Introduction

In 1994 the seminal OECD Jobs Study exposed the “dark side” of double-digit unemployment in many west European economies, suggesting the presence of a dire trade-off between equity and employment (OECD 1994). Fast-forward two decades to the OECD's landmark report on inequality, In It Together: Why Less Inequality Benefits All (OECD 2015). Here we are confronted with a sea change in perspective. The imperative of “making work pay” by social retrenchment and market deregulation is replaced by a strong emphasis on “capacitating” policy efforts, whereby activating poverty relief, family services, gender-balanced leave provision, vocation education, training and employment services and public health, and even passive unemployment benefits, are appreciated as “crowding in”, rather than “crowding out”, private economic initiative, productivity, employment and growth (OECD 2015). This change in fact reflects long-term evolution in the spirit in OECD Jobs Strategy reports and other Employment Outlooks: as these gradually moved away from the sole objective of expanding job quantity through structural reforms, they started to emphasize the need for policies that foster job quality (OECD 2006), to eventually consider jobs as a constitutive part of wider well-being and resilient welfare state objectives (OECD 2020). Meanwhile, the European Union championed its new welfare edifice, most assertively in the Social Investment Package (SIP) for growth and social cohesion, published in February 2013. The key impetus, in terms of policy effort, was to “prepare” individuals, families, and societies to adapt to various transformations, such as changing household patterns and working conditions, the rise of the knowledge economy and population ageing (European Commission 2013). As the sovereign debt crisis came to a head, social investment renewal was put on hold in favour of fiscal consolidation. Yet many of the key ideas of the SIP were subsequently rekindled in the European Semester from 2014 to 2019, most precipitously with the endorsement of the European Pillar of Social Rights, at the Gothenburg European Council in November 2017 (see Chapter 4).

INTRODUCTION

In earlier chapters it was explained that the Chinese model involves certain distinctive governance instruments and targets. These instruments and targets have changed over the course of time as domestic and international economic, political, cultural and environmental developments at each stage generated contradictions that were addressed in new waves of reform. In the 1950s the aim was the restoration of national political and economic sovereignty and independence via land reform and national industrialization in a context of fair distribution and worker mobilization. After the rapprochement with the United States in the 1970s, China took out Western and Japanese loans to address shortages of capital that all developing countries confront, and in 1979 it embarked on reform and opening up, allowing some people and places to get rich first so as to develop the productive forces. In 1999, after years of economic growth that was unprecedented in scale and duration but that generated serious environmental problems and wide inequalities, a major strategic reorientation started: alongside a quest for continued economic growth, the aim of people-oriented development progressively unfolded. In 2012 China entered a new era, the goal of which is national rejuvenation and the establishment of a modern socialist country by 2035.

The evolving geography of China's development has itself shaped and been shaped by these changing strategies, targets and instruments, as this chapter will show. More specifically, in the third section some of the broad features of China's territorial development are outlined. These features are in part a reflection of China's geographical and natural resource context, which is therefore examined in the fourth section. Yet they also reflect the evolution of policies and the size, composition and direction of investments designed to industrialize and defend the country, accelerate economic and social modernization, improve living standards and address inequalities and contradictions arising from earlier phases of development, as is shown in the fifth section. The sixth section outlines the instruments that China deploys to meet its regional development objectives. To bring to life in a more vivid way China's regional development, the final section examines more concretely the role of urbanization and economic development in western China through the lens of the recent growth of the municipality of Chongqing.

There have been various attempts to regulate the CRA industry in the United States, at the transnational level and by the European Union over recent decades. The global financial crisis of 2008 represents a turning point in these efforts, when there was a clear shift from a light- touch approach of self- regulation to a mandatory system of CRA supervision and regulation. As we will see, despite these reforms there are limits to addressing the rating problems encountered during the GFC.

US efforts

In the United States, the relationship between government regulation and CRAs first began as late as the 1970s. This happened indirectly through bond regulations of financial institutions. In 1975 the SEC introduced rule 15c3- 1, also known as the net capital rule. Investors purchasing bonds rated in the investment- grade category by at least two nationally recognized statistical rating organizations (NRSROs) had to hold fewer reserves against these bonds. The SEC did not formally specify the eligibility criteria for NRSRO status. This led to an ambivalent constellation: Although regulators started to use credit ratings for regulatory purposes, CRAs themselves continued to be largely free of regulation (Hiss & Nagel 2014: 132).

