeing the blossoming of this project.

Polanyi’s life became inseparable from politics but he always remained a scientist, researcher and professor. From his youth, he was inspired by Hamlet, which also had an influence on his method: he favoured complex analysis, while refusing to imagine himself, in a ‘time out of joint’, as ‘born to set it right’. He handed over his legacy to outstanding students at Columbia: David Landes, Abe Rotstein, Terence Hopkins, Immanuel Wallerstein. And a long list of economic sociologists and post-Keynesian economists were to be influenced by him—starting with Joseph Stiglitz, who wrote the preface for the 2001 edition of The Great Transformation.

The Great Transformation

Through this journey, the two most important companions of Polányi’s life were Ilona and his brother, Michael. Between the communist wife and the liberal brother, Karl was the socialist: close to the British Fabians, appreciating the US New Deal and assuming that European social democracy remained committed to its ‘maximum programme’. Through lively debates with Ilona in the 1920s, his views on the market evolved and became more critical. He discovered the ‘Christian content’ in Marx’s works, and tended to agree that the market economy was embedding class divisions within society. By the time of moving to England, Polanyi already associated markets with chaos and suffering, rather than efficiency and justice.

In The Great Transformation Polanyi did not only elaborate on the fall of laisser-faire and the outbreak of World War I but connected the two as the collapse of 19th-century civilisation. The book was written in Vermont during the second world war. It explains the contradictions of the ‘self-regulating market’ and the ‘gold standard’ currency regime, which he holds responsible for the human tragedies of the last century. The book provides deep economic and social analysis but not a political programme, so—according to Polanyi’s biographer Gareth Dale—it ‘can legitimately be read either as an anticapitalist manifesto or as a social-democratic bedtime story’.

The title that made Polanyi so famous actually came from the publisher. His own provisional title was ‘Origins of the Cataclysm: A Political and Economic Inquiry’. Another possibility was ‘Anatomy of the 19th Century: Political and Economic Origins of the Cataclysm’. Others were ‘The Liberal Utopia: Origins of the Cataclysm’ and, the simplest, ‘Freedom from Economics’. These speak volumes about what the author wanted to express through concepts which have since become famous, particularly the ‘double movement’ of the marketisation drive and the regulatory response.

Coming from central Europe, Polanyi was directly affected by the rise of fascism. He did not however reduce this political degeneration to cultural or intellectual factors but connected it with the failure of economic policy. In The Great Transformation, he highlighted that ‘the victory of fascism was made practically unavoidable by the liberals’ obstruction of any reform involving planning, regulation, or control’. It is one of the most oft-cited sentences of the book—the connection between ‘liberal obstruction’ and rising fascism is not only a question of history. Polanyi appears as immensely prescient about the era of neoliberalism (the ‘Washington consensus’) and perhaps even more visionary as a predictor of various counter-movements.

In his 2001 preface, Stiglitz highlighted that for Polanyi the main target of examination and criticism was the market, and that beyond the market system there was a broader economy and beyond that a broader society. In other words, a really-existing modern economic system is always an amalgam of the market and other mechanisms, including government planning and the social and solidarity economy, and the combination of these (their sizes, strengths and shares) defines what kind of society we live in. Stiglitz is not alone in stressing that the description of the economic system as a hybrid of various mechanisms—irreducible to self-equilibrating market transactions, conceived as akin to barter, as in neoclassical economics—is one of the most important Polanyian insights.

A social-scientific star

Polanyi may have thought that the discredited doctrines of his time about the self-regulating market would never regain their dominance. From the ‘stagflation’ 1970s, however, the increasingly hegemonic neoliberal trend revived many elements of pre-Keynesian economics. After the fall of the Berlin wall the neoliberal revival was globalised, but the sustainability of this was questioned by many.

For all those sceptics, Polanyi represented the social-scientific alternative to the platitudes of Francis Fukuyama, who claimed that ‘free market’ capitalism, allied to liberal democracy, would carry all before it. He now provides a framework for contemporary authors to elaborate on all the different types of systemic malfunction, from finance to climate. The grave consequences of neoliberal globalisation explain why, since the 1990s, The Great Transformation has appeared in many more languages and editions, and why Polanyi has become a star, if not a cult figure, for social scientists outside a privileged mainstream.

