One of the primary arguments of Pabst and Scazzieri’s Constitution of Political Economy is that we need to stop thinking about politics and economics as two separate disciplines. It criticises the standard economic approach of focusing almost entirely on the individual rational actor as a unit of analysis, whether as a consumer or more broadly as an ethical decision maker. In this mode of analysis, society is seen as an aggregation of individual actions. Politics, on the other hand, is limited by its focus on the state and its relationship to the means of governance. They offer, ‘a critique of contractualism in its dual expression of the primacy of the state over the economy and society and of the primacy of the economy over society and the polity’ (Pabst and Scazzieri, Reference Pabst and Scazzieri2023, p. 8). What is lost, in the authors’ view, is the investigation of communities formed as an historical process involving a multitude of factors such as language, behavioural norms, institutions and trust. To overcome current disciplinary tunnel vision they offer an argument that both society and economy should be viewed as a means to understand and facilitate mutual interdependencies of both emotional and material needs. In making this argument the authors go back to the philosophical thinking of the eighteenth century enlightenment where, as they show, political economy was theoretically developed in precisely this manner by thinkers such as Cumberland, Doria, Genovesi, Hume and Adam Smith (Pabst and Scazzieri, Reference Pabst and Scazzieri2023, pp. 2–5, 38–61).

But, as indicated by the title of perhaps the most famous book to emerge from eighteenth century political economy, The Wealth of Nations, the habitus (to use the phrase of Bourdieu) in which well-being could be developed was the nation state. Economic policy concerning trade, taxation, education, poor relief, agriculture and health was developing at that time within nation states. This was put succinctly by Smith in The Wealth of Nations:

Human well-being achieved through policy was the aim here, and this had been the case since Europeans started thinking about what we might call economics in the sixteenth century (Muldrew, Reference Muldrew1998, pp.123-47; Serra, Reference Antonio2011, intro., pp.17–26). However, such states also went to war with one another, and when this happened the wealth of the sovereign became paramount and public wealth became primarily seen as a mean of widening the tax base to pay for armies—a healthy economy became a powerful military state. Enlightenment thinkers theorised, however, that increasing commerce was leading to a more peaceful world than that based on monarchical states and confessionalism by creating bonds of reciprocity and mutual interest. But war did not disappear (Movsesian, Reference Movsesian2018), and as a result, what David Hume famously termed the jealousy of trade arose (Hont, Reference Hont2005, pp.5-37). This was an anxiety that a neighbouring power with a more profitable export trade would become militarily more powerful, enabling it to exert its will. Thus, the idea of beggar thy neighbour took hold as a way of securing military supremacy. Trade was crucial to this since a favourable balance of foreign trade (exporting more than imports) was seen to give one state an economic advantage over another. Smith, of course, famously argued against such a concept of state interference to bolster or protect its own trade as wrongheaded and almost always subject to regulatory capture by what he called the mercantile interest (Muldrew, Reference Muldrew, Cardinale and Scazzieri2018, pp. 104–110). As a result, such policy driven economics came to be called mercantilism in the twentieth century (Magnusson, Reference Magnusson1998). Smith saw that global free trade would make people materially richer through exposure to more things unavailable in certain areas.

Here, I want to explore what I think are some long term underlying causes of the inability of national political systems to adapt to global markets in trade and labour. The inability of political systems in many democratic countries to deal with the problems created by the evolution of global economic growth has created the world we are living in now at the time of writing (September 2025) where the protectionist policies of Donald Trump, and to a lesser extent Brexit, are popular in the United States and United Kingdom, while anti-immigration politics are growing all over Europe and in the United States. Everywhere the rise of the political right has exploited the inability of governments to deal with inequality and stagnating living standards by blaming it on global trade and wage competition. They argue that closing borders and tariffs will create jobs for locals, ignoring declining birth rates and the need for care work and the expense of health care as ‘local’ populations age. Not surprisingly, they also claim the global problem of climate change does not exist, or should be of secondary concern to job and wealth creation. For those who believe that tackling inequality, global warming and poverty are moral imperatives that require cooperation far beyond national borders, something needs to be done to challenge the right’s craven opportunism.

The Constitution of Political Economy helps us to achieve this goal by brilliantly showing how we need to think more about the well-being of societies within political structures, and it shows there is a historical path of thinking towards doing so. Here, I wish to begin to explore what is, I think, still an unsolved problem of how we can do so across boundaries that will have to be done as our major problems have global causes. If we are to begin to do this, we need to understand how the nation state developed in Europe over the long term as a means of providing employment and basic necessities to its subjects and citizens. The aim is to make speculative connections about very long-term change. This is based on wide reading and research on the relationship of economics to society as an historian of roughly the period 1600–1800. Evidence will be sought wherever it exists, but the aim here is to use the historian’s skill of uncovering and explaining multiple causes in a narrative fashion. This will be done to understand current affairs and to offer an alternative way of finding solutions based on contextual complexity rather than instrumental, linear problem solving.