In the wake of the Enron scandal in 2001, the United States led attempts to abandon the CRA self- regulation paradigm. CRAs were criticized for having missed Enron's towering accounting frauds. CRAs failed to fulfil their role as the market's watchdogs or “gatekeepers” (Coffee 2006). Moody's and S&P's downgraded Enron's credit rating below investment grade only four days before the company filed for bankruptcy on 2 December 2001 (Coffee : 247).

In hearings before the Committee on Governmental Affairs of the US Senate, invited experts suggested regulating the CRAs for the first time (Hiss & Nagel 2011 2014: 133). These calls became louder during the course of the WorldCom scandal in 2002. As in the case of Enron, the CRAs were criticized for having failed to spot the breakdown and accounting frauds of the company in time. WorldCom filed for bankruptcy on 22 July 2002. Both Moody's and S&P's had downgraded the company below investment grade only two months beforehand (Langohr & Langohr 2008: 14).

INTRODUCTION

In 1949 new China emerged from the War of Resistance against Japanese Aggression (1937–45) and the subsequent Civil War (1945 to 1949) as almost the poorest country in the world. In 1950 the violation of Chinese territorial sovereignty and the need to deter a new invasion saw China respond to a North Korean request and enter the War to Resist US Aggression and Aid Korea, a struggle it also won but at considerable cost in terms of human life and the dedication of resources to strategic military and related industries. From 1949 through the 1960s China was subjected to a sustained economic embargo imposed by the United States, which was expanded to cover medicines, tractors and fertilizers (Zhang, cited in Losurdo 2008: 287– 92).

And yet, in these extraordinarily difficult circumstances, the new China saw life expectancy increase from 35 years in 1949 to 57 in 1957 and 68 in 1981 (Xinhuanet 2019), while its population increased from 554.4 million to 1,014 million. According to the World Bank (1981: 101), 1979's life expectancy of 64 years was higher than the average of 51 for low-income countries and 61 for middle-income countries; adult literacy stood at 66 per cent, compared with 39 per cent in low-income countries and 72 per cent in middle-income countries; while net primary school enrolment (93 per cent) was just short of that for industrialized countries (94 per cent).

In 1978 per capita rural income stood at ¥134 (81 PPP$) while the per capita income of urban residents was ¥343.4 (208 PPP$), yet the latter increased to ¥454.2 if the value of welfare, medical and other in-kind provision is included (Zhang 1994). In 1978, although there were many status and regional differences, China was egalitarian, with small income inequalities within communes and cities. In the words of the World Bank, “China's most remarkable achievement during the past three decades” was to have made “low-income groups far better off in terms of basic needs than their counterparts in most other poor countries”, thanks to the priority attached to food, education and health (World Bank 1983: 11).

Over their life course, most European citizens benefit from public health care and education, inclusive social safety nets and pension provision, labour market (re)integration services and childcare support for their offspring. Precisely because they smooth and facilitate life course transitions, such welfare provisions are often taken for granted. Yet the welfare state's survival requires closer scrutiny, as it has been under sustained attack during the (neo)liberal epoch of inflation targeting, public finance austerity and labour market liberalization since the 1980s, combined with the exemplary role it played during the deepest economic crisis since the Great Depression.

In the first section of this chapter, we first venture to set straight empirically important misconceptions about the inescapable equity– efficiency trade-off and employment– redistribution– fiscal prudence trilemma in the academic literature and practical policy-making, which have cast dark shadows over the staying power of inclusive European welfare states in recent decades (modelled after and updated from Hemerijck 2013 and Hemerijck & Huguenot-Noel 2019). Next, the second section draws attention to the importance in timing of national welfare state expansion, pre-dating the widening and deepening of EU economic integration from the mid-1980s. In the third section, we correlate general welfare performance with social spending efforts to corroborate macro-evidence, underlining the achievements of European welfare states. Then, the fourth section summons a wider set of indicators from the OECD and Eurostat to trace and assess the evolution of welfare performance in the European Union between 2000 and 2019 by focusing on employment performance in terms of gender and age. The fifth section turns to social-investmentspecific indicators, such as “robust” families, training and education. Based on the previous information, the following section moves on to selective portrayals of country-specific welfare reform trajectories. In conclusion, the final section draws key lessons for welfare resilience across the European Union from the experience of the Great Recession.