The British political scientist Andrew Gamble highlights his relevance this way:

Recent analyses inspired by Polanyi suggest that neo-liberalism can be understood as the first phase of a new double movement, with neo-liberalism emerging initially in the 1970s as a reaction to the excesses of the welfare state and Keynesianism, creating in the 1980s—through the application of its ideas—a new era of free-market dominance. In turn, it is suggested, this will be followed by a reaction to curb the excesses of neo-liberalism and reimpose political controls over the market.

Polanyi’s critique of the gold standard has also appeared highly relevant in the context of the ordoliberal European economic and monetary union. Just as maintaining gold parity at all costs meant inflicting austerity on depression-era Britain, so the requirements of EMU forced Greece into the ‘internal devaluation’ of cuts in real wages and pensions amid the eurozone crisis.

In the contemporary European context, the generation-long half-cycles of the double movement have been replaced by much shorter periods of liberalisation and socialisation. Instead of the long cycles of Anglo-American economic history, we can observe short cycles of a European pas de deux: the establishment of the single market is followed by EU-level labour legislation and cohesion policy, the Stability and Growth Pact is followed by the Lisbon strategy, the eastern enlargement is followed by reviews of the posted-workers directive and the eurozone crisis triggers the adoption of the European Pillar of Social Rights (EPSR).

The balance between liberalisation and socialisation in the European context must be further studied. Most certainly, the EPSR is not a full answer to the failure of the initial model of EMU, which explains why in the recent period a new discussion has begun about the need for a European ‘social union’ that would offer an EU-level safety net for the social-security systems of the member states. Karl Polanyi may not offer a practical guide, but he most certainly provides the intellectual inspiration for this envisaged new transformation.

László Andor 

László Andor is secretary general of the Foundation for European Progressive Studies and a former member of the European Commission.

 

 

The global consequences of the war in Ukraine - Joschka Fischer (Social Europe)

 

The global consequences of the war in Ukraine

JOSCHKA FISCHER

That Russia lacks the means to achieve its neo-imperial vision will not stop it from pursuing it to the bitter end.

Russia’s full-scale invasion of Ukraine on February 24th 2022 changed everything for Ukraine, for Europe and for global politics. The world entered a new era of great-power rivalry in which war could no longer be excluded. Apart from the immediate victims, Russia’s aggression most concerned Europe. A great power seeking to extinguish an independent smaller country by force challenges the core principles upon which the European order of states has organised itself for decades.

The war of Vladimir Putin, the Russian president, stands in stark contrast to the self-dissolution of the Warsaw Pact and the Soviet Union, which occurred in a largely non-violent manner. Since the Mikhail Gorbachev ‘miracle’—when the Soviet Union started pursuing liberalising reforms under him in the 1980s—Europeans had begun to imagine that Immanuel Kant’s vision of perpetual peace on the continent might be possible. It was not.

Historical revision

The problem was that many Russian elites’ interpretation of the globally significant events of the late 1980s could not be more opposed to Kant’s idea. They saw the demise of the great Russian empire (which the Soviets had recreated) as a devastating defeat. Though they had no choice but to accept the humiliation, they told themselves they would do so only temporarily until the balance of power had changed. Then the great historical revision could begin.

Thus, the 2022 attack on Ukraine should be viewed as merely the most ambitious of the revisionist wars Russia has waged since Putin came to power. We can expect many more, especially if Donald Trump returns to the White House and effectively withdraws the United States from the North Atlantic Treaty Organization.

But Putin’s latest war not only changed the rules of coexistence on the European continent; it also changed the global order. By triggering a sweeping remilitarisation of foreign policy, the war has seemingly returned us to a time, deep in the 20th century, when wars of conquest were a staple of the great-power toolkit. Now, as then, might makes right.

Cold war

Even during the decades-long cold war, there was no risk of a ‘new Sarajevo’—the political fuse that detonated the first world war—because the standoff between two nuclear superpowers subordinated all other interests, ideologies and political conflicts. What mattered were the superpowers’ own claims to power and stability within the territories they controlled. The risk of another world war had been replaced by the risk of mutually assured destruction, which functioned as an automatic stabiliser within the bipolar system of the cold war.