The relationship between state governance and the economic well-being of its members has a long history, starting in Europe in the sixteenth century (and even earlier in China with programmes of national grain distribution (Pierre-Etienne et al., Reference Pierre-Etienne, Wong and Lee1991)). Rulers’ legitimacy depended on maintaining social peace through policies of social protection and welfare for the poor. Intervention in grain markets is perhaps the globally most universal of such policies, but support for both religious and state institutions to aid the sick and indigent, as well as policies to promote employment are all measures used by the state. They were almost always applied with fairly strict hierarchical paternalism, but they form a vital part of the history of the nation state as it has evolved. The long-term development of the nation in Europe and the Americas did not just involve, in Benedict Anderson’s famous phrase, the creation of ‘imagined communities’ in which strangers were educated to adopt specific cultural forms as attributes of national geographic areas (Anderson, Reference Anderson2006). In a much more institutional sense governments—not just in Europe but all over the globe—have for a long time been developing national institutions to deal with economic and social issues.

One of these was the promotion of economic policy to increase employment in industry as a means of alleviating poverty for families. Returning to the quote by Adam Smith at the beginning, in stressing the fundamental role of labour as a foundation for society, he was building on a long tradition, which can be traced back to the sixteenth century. Writings which we would now categorise as ‘political economy’ evolved from this time as a means of dealing with the problem of overpopulation and lack of agricultural employment by advocating the benefits of market-oriented commercialisation to provide industrial work from c.1600 (Muldrew, Reference Muldrew, Cardinale and Scazzieri2018, pp. 94–5, 120). This policy was most avidly promoted in Britain, leading to an early industrialisation in the early eighteenth century. This was followed by mechanisation and the creation of new industrial jobs across Europe and other parts of the world in the nineteenth century. But it also led to the formation of huge amounts of new wealth in the hands of a new elite, creating new forms of inequality. This was challenged by socialism, and democratisation was also demanded, and to accommodate these challenges the leaders of European states all instituted new types of welfare such as national pension schemes, the supply of education, and power and clean water in order to accommodate their working population to the power of capitalists (Sassoon, Reference Sassoon2019, pp.69–83 ch.14).

At the same time as this was happening, foreign trade and colonisation came to be seen as means to economic growth and specifically national wealth through the creation of captive markets as well as the secure supply of raw materials. Writers were generally strongly oriented towards the nation state as the instrument of government to promote industrial policy, and most authors, although not all (see the discussion of Smith above), thought that a surplus of industrial exports was the best policy to promote growth. The state which was most successful at implementing such policies was England in the late seventeenth century, and then Britain as Ireland and Scotland were merged into a protectionist Atlantic trading system directed through a large number of regulatory laws passed in the Westminster parliament. This wealth enabled Britain to outspend its rivals in the eighteenth century, and with the victory over Napoleon it was left as the only world naval power. This dominance allowed the doctrine of free trade to take root, which secured a major victory over the interests of English landowners with the repeal of the Corn Laws in 1846 (Semmel, Reference Semmel1970). Free trade also had a long history, but mostly as it pertained to trade within states or empires, being against monopoly privileges or market domination, rather than advocating trade between nations (Muldrew, Reference Muldrew, Cardinale and Scazzieri2018, pp. 104–110). In the nineteenth century, the benefits of what was called the mutual advantage of exchanging different goods produced in different places freely was seen as mutually beneficial to consumers rather than states, as Adam Smith argued (Trentmann, Reference Trentmann2008). This led to the rise of global capitalist industrial production as well as much increased trade in agricultural goods.

Although openness of trade collapsed during the First World War, after WW II trade was gradually liberalised under GATT, especially during the administration of Kennedy, while exchange rates were stabilised by the Bretton Woods system, and transportation costs were reduced. As a result exports grew by 290% between 1948 and 1968 (Terborgh, Reference Terborgh2003, pp. 1–8). But the period since the 1990s has seen a much accelerated rise in trade to an average of 4% a year. This has largely been driven by the large reduction in transport costs achieved by the standardisation of container shipping on railways and ships. But it has been accompanied by a political movement in favour of free trade. This was demonstrated when voters were convinced by Brian Mulroney, leading him to victory in the Canadian ‘free trade’ election of 1988 which led to the signing of the Canada United States Free Trade Agreement of the same year. Then in 1992 the European Union finally achieved one of its long-standing goals of a single market with the Maastricht Treaty (1992). In the same year NAFTA was signed, and in 1995 the WTO was established.Footnote ² At the same time in the 1980s and 90s both Margaret Thatcher and Ronald Reagan were quite happy to support cheaper imports of goods which undercut the protectionist power of labour unions who politically opposed them. Both countries were also capable of financing large trade deficits because of the international dominance of their banking systems and financial services. The fall of the Soviet Union and the Eastern European communist bloc, and the turn of China towards a market economy, also led to the belief that trade-based capitalism had conquered the world and faced no threats. The result was that, by the time Bill Clinton came to power in 1994, free trade had wide public support as a win–win situation in which many countries in the developing world became much richer, while affordable electronic devices created a new and deep consumer culture in the West.Footnote ³ This led to the momentous rise of the People’s Republic of China as a massive export-based economy, without causing much worry over geopolitical concerns before the first election of Donald Trump in 2016. Doux commerce, it seems, had won out after the fall of the Communist bloc.

However, the subprime mortgage collapse and subsequent financial crisis of 2008 quickly soured any such belief, in the United States and United Kingdom especially, as it became clear how much the preceding decades of globalisation and freer trade had benefited a small proportion of the middle class much more than the broader population, driving up property prices (and in the United States making health care much more expensive) while driving down wages to compete with cheaper foreign labour. Economic indicators such as GDP growth and stock market prices, as well as political stability, had all seemed to indicate success, but by not looking at the constitution of society, as suggested by Pabst and Scazzieri, growing problems had been ignored.

Since the financial crisis of 2008, which was at least in part created by global capital flows to finance the American trade deficit in goods (Tooze, Reference Tooze2019, ch.3), the so-called mature or ‘developed’ economies have experienced much smaller per-capita economic growth than previously, while inequality has continued to expand.Footnote ⁴ At the same time, the need to spend on investment to reduce carbon emissions has only become more urgent and expensive every year.Footnote ⁵ Most developing countries have benefited from globalisation, and some very strikingly, such as Turkey, Mexico, India, Thailand and above all China. In others, though, political failure and war combined with high population growth have led to increased international migration to wealthier countries. This has then been opposed by right-wing politicians in the latter for nationalist or outright racist reasons. However, people on the left and right of the political spectrum have also argued that low-paid labour in the form of both migrant workers, and in the production of goods produced in countries with lower labour costs, has driven down the price of labour in wealthier countries (Stiglitz, Reference Stiglitz2017, ch.1). In different ways, many countries have seen a growing cleavage between liberals and nationalists, which has led to politics being polarised around these issues in ways which are currently in flux.

In democracies, especially, governments rely on meeting the needs of at least enough people to keep them in power, but almost all governments—unless extremely repressive- need to do something to address the basic needs of those they govern. In welfare states this involves redistribution of earnings and in places like India the regulation of food prices. However, the willingness to pay taxes for redistributive purposes relies on a large degree of trust on the part of the wealthier individuals paying the tax that the state will spend it productively, and that the recipients of welfare and health care will be in that old English term ‘deserving.’ The development of states which can facilitate economic well-being by using taxation to pay for the provision of law and order and regulation has a long history, and few would disagree that these are major and valuable achievements. ‘Trusting Leviathan,’ in the historian Martin Daunton’s phrase, was a key feature of why and how taxpayers decided that giving up some of their earned wealth to be administered by the state could have beneficial outcomes (Daunton, Reference Daunton2001). A key part of this process was the movement over time from local spending, where the tax payer could see what was being done with their taxes, to national tax collection and payment to central government agents who were strangers.

The evolution of such trust has been a key feature of state building. Initially, national taxation was justified to pay for national defence and the expansion of national interest in the developing global economy. But during and after the ‘total’ wars and communist revolutions of the twentieth century, voters in democracies demanded much more in terms of welfare and workers’ rights from their national governments. As a result, the welfare state expanded as a part of the nation state in non-communist countries. But after 75 years of expanding global trade, it is a pertinent question to ask why this movement stopped at national borders? Liberals who believe that the global individual is a subject deserving empathy have had success historically in mobilising support to end slavery, and then in the post-WW II period to improve health with the creation of the World Health Organisation, to assist in alleviating famine and in promoting conflict resolution though organisations such as the UN. In the same period development economics grew to help poorer countries become richer. But most financial aid budgets have always been small in comparison to the redistribution of taxed wealth within nations. Even within the European Union, probably the most developed set of international agreements in the world, taxation is used to invest in infrastructure and economic aid to poorer regions, but welfare is overall a national matter. The European Union engages in some cross-state spending to help poorer areas, but the amounts involved are tiny (0.06% of GDP) compared to the welfare budgets of its member states. Most EU laws (as well as other free trade agreements) are aimed at making business easier and trade cheaper which helps employment but does nothing to address issues of redistribution or workers’ rights.

This reluctance is a result of the fact that this trust has developed within the nation state where both taxpayers and recipients feel themselves to be members of the same community and have similar values about how much work should be done per week and how many holidays are normal, and that government officials will be honest and accountable when spending revenue.Footnote ⁶ Citizens are generally unhappy if they think that their taxes are being used to support corrupt officials, inefficient institutions or people gaming the system by not working hard enough. And, unfortunately, if they do not have access to reliable information about other countries, most people will be more suspicious of systems they do not know. Many, too, will be willing to exploit untrue ethnic or racial prejudices such as that which claims European northerners are harder working than people in Mediterranean areas. Real corruption exists everywhere but more in some countries than others. Why this is so has drawn the attention of many economists recently, but it is generally easier to steal from a stranger, making global trade more vulnerable (Acemoglu and Robinson, Reference Acemoglu and Robinson2013). For these reasons, redistributive policies have proven very hard to expand internationally except at a very small percentage of GDP, and foreign aid is often linked to mercantilist policy in that it is composed of goods produced in the donor country.