Behind Putin’s war on Ukraine is the neo-imperial goal that many Russian elites share: to make Russia great again by reversing the results of the collapse of the Soviet Union. On December 8th 1991, the presidents of Russia, Belarus and Ukraine met in Białowieża National Park and agreed to dissolve the Soviet Union, reducing a ‘superpower’ to a regional (albeit still nuclear-armed) power in the form of the Russian Federation.

No, Putin does not want to revive the communist Soviet Union. Today’s Russian elite knows that the Soviet system could not be sustained. Putin has embraced autocracy, oligarchy and empire to restore Russia’s status as a global power, but he also knows that Russia lacks the economic and technological prerequisites to achieve this on its own.

For its part, Ukraine wants to join the west—meaning the European Union and the transatlantic security community of NATO. Should it succeed, it would probably be lost to Russia for good, and its own embrace of western values would pose a grave danger to Putin’s regime. Ukraine’s modernisation would lead Russians to ask why their political system had consistently failed to achieve similar results. From a ‘Great Russia’ perspective, it would compound the disaster of 1991. That is why the stakes in Ukraine are so high, and why it is so hard to imagine the conflict ending through compromise.

Junior partner

Even in the case of an armistice along the frozen front line, neither Russia nor Ukraine will distance themselves politically from their true war aims. The Kremlin will not give up on the complete conquest and subjugation (if not annexation) of Ukraine, and Ukraine will not abandon its goal of liberating all its territory (including Crimea) and joining the EU and NATO. An armistice thus would be a volatile interim solution involving the defence of a highly dangerous ‘line of control’ on which Ukraine’s freedom and Europe’s security depended.

Since Russia no longer has the economic, military and technological capabilities to compete for the top spot on the world stage, its only option is to become a permanent junior partner to China, implying quasi-voluntary submission under a kind of second Mongol vassalage. Let us not forget: Russia survived two attacks from the west in the 19th and 20th centuries—by Napoleon I and Adolf Hitler, respectively. The only invaders who have conquered it were the Mongols in the winter of 1237-38. Throughout Russia’s history, its vulnerability in the east has had far-reaching consequences.

The main geopolitical divide of the 21st century will centre on the Sino-American rivalry. Though Russia will hold a junior position, it nonetheless will play an important role as a supplier of raw materials and—owing to its dreams of empire—as a permanent security risk. Whether this will be enough to satisfy Russian elites’ self-image is an open question.

Joschka Fischer

Joschka Fischer was Germany’s foreign minister and vice-chancellor from 1998 to 2005 and a leader in the German Green Party for almost 20 years.

Copyright Project Syndicate 2024, ‘The global consequences of the war in Ukraine’

How the war in Ukraine has transformed the EU - Nathalie Tocci (Social Europe)

How the war in Ukraine has transformed the EU

NATHALIE TOCCI 15th November 2023

Russia’s invasion of Ukraine has had a profound effect on the European Union, whose response is defining its trajectory.

Social Europe, Nov 15, 2023 

https://www.socialeurope.eu/how-the-war-in-ukraine-has-transformed-the-eu

During the pandemic, the European Union rediscovered the ‘Jean Monnetian’ art of transforming a crisis into an opportunity for integration. It coupled post-pandemic economic recovery with a repowered European green agenda. But just as Europe and the world were beginning to lift their gaze from the pandemic, Vladimir Putin’s Russia invaded Ukraine.

Since then, the EU has responded politically, economically and in relation to energy. It has not only supplied arms and resources to Ukraine but has also accelerated moves for Ukraine to join the EU. Yet with the conflict now approaching its third year, how is the EU faring?

Political unity

When a crisis hits and European countries are called to address it, the perennial question is whether centripetal or centrifugal forces will prevail. Russia is a particularly polarising issue for the EU. Northern- and eastern-European countries have traditionally pushed for a tougher stance, while western and southern states used to press for co-operation. The tension between these two camps explains why Russia’s annexation of Crimea and military engagement in eastern Ukraine saw the EU take a two-track approach of sanctions and selective engagement.