But while global welfare transfers have been limited, globalisation has been adopted enthusiastically by many middle-class people who study and work abroad, and English is becoming a rapidly expanding global language. Globalisation has undeniably also made literally billions of people better off, some dramatically so, as in China (Rosling, Reference Rosling, Anna and Rosling2018). So why has it come to be seen as a threat? The main reason is that many workers in developed nation states who have not been able to take advantage of the opportunities of international business or intellectual research, and who cannot afford to travel abroad very often, have seen their earnings stagnate or fall. In addition, many workers and middle-class employees of private companies have seen their pension entitlements drastically reduced on the grounds that such ‘benefits’ are not viable in a climate of international competition. Given this, it is not surprising that nation states, which once ensured such protection, might be preferred over globalisation which primarily offers benefits to the upper middle class, and the very rich everywhere, and the very poor in distant lands. To make matters worse globalisation has also helped to vastly increase the wealth of the top 10%—and especially the top 1%—of earners around the globe. No one, as far as I know, has done the calculations to try to determine the relative values of increased private wealth in comparison to the potential current value of lost pension and other union entitlements (or the increasing cost of health care in the United States), but the stark difference in the trajectories of the very wealthy and the rest is enough. For voters whose own well-being has declined, the global increase in the wealth of those even poorer than themselves is irrelevant to all but the most charitable.Footnote ⁷

But rather than positive attempts to make globalisation work better to protect those without power, crude defensive nationalism directed at the threat of the outsider taking jobs has become popular, as preached by Donald Trump, Matteo Salvini, the AfD, Reform or Viktor Orbán. For many on the left, this has seemed surprising. After all, none of these people or parties are particularly in favour of strengthening workers’ legal protections; they only preach job market protection from foreign competition. But overall the moderate left seems to be associated as a middle class who benefit from globalisation, while focusing their criticism on the very elite 1%. As a result, support for the traditional centrist socialist parties in continental Europe has collapsed.

It is my proposition that one reason for this failure is that possible approaches to building institutions of international trust beyond the nation state, which can actually work, have been hindered by the economic focus on the individual, not just as a unit of analysis, but as a subject of a personal identity. Community, in contrast, is mutable and hard to pin down. One result of this focus is that citizens have internalised a sense of their individual well-being, and government is increasingly seen as something whose primary purpose is to supply the conditions for this. This can cover a wide range of things including employment, economic growth and improved ability to purchase material goods, as well as things which are provided communally, including health care, disability awareness and assistance, and the legal right to express and define one’s self. This is a belief that underlying systems, both mechanical and bureaucratic, can be relied on and, even more crucially, believed in to maintain stability instrumentally, without the social work of maintaining trust. In a sense, this is a sort of free-riding on the work of people in the past to achieve the institutions which are working now. This is something I have chosen to call the instrumental fallacy. The fallacy is to make the assumption that this functionality can then be used to eliminate the need for trust, thus opening up the way to more individual freedom to maximise desire.

I realise many of us sit through long hours of committees to make both public and private institutions function, and many also participate in volunteer work, but somehow at the level of political discourse and policy this has been taken for granted. The notion that the value of building trust and living in a community involves the sacrifice of some individual freedom and desire has been weakened by the idea that a nation and its government should be thought of as something to promote and protect individual desire with policies ‘sold’ at elections, rather than something to promote responsible citizenship.

This is further complicated by political differences over the degree to which the state should be involved in using redistribution to foster an inclusive sense of national community, and the degree to which things like unemployment benefits, health care, legal aid and so forth should be entitlements on the state. Many on the right believe the state should simply provide the framework of laws to enable competitive individuals to achieve such things, and form voluntary associations for community. Strong libertarians reject the idea that government should encroach upon private property and wealth, much beyond providing laws and some infrastructure. There are also, of course, many different organisations of states and their governance in terms of the relationship of power between local bodies and central bureaucracies. Also, many, from Adam Smith onward, have criticised governments which pay lip service to helping all, but actually use economic policy to supply select connected individuals with aid through tax policy, business subsidies, tariffs and other regulation.Footnote ⁸ More recently, there have certainly been many important critics who have pointed out that emphasis on market-oriented individualism over membership of a community has diminished our responsibility to behave in ways which support the ability of the state to create the conditions whereby we can flourish (Selbourne, Reference Selbourne2019; Taylor, Reference Taylor1989).

This might be true, but it is above all economic growth and innovation which has allowed beneficial individualism to flourish by freeing people’s behaviour from previous limits. To give some examples: the exploitation of subterranean fossil fuels freed communities from the need to strictly ration slow-growing firewood; chemical fertilisers and selective breeding have greatly increased the productivity of agriculture permitting many more pursuits to be followed; the rise of deposit banking has meant that a borrower’s moral behaviour does not need to be policed as long as he or she has money in the bank. Along similar lines, the invention of the contraceptive pill has freed up sexual choice. Anonymous wage earning for large enterprises has also reduced the dependency and deference required by unequal hierarchies found in all pre-industrial societies. However, at the same time this has happened, people have had to limit their individual freedom by making and obeying laws against corruption, intimidation and monopoly power. It is crucial that a great majority of people do not fear someone else gaining wealth for themselves through these means while remaining unpunished. When those who obey the rules lose out by doing so, institutions will fail and transaction costs will skyrocket (Acemoglu and Robinson, Reference Acemoglu and Robinson2013). Thus, the idea that the economy is about markets and individualism while government is about community is a false dichotomy.

The way in which the financial crisis of 2008 was dealt with demonstrates this. If the banks and mortgage lenders had not been rescued by taxpayers, and the financial system had collapsed, everyone’s wealth would have collapsed with it. In this sense, private property as something natural rather than socially credited is an illusion, as interdependence exists as much as it ever did, but is now managed by economists, engineers and other technicians, more than individuals themselves. This permits autonomy to seem a natural part of modern freedom, in contrast to previous obligations, behavioural restraints and social codes of dress and behaviour.

This focus on the individual means that economists and politicians advocating globalisation provided a carrot in the form of new wealth represented by cheaper and more abundant consumer goods as the economy grew. However, when challenged about the threat of competition from much cheaper labour costs in economies with lower standards of living, they proffered a stick by arguing that although consumer demand meant wage competition was inevitable, given that wealthy economies possessed well-developed educational systems, people needed to train themselves for better-paid skilled jobs. However, in many older developed economies, reform has proved difficult for a variety of reasons not necessarily linked to globalisation. These include tax policy, shareholder capitalism and growing inequality, lack of government support for industry in the United States and United Kingdom or the difficulty of reforming entrenched interests. Examples of the latter could include the power of capital on political funding and job creation, protection of entitlements or historic constitutional inequalities. So, while employment has been maintained, lifetime earnings, house ownership and job security have declined quite dramatically in the United States and United Kingdom, while unions and political defence of workers’ rights in France and Italy have arguably made their economies less competitive.Footnote ⁹ In addition, many higher paid unionised manufacturing jobs have been replaced with lower paid insecure McJobs or zero-hour contract positions.

This makes it seem that, on the basis of one key macroeconomic measurement, employment, the economies of the United Kingdom and United States are doing amazingly well. However, such statistical measurement lacks a qualifying context of what kind of purchasing power and security in the form of savings such jobs provide. Numbers in employment are not the same thing as the amount earned, or even more importantly saved. Real wages and the value of benefits such as pension plans or health care are much lower. This is especially true of pension plans. In England, a leading international actuarial firm recently reported that in 1993 ‘virtually all’ FTSE 100 companies offered traditional final-salary schemes to new employees. By 2018 not a single one did. In fact, so many people were working without a form of pension savings that in 2012 the British government introduced an automatic enrolment scheme, but which only provides savings at 8% of salary in total. Most schemes are also individual-based, defined-contribution investment schemes without the benefits of mutuality (Davies et al., Reference Davies, Freeman and Pemberton2024).Footnote ¹⁰ This, together with stagnant real wages since the 2008 crash, has represented a real economic decline. The quality of health care has also been affected by reduced funding in the United Kingdom, and although Obamacare has increased the range of coverage of insurance in the United States, what is insured is limited.

Thus, for those whose earnings have been reduced, or who have suffered long-term unemployment in de-industrialised areas, it is not surprising that they think that globalisation has been bad for them—it has. In the auto industry in Detroit as well as Turin, for example, workers’ benefits have been forcibly reduced with the threat of redundancy, and many jobs have moved to areas with lower wages. However, this is not the whole story, as successful management in places like Germany and Japan has maintained employment and ‘acceptable’ levels of benefits, possibly due to much better management–worker relations and institutions.Footnote ¹¹

This is why, I think, nationalism has come to expand its popular traction as a political force beyond the far right. Everywhere, welfare systems of all stripes are embedded within nations, and these are not being successfully integrated into the global movement of goods, labour and the desperate. Taxation for welfare is not an imagined community—it is a community, albeit of strangers, where people pay taxes to help both themselves, in communal ways through public goods such as police, roads and usually health care, but also to help others more unfortunate through state aid. But, as already noted, this requires trust that most money will be spent on goods and not embezzled or siphoned off to large administrative salaries, or to projects not in the public interest. And it is continually threatened by powerful individuals who wish to keep market earnings private. With the rise of competitive economic individualism, this has led to the non-winners turning to the nation as the one option which offers some form of communal identity, which certain elite politicians and right-wing journalists support with overtly emotional appeals against foreigners. However, they are selling snake oil, as economic nationalism and self-sufficiency goes against almost all economic theory, not least the division of labour.

The degree to which specialisation in the manufacture of parts has become international means that the populist solution of nationalist protectionism is simply unworkable now without significant cost. Brexit has shown how intractable re-nationalisation of manufacturing would be. The number of cars produced in Britain fell from 1.7 million in 2015 to only 775,000 in 2022.Footnote ¹² Bringing back the manufacture of parts to Britain from elsewhere in the world for sales just to the British market would inevitably increase costs and would take time for retraining and building fixed capital, so there would have to be high enough tariffs on imports to make this feasible. This would then create a situation of protectionism, which could lead to poor quality—one of the main reasons why under Margaret Thatcher, free trade was promoted initially!