When the full-scale war began, many feared that divisive forces would eventually gain the upper hand. They may have anticipated a moment of unity at the outset, when the shock of Russia’s invasion and awe at Ukrainian resistance galvanised joint European action, but feared that this would dissipate as the months dragged on and as Europe reeled from the economic, energy and humanitarian costs of war.

These fears have proved to be unfounded as the EU has mustered and maintained a united policy response that is becoming more unified, not less, as the war progresses. EU member states have so far unanimously agreed on 11 packages of sanctions on Russia. And while in the early months of the war, west-European countries—notably France—spoke of the need for negotiations and triggered the ire of north and east Europeans by insisting on the need for Russia not to be humiliated, there are few who now believe this is the right path to take.

Some disagreements have surfaced. Viktor Orbán’s Hungary tried to leverage the country’s veto power to extract both financial concessions and sanction exemptions from the EU. But Orban’s manoeuvrings have broadly failed, with the European Commission using a novel form of economic conditionality linked to the rule of law. Indeed, in December 2022, the commission held back €22 billion in cohesion funds for Hungary until it fulfils conditions related to judicial independence, academic freedom, LGBT+ rights and the asylum system.

Energy and economic resilience

A major reason why Europe has remained united so far is because it has weathered the storm of the energy crisis remarkably well. This averted what could have been a devastating economic recession on the continent.

In late spring 2022, the International Monetary Fund had predicted a contraction of 3-5 per cent in countries such as the Czech Republic, Germany, Hungary, Italy and Slovakia. When the war began, few would have bet on the fact that with Russian gas closed off to Europe, the EU would have survived energetically, and therefore economically and politically.

Putin expected Europe to bend and eventually break over its need for energy, which is precisely why he turned the taps off at the cost of hurting Russia too. As Robert Falkner explains, Europe was partly aided by exogenous factors such as a warm winter and sluggish Chinese growth, but the EU and its member states also put in place a set of key measures. They diversified their gas supplies, they met their targets for the refilling of gas storages and developed a European Energy Platform to aggregate demand for the refilling of storages for the following winter.

They co-ordinated the reduction of gas and electricity demand and met the targets they set themselves. And they accelerated the development of renewables, with these now representing the primary source of electricity generation in Europe. Notwithstanding the fuel switch from gas to coal and oil, overall carbon-dioxide emissions in Europe fell by 2.5 per cent in 2022. All this has meant that Europe, so far at least, has averted the risk of recession, and, albeit sluggishly, its economy continues to grow.

Enlargement

The challenges do not stop here, however. In two other areas, the EU faces a daunting task. The first is in relation to enlargement. While never formally halted, the EU’s enlargement process gradually ground to a halt after the big-bang eastern enlargement of the early 2000s. With the exception of Croatia in 2013, no country has entered the EU for almost two decades.

The accession process has formally continued with the western Balkans and Turkey, but it has been increasingly characterised by a double farce: candidate countries have largely pretended to reform, while the EU has pretended to integrate them. The EU has been absorbed by its successive existential crises and by and large thought that stability in its neighbourhood would hold. The results were not great, but they were believed to be good enough.

That illusion was shattered by Russia’s invasion of Ukraine. Suddenly it became obvious that stability, while guaranteed within the EU and the North Atlantic Treaty Organization, cannot be taken for granted on the other side of the ‘frontier’. The president of Ukraine, Volodymyr Zelenskyy, applied for EU membership three days into Russia’s large-scale invasion of his country. Now, Ukraine and Moldova are recognised as candidate countries, while Georgia is now a potential candidate.

In the western Balkans, Albania and North Macedonia have opened accession negotiations, while Bosnia and Herzegovina has been recognised as a candidate. Brokered by the EU high representative, Josep Borrell, Serbia and Kosovo are inching towards a normalisation of relations that would accelerate both countries’ European integration, and the recent change of leadership in Podgorica could revamp momentum for enlargement in Montenegro.