Such reasoning has not stopped Donald Trump from enacting some of the highest tariffs in American history since the beginning of his second term, in the hope of doing just this, despite opposition from most economists. Although it is too early to say what effect they are having, apart from raising inflation in the United States, Trump’s desire that Apple returns manufacture of the iPhone back to the United States was quickly disabused when it was pointed out this would require the training of literally thousands of skilled engineers, which the United States lacks. Current technology allows cheap and instant long-distance communication, cheaper air transport, as well as computerised shipping and containerisation. This means that national economies do not make sense from a business standpoint. Moving to a ‘foreign’ culture has become less difficult as English has become more universal, while at the same time, controlling migration caused by hardship has become increasingly difficult as long as the demand for low-paid work exists. Thus, free trade is not something that is reversible without a loss of living standards, and controlling the movement of desperate people is expensive and difficult.

This is a crucial contradiction of our age. While global labour markets and technology in manufacturing continue to advance with increasing rapidity, the democratic rights and influence over welfare policy, as well as economic debate and discourse in the media, are all still centred around the institutions of nation states and national political economy, while business policy is not. Thus, we need to somehow expand our thinking about what Adam Smith thought of as the wealth of nations to the wealth of citizens living in political nation states with varying degrees of power, but whose wealth now depends, as Smith wanted it to, on the benefits of international trade. As I will discuss below, the European Union is an area where some of these things have been attempted in a politically piecemeal fashion. However, the choice to elevate individual economic well-being during the period of the 2000s, together with the creation of the Euro, over the promotion of collective European emotional identity, as an addition to the individual national components of the Union, has severely weakened the move forward to solutions.

So far, the European Union (the European Economic Community was used before 1992) is the most developed set of institutions to try to manage well-being as well as trade between an expanding group of the nations. Through various treaties, the EEC had an economic aim of greater integration from the start, but the European Convention on Human Rights, the establishment of the European Court of Justice and later the Social Charter have all contributed to much legal alignment. Both these developments had the aim of bringing peace to the continent through greater integration. In addition, the creation of the Erasmus programme, the founding of the European University Institute and other schools, as well as the use of taxable earnings to fund research and education, is a crucial and fundamental way in which cultural European institutions and identity have been formulated, but unfortunately only for the very well-educated middle classes. Businesses have followed by becoming very well integrated into having multinational workforces. Regeneration funds were also established to invest in poorer areas. However, in the most crucial areas of government, policy remains under the control of national governments and is subject to national politics and prosperity.

With the creation of the Euro currency zone, the flaws of this approach became clear. It was done under the influence of the instrumental fallacy during the Great Moderation. It was believed that under continuing prosperity, the discipline of the market would align economies. Instead, the opposite happened as being in the Euro zone made borrowing cheaper and difficult economic reforms could be avoided. The creation of the Euro became a problem created by the lack of integration of national debts and monetary policy, with the single currency allowing national bonds to be valued independently of the Euro currency. The willingness of the ECB to ‘do whatever it takes’ to stabilise the currency by buying up national bonds has stabilised the situation, but not solved the fundamental problem of pooling trust, as it does not issue any ‘European’ bonds on its own. It is a common argument that the project was done backwards by integrating currencies and financial markets before welfare policy and other means of redistributing income to balance differences in economic competitiveness. For those with property or well-paid employment in less competitive economies like Italy and Greece, membership of the EU has protected the value of their wealth, which would be adversely affected if they had national currencies that could be left to float on currency exchanges. This, as many economists have noted, prevents any possibility of increasing international competitiveness through currency devaluation and cheaper export costs, thus allowing some form of economic restructuring driven by markets.

Again, for many critics, this has led to slower growth, but the question of how ‘national’ economies, coupled with national welfare policies, can be successfully integrated in one currency zone is still very much a work in progress. The EU also did itself no favours by permitting tax havens to exist for both wealthy individuals and corporations, and by being susceptible to lobbying on behalf of wealthy industries that employ a lot of people within nations, such as the car industry. Like the nation states themselves the EU became prey to the interests of wealthy elites. It would have made more sense to promote why common institutions might matter to citizens of each country, and why they might want to feel some kind of emotional investment in Europe before the implementation of monetary union. Instead, the restructuring has had to be political, and the politics of the Eurozone crisis of 2012 onwards were all about enforced austerity, driven primarily by German policy, but certainly not exclusively so (Tooze, Reference Tooze2019, pp. 373–85).

Still, despite all of its flaws, the EU has developed institutions that have experience in dealing with the difficulties of integrating national cultures beyond their own borders, and if we accept the fact that current technology will continue to erode national economies, then more institutional arrangements to deal with globalised production will be needed if the social compact between employees and governments is not to fracture into violence beyond riots and demonstrations. The relationship between democracy and social provision needs to be thought about carefully in terms of how, and in what forms, it can exist in a globalised economy. A fruitful approach might be to re-examine the economic theory of pricing in a social context. Obviously, the more efficient the division of labour is, and the cheaper supply chains are, the lower the price of goods and the more affordable they are to families on lower incomes. However, if incomes and lifetime earnings drop to a level that limits purchases, even at lower prices, this will have the effect of restricting aggregate demand. If one does not believe in slavery, some recompense needs to be made to even the poorest workers around the globe, and this is especially true for democratic countries, where the poor have a vote, in order to maintain political stability. Simply relying on regulation, while letting individualism fly, is probably not a sufficient solution.

How then can we move forward and learn from the difficulties of the EU? In Capital in the Twenty-First Century, Thomas Piketty advocated a return to higher marginal tax rates as a proven means of using state redistribution to reduce income inequality and to promote productive investment. International taxes on wealth, such as Brazil’s proposal to tax 2% of the wealth of those worth over one billion dollars, or the Tobin Tax on currency transactions, have also been proposed to prevent the flight of capital from national tax increases. It is also clear that, to deal with the huge cost of preventing global warming before it is too late to avoid socially devastating destructive change, states need to take a role in subsidisation and incentivisation that the market cannot provide as long as the alternatives are cheaper. At the same time, the socialist parties which were once in power during the post-war years of government intervention, continue to fail to win elections unless they move much closer to the centre. Instead, as noted above, people are voting for wealthy nationalists in countries that have suffered the most. Liberal commentators have struggled to explain this. Why, it is asked, would someone on a zero-hours contract with no savings and reduced state entailment vote for the millionaire supporters of low-tax deregulation who led the Brexit campaign in the United Kingdom’s 2016 referendum? It is my contention that at least part of this is due to the individualism built into online life, which focuses on desire over forms of cooperation, social communication, expertise, rules of debate and evidence based on research.Footnote ¹³ This has been another reason why electorates have turned to nationalist policies, hoping for some protection from this competition through tariffs or restricted immigration.

International globalisation is broadly accepted by middle-class households, which can afford good education and the costs of travel, and can thus access jobs based on skills where they come up in global cities. There is, of course, a significant ‘anti-globalisation’ movement, which opposes inequalities and exploitation of global workers, but without rejecting migration and cultural integration. Those who support much reduced migration and wish to maintain state protection of jobs, tend to be those who travel less and for whom job opportunities are more local.Footnote ¹⁴ Recent work on electoral demography in France, England and the United States has shown how electoral support of left-wing parties has shifted from manual workers to wealthier urban voters with university education (Cagé and Picketty, Reference Cagé and Picketty2023). The global benefits of poverty reduction are more easily laudable if you have not suffered financially from job competition. This is a big part of the current problem of growing inequality. Cheaper goods like phones can be purchased by pretty much everybody in the world—decent places to live, plumbing, and in the United States, health care cannot. Paying for social goods like infrastructure or universal health care is also very expensive. But such problems are not just confined to mature countries. Rapidly developing countries need to find a way to pay for infrastructure to deal with garbage collection, traffic, pollution, crime and many other things which can blight lives of those not yet wealthy enough to organise these things privately. Most development focuses first on employment by increasing trade and jobs. Only a few developing countries with strong states, like China, have successfully invested in infrastructure before introducing a consumption policy based on increasing earnings and spending.

If the global economy is only seen as a means of enriching a middle class which is not expanding downwards to absorb a wider segment of the population, then democratic legitimacy will inevitably be weakened. Acceptance of severe deprivation in places where the economic means to alleviate it are available through better pay or redistribution can also undermine the legal foundation of the institutions which have produced that wealth in the first place. Further, if a small elite is able to control politics to the degree whereby it is able to take the lion’s share of earnings, such as in contemporary Russia, then political legitimacy will be weakened even more.

Thus, I think it is necessary to try to analytically, as well as emotionally, separate the economy from the nation. Instead, focus should be placed on how the culture of a nation can retain its collective identity, ways of doing things and sense of community, while at the same time supporting the types of institutions which can expand the community of trust in the global economy. For instance, if, as in the case of the British Parliament, an institution is seen to be better than those in other nations because of its traditions, rather than examining it comparatively and in context, this will hinder progress rather than promote it. As long as trade has existed, national laws and institutions have been adapting to one another. Successful institutions both within and between national boundaries have a value that needs to be recognised. Private corporations monetise that value through profit, but so do governments through national debt. Government debt is bought because buyers believe the government will be able to pay interest or redeem the debt long into the future. These are two sides of the same coin and both suffer from the same ‘too big to fail’ problem of moral hazard (spending beyond one’s means). The idea that nations are always in competition to have a better GDP than others, continues to fuel discussions in the popular press which spill over into elections. But in terms of how economies actually operate, this seems a quaint and outdated relic of the pre-1945 European state system, in the form of strong nations ‘giving laws’ to weak nations (Reinert, Reference Reinert2011, pp. 16–17, 26–9). Global economic integration has made domination for economic resons by overt violence much less purposeful, but wars motivated by nationalistic or ethnic reasons have continued.