All this does not amount yet to a decisive revival of the EU’s accession policy, and plenty of problems remain to be solved in enlargement countries and in the EU as far as the reform of its institutions and decision-making processes are concerned. It is however becoming increasingly obvious—to EU member states and candidate countries alike—that there is potentially an extremely high cost to non-enlargement. Put simply, the status quo is an intolerably high-risk gamble for European security.

Security and defence

The second challenge relates more directly to security and defence. Russia’s invasion of Ukraine has created a contradiction. Europeans are finally taking security and defence more seriously, yet paradoxically Russia’s invasion of Ukraine has drastically increased Europe’s dependence on the United States for its defence.

This is true in operational terms: without US military support for Ukraine, Kyiv would have likely fallen, putting at an unprecedented risk the entire European continent. It is also true in terms of defence capacities. As Europeans are depleting their stocks of military supplies, they must spend to replace them with what is available. These supplies are often sourced from the US rather than Europe. While European defence industrial projects are still being implemented, the bulk of European defence spending is being targeted at short-term fixes. This means in relative terms that Europe’s dependence on the US defence industry is increasing.

This is bad news for Europe. Transatlantic relations may currently be strong, but this could change following the 2024 US presidential election. Europe’s greater dependence on the US will also hamper its ability to chart its own way in the world, particularly in relation to China where European interests are distinct from those of the US. While the US views China as an economic competitor and systemic rival, Europe is more concerned by China’s ability to exploit European vulnerabilities to make strategic gains and interfere in European systems.

The challenges ahead

Russia’s invasion of Ukraine is transforming Europe profoundly. The EU has risen to the challenge by implementing unprecedented measures across multiple policy areas. Some of these steps, notably the reform of Europe’s energy market, will certainly make the EU stronger than it was before the war.

On other issues, such as enlargement, it however remains to be seen whether the EU will make similar progress. On European defence the challenge is even greater, given that, notwithstanding the significance of the EU’s moves, it appears unable to reverse the trend of greater dependence on the US. And for a union that wants to, and must, play a stronger role on the global stage, this is undoubtedly bad news.

This first appeared on the EUROPP blog of the London School of Economics—see the author’s accompanying paper at LSE Public Policy Review, which will be included in a forthcoming book, Ukraine: Russia’s War and the Future of the Global Order (LSE Press, 2023)

Nathalie Tocci

Nathalie Tocci is director of the Istituto Affari Internazionali. She has been special adviser to the EU high representatives Federica Mogherini and Josep Borrell, writing the European Global Strategy and working on its implementation. Her latest book is A Green and Global Europe (Polity Press).

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G7 versus the BRICS: taking stock in 12 figures - Thorvaldur Gulfason (Social Europe)

G7 versus the BRICS: taking stock in 12 figures

Can China and Russia offer an alternative social model to the universal norms they reject? The evidence says no.

THORVALDUR GYLFASON

Social Europe, 3/10/2023

https://www.socialeurope.eu/g7-versus-the-brics-taking-stock-in-12-figures

 Since 2013, when China´s gross domestic product (GDP) surpassed that of the United States, its economy has been the world´s largest by this measure. Since 1960, on a basic social benchmark, China has added fully 45 years to average life expectancy at birth, compared with 6½ years for the US, and now enjoys a two-year lead at 78 years.

Widening the panorama, how does the G7 group, led by the US, compare with the ‘BRICS’, led by China, on a range of indicators?

Incomes and growth

With a population of 3.2 billion—and shortly to be expanded—the BRICS (Brazil, China, India, Russia and South Africa) outnumber the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the US) by a factor of four. Even so, the BRICS’ aggregate gross national income (GNI), adjusted for comparative purchasing power, is only marginally greater than that of the G7—$42.4 trillion compared with $42.1 trillion. Per capita it therefore amounts to about a quarter of the G7 equivalent. The lowest per capita GNI figure among the G7 (Japan) is more than a third larger than the highest among the BRICS (Russia).

The average annual growth of per capita GDP during 1990 to 2022 (constant 2017 international US dollars) was 1.5 per cent in the G7 (blue columns), compared with 4.5 per cent in the BRICS (red). China and India stood out, with extraordinarily high average growth rates of 12.3 and 6.4 per cent respectively (Figure 1). The average annual growth rate of Brazil, Russia and South Africa was 1.3 per cent—a bit below the G7 average.