But how we think about community in a liberal world while respecting cultural differences is difficult. Every individual also needs to think not just about their own competitive advantage but their obligations to the system which permits competition to occur in a benign non-violent form. This is related to what economists call the ‘free rider’ problem. The free rider problem is a situation where some individuals consume more than their fair share or pay less proportionally for the cost of a shared resource. This occurs when individuals or corporations benefit from a public good like infrastructure, education or social security, while avoiding paying for its cost. There have always been self-centred people and free riders, but technological and institutional change has magnified such behaviour and minimised the effect of the responsible players who make beneficial institutions work. This is exacerbated by greater inequality, because the poorer the bottom of society is, the less taxes they can pay, meaning it seems like the wealthy are paying all the taxes, but if you earn much more of the total income, of course one has to pay more of the taxes. If taxation is instead looked at on the basis of tax paid as a proportion of individual earnings, generally poorer taxpayers pay a higher percentage of their own income in tax than those who are richer.

Another problem is that the idea of the nation as an expression of community has been strengthened by the right-wing association of national forms of ‘society’ with socialism. As Margaret Thatcher famously claimed, ‘there is no such thing as society’.Footnote ¹⁵ As long as the will to individual power continues to be legitimated as acceptable and unproblematic, we cannot begin to approach the problem. However, since the mitigation of climate change also needs such trans-national cooperation, it should be possible to work forward beyond the limits of national political economy to deal with both problems together. This still leaves the problem of how to deal with very wealthy interests who use lobbying and press ownership to protect both industries and their own wealth from progressive change, such as American health insurance or coal mining in the case of climate change.

Globalisation is aimed at providing consumer goods and employment through management but does not consider political engagement as a ‘value.’ It is residual to paid ‘labour’ for many households. In this sense it is like housework and having children. These are only given a monetary value if a family is wealthy enough to hire domestic help or surrogate mothers, and politics and political influence are valued through lobbying and donations rather than time. Once populations are more wealthy, then incentives to avoid corruption and to ensure reliable justice become more important than simply raising production, and this is where instrumentalism fails to be an adequate way of dealing with the problem. Whether one wants to use game theory, religion or enlightenment ideas, people have to be willing to forgo their individual desire for huge wealth or power by whatever means they can to accept rules and ethical norms. Right now societies with mature legal, political and economic systems rely too much on inherited ethical norms, while attempting to use regulation which is often ineffective. The ability to think of our economic and social institutions in a more moral sense should not be that hard; after all, much is being done to think of sexuality in terms of more responsibility instead of power relations. More widely published information on the similarities between national institutions rather than differences and how to interconnect them would also be an enormous step forward.

It will be a challenge to come up with ways in which citizens can defend their economic interests in global marketplaces, but it will have to be done through trans-government organisations or something like them which have regulatory platforms and the power to enforce them. As Thomas Hobbes pointed out, ‘civil’ societies need some kind of enforced authority to deal with those who maintain selfishness beyond what is legally acceptable. Pretty much all societies need to define the limits of selfishness with laws, but someone who is a threat to one society might not be to another, and this fact has certainly been gamed by those with enough wealth to create avoidance of the laws of the states in which they reside. Tax avoidance and money laundering are two problems which can only be tackled through international agreements.

But at this moment in time, as right-wing political movements seem to be gaining popularity daily and could become poised for taking power in the United Kingdom and France, and as Donald Trump pursues protectionism and anti-immigration policies against the constitution, changes in thinking and institutional arrangements seem too abstract and long term. Is there anything which can be done more immediately? The problem is made more difficult to solve as the current political rise of the nationalist right is affected by the rise of online mis-information and social media. But one avenue worth exploring is whether smaller, more selective targeted tariffs might be more logically and strategically used if incorporated into trade agreements through the WHO, based on supporting some employment by setting a minimum difference between wages and benefits in trading partner countries. Also, promoting consumption in China and other countries exporting manufactured goods with still lower GDP per capita than Europe and North America, while supporting manufacture in the United States and United Kingdom (where it is lowest as a percentage of GDP amongst OECD countries) as a way of supporting workers in both countries would be helpful. This could be justified with a more sophisticated understanding of employment as a social activity and universal good rather than just a statistic of being in or out of work. But here again, fear of China as a ‘great power’ has led to some bad decisions being made for the globe, such as putting tariffs on imports of cheaper Chinese green technology to protect home industries, rather than looking at it as China effectively subsidising a necessary and expensive transformation for the good of the planet.

One way forward for liberals who believe in global empathy for the poor everywhere is to focus on the political strength of large urban areas. It is in cities such as London, Paris and Berlin where migration and global movement are embedded and largely successful. Although there are certainly problems of police racism and homelessness in large cities, the electorate in cities are much more tolerant. One of the remarkable features of recent elections has been the alignment of votes for the right with rural areas, and the left with urban areas. Cities are also much more likely to innovate in green and welfare policies. Perhaps, although, the most achievable political goal would be policies to bring down accommodation prices through building rent controls and other policies. Since the highest prices are in urban areas because of population density and in-migration, this is something which cannot be done without the participation of city government. But how to also convince the middle classes and elites to accept a reduced value of their property assets and possibly pay more tax is a political problem beyond my scope here. As an historian, I hope I have shown why I think certain problems have been created by the structure of the state and economy in the way institutions have developed to provide for the poorer parts of society. Such problems are independent of xenophobia and nationalism, but their nature has made them a perfect seedbed for exploitation by these factors, and it is my hope that historical understanding can be used to drive a wedge between the nationalist right and anxious citizens.