Figure 1: annual growth of real per capita GDP at purchasing-power parities (%)

Source: World Development Indicators, World Bank

There are, though, limitations to national-income statistics, which fail to capture non-market and hidden incomes—never mind the tendency of autocratic rulers to cook the books. Anyway, income is not everything and a broader perspective is called for, including political and social aspects.

Health and education

Let us begin with public health. Figure 2 shows that, except for the China-US comparison, average life expectancy at birth remains higher in each of the G7 countries than in the BRICS. The G7 has an average expectancy of 81 years, compared with 70 in the BRICS. This gap seems however likely to shrink further in the years ahead, as public-health outcomes converge.

Figure 2: life expectancy at birth, 2022

Source: World Development Indicators, World Bank

In education, the Programme for International Student Assessment of the Organisation for Economic Co-operation and Development periodically tests 15 year-olds in reading, mathematics and science. China towers over all the others (Figure 3) but Russia, like Italy, lags slightly behind the rest of the G7 while Brazil is further adrift and India and South Africa no longer participate in the PISA tests—having received low scores before.

Figure 3: PISA scores, 2018

Source: Organisation for Economic Co-operation and Development

Figures 2 and 3 explain why the Human Development Index, which reflects health and education alongside income, registers a much smaller gap between the two groups than the comparison of per capita incomes alone. On a scale from 0 to 1, the average HDI is 0.9 for the G7 and 0.7 for the BRICS.

Democracy and freedom

Figure 4 compares the state of democracy in the two groups as assessed by the Institute for Democracy at the University of Gothenburg, which applies several indicators in 180 countries to produce a composite index from 0 to 1. Unsurprisingly, Nordics—Denmark, Norway and Sweden—occupy the top three places on the 2022 list, with Finland in 10th, although Iceland is 29th, behind Estonia, Latvia and Lithuania; the US is in 23rd place. Again, none of the BRICS democracy scores come close to those of the G7. India´s has collapsed under Narendra Modi’s Hindutva nationalism, from 0.5 in 2016 to 0.3 in 2022. Russia and China scrape the bottom of the ranking. The average score for the G7 is 0.77, compared with 0.31 for the BRICS.

Figure 4: Liberal Democracy Index, 2022

Source: Institute for Democracy, Gothenburg University

Freedom House provides a similar assessment (Figure 5). On a scale from 0 to 100, its average score for the G7 is 92, compared with 49 for the BRICS.

Figure 5: Civil Liberties and Political Rights Index, 2022

Source: Freedom House

This matters because democracy, freedom and respect for human rights are universal values, according to international covenants such as the United Nations Universal Declaration of Human Rights of 1948. Also empirical evidence indicates that democracy and economic growth tend to go together.

Corruption, inequality, rule of law

Figure 6 shows the corruption scores assigned by Transparency International (more transparency indicates less corruption). TI defines corruption as the abuse of entrusted power for private gain. Again, each G7 country scores higher—so is perceived to be less corrupt—than all the BRICS. Other sources, such as Gallup, have reported the same conclusion. Majorities in 108 of 129 countries surveyed in 2012 said corruption was widespread in their government. Specifically, 61 per cent of G7 respondents considered corruption widespread, compared with 76 per cent in the BRICS (not including China).

Figure 6: Corruption Perceptions Index, 2022

Source: Transparency International

Figure 7 shows the concentration of wealth by the share of the richest 1 per cent. According to the 2022 World Inequality Report, the average is 26 per cent in the G7 and fully 43 per cent in the BRICS. Moreover, wealth and income inequalities tend to go hand in hand: the Gini index (0 to 100) of income inequality is higher on average in the BRICS (39) than in the G7 (33.5).

Figure 7: share of wealth held by top percentile (%)

Source: World Inequality Report

The World Justice Project compiles a Rule of Law Index (0 to 1) using 44 indicators across eight categories: constraints on government powers, absence of corruption, open government, fundamental rights, order and security, regulatory enforcement, civil justice and criminal justice. It covers 140 countries, not including China and Russia. The average score for the G7 is 0.76, compared with 0.5 for the three other BRICS (Figure 8).

Figure 8: Rule of Law Index, 2022

Source: World Justice Project

In sum, G7 governments not only provide their citizens with higher per capita incomes but also longer lives, better education, more democracy and freedom, less corruption, more equality and more robust rule of law.

Exports and climate protection

Successful export of a broad array of manufactures demonstrates a country´s ability to produce goods other countries want to buy. Figure 9 shows that, despite China and India—both major producers of manufactured goods—exports of manufactures constitute a smaller share of total exports in the BRICS (48 per cent on average) than in the G7 (66 per cent).

Figure 9: share of manufactures in exports (%), 2022

Source: World Development Indicators, World Bank

Figure 10 describes the diversification of exports by commodity. It shows the Finger-Kreinin Index, a relative index from 0 (full diversification) to 1 (no diversification), which compares the structure of exports across countries by showing the extent to which it differs from the world average. Exports from G7 countries, with an average index of 0.33, are more diversified than those from the BRICS (0.53). Economic diversification from excessive dependence on the export of natural resources can be intrinsically advantageous, in the same way as political diversification from the dominance of entrenched elites can be beneficial in terms of democracy.

Figure 10: Finger-Kreinin index of export diversification, 2022

Source: United Nations Conference on Trade and Development (UNCTAD)

If selling several different products to the same customer spreads risk, so does selling the same product to several different customers. Figure 11 describes the economic-cum-geographic diversification of exports by trading partner. The International Monetary Fund’s export-diversification index runs from 0 (full diversification) to 10 (no diversification). With an average of 1.87, the G7 countries have more diversified exports, including more diverse trading partners, than the BRICS, whose average is 2.63. (The most recent values available refer to 2014.)

Figure 11: Theil index of export diversification, 2014

Source: International Monetary Fund

Finally, Figure 12 compares climate-change mitigation across the two groups, based on the Climate Change Performance Index compiled by the non-governmental organisation Germanwatch. The index ranges from 0 (poor performance) to 100 (good performance) and covers 59 countries as well as the European Union, using four groups of indicators: greenhouse-gas emissions (positively weighted), renewable energy, energy use and climate policy. The scores for the G7 and the BRICS are the same on average, at 45, but with considerable individual variation. India has the highest score of the 12 countries shown, surpassed only globally by Denmark, Sweden, Chile and Morocco; China and the US are about equally below average.

Figure 12: Climate Change Performance Index, 2022

Source: Climate Change Performance Index

Bipolar to multipolar

During the cold war, when national income statistics indicated—wrongly as it turned out—that the US and the Soviet Union were about to become roughly equal in economic terms, the world could be described as bipolar. The two hegemons were clearly not equal in political terms, however, one being a democracy and the other a dictatorship.

Since the Soviet collapse of 1991, the world has been widely seen as unipolar. China, India, Russia and others understandably reject this, in favour of a multipolar world view.

China and India have made impressive progress in many ways, especially in terms of longer lives under better conditions than before. But they still have some distance to go—especially China, which has never embraced democracy. Russia, whose per capita GNI was 40 per cent below the G7 average in 2022, is now adrift on numerous indicators.

Firm commitment

In the years ahead, the G7 and the BRICS will likely engage in brisk competition to win hearts and minds around the globe. The G7 are however the more cohesive group (even before the BRICS adds the six recent invitees)—and not just because the average distance between their capitals is 5,504 kilometres, compared with 9,291km for the BRICS.

More importantly, the G7 countries enjoy close relations among themselves, whereas China and India are old adversaries with unsettled territorial conflicts on their border. Furthermore, mindful of Russia´s long history of relentless expansion, eastwards as well as south and west, Chinese officials have seen reason to remind the Russians that Vladivostok was a Chinese city as recently as 1860.

With no similar issues on its hands, the G7 would like to be able to convince the BRICS of the benefits of embracing democracy and freedom. For that to be possible, however, they must not stray from firm commitment to democracy, freedom and respect for human rights themselves.

Thorvaldur Gylfason

Thorvaldur Gylfason is professor emeritus of economics at the University of Iceland and a former member of Iceland´s Constitutional Council.

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