Beyond inescapable trade-offs and trilemmas

Across the board, the modern welfare state centres around an integrated portfolio of policy provisions rooted in the adverse experience of the Great Depression, strongly associated with the rise of Keynesian economics and Beveridgean social security.

“When life gives you lemons, make lemonade.” This proverbial phrase is emblem-atic of the CRAs’ relationship with criticism and financial crises. Whether it be the global financial crisis of 2008, the subsequent European sovereign debt crisis, the earlier Enron, Parmalat and WorldCom scandals or the Asian financial crisis of 1997– 99, CRAs have demonstrated a puzzling resilience and crisis resistance. Their authority has proved to be immune to the public outrage generated by rating failures and to the harsh criticism of policy makers, practitioners and scholars of different ideological traditions and camps. Undoubtedly, their survival can be explained by the CRAs’ structural power and constitutive role in the financial system. But it has to be acknowledged that, in retrospect, the CRAs weathered the storm of criticism they faced extremely well. They were able to channel the accusations made against them productively, using them to their own advantage.

In the case of the Enron debacle, ratings were deemed to be insufficiently timely. CRAs responded by speeding up their information processing. In the wake of the GFC, CRAs indulged in a PR campaign after putting transparency measures in place to alleviate concerns about there being a fundamental transparency deficit in the industry – a view widely shared among practitioners, regulators, policy-makers and scholars. Embracing transparency, one of the much heralded values in financial market discourses, enabled the CRAs to signal that their epistemic authority was still intact. Conservative ratings in the wake of the Asian financial crisis and the European sovereign debt crisis have also been interpreted as the CRAs’ efforts to compensate for prior rating failures and to demonstrate their learning capacity. As a result of all these presumably strategic reactions to crises, CRAs succeeded in restoring their reputation and credibility.

The role of the CRAs in the GFC revived criticism, and the extent to which CRAs came under fire between 2008 and 2012 was unique. CRAs were scrutinized as never before – a fact demonstrated by the quantity of litera-ture about CRAs that emerged in the aftermath of the crisis. The criticism was multifaceted and related to different characteristics of the rating business, and it surfaced at different moments during the crisis.

The great unsung hero of the global economic and financial crisis was the welfare state. This is the premise for Anton Hemerijck and Robin Huguenot-Noel's book. Using a wealth of data for macroeconomic performance and labour market participation, they underline how important social programmes were in underpinning economic resilience. This positive contribution of the welfare state explains not only why many northern European countries did better than their southern neighbours but also why parts of Europe – despite the travails of that continent's sovereign debt crisis – outperformed the United States. And, if the welfare state underpinned economic resilience during the economic and financial crisis, it played an even more important role in stabilizing economic performance during the Covid-19 pandemic. The conclusion to draw from this experience is not that everyone should embrace a European-style welfare state but that they should at least give fresh consideration to what the welfare state represents.

This premise is only the start of the argument. What follows is a subtle enquiry into the enduring significance of traditional claims about the trade-offs politicians must face between equity and efficiency, the longer-term financial viability of social safety nets, the rigidity of welfare state institutions and the interaction between different “worlds of welfare” – as Gosta Esping-Andersen famously characterized them – and the macroeconomic paradigms in which they are embedded. Along the way, Hemerijck and Huguenot-Noel make three fundamental observations.

Their first is that the rules of thumb that politicians use when talking about welfare states have remained much the same over the past three to four decades but the institutions themselves have changed in important ways – and so have the societies in which they operate. The potential for cognitive dissonance in this context is manifest.

The second observation is that the family resemblances between different countries that Esping-Andersen captured so effectively in the early 1990s have not survived this recalibration; some similarities remain between some countries – such as Italy and France, for example – but many have faded away. Here, again, it is hard to see how the old rules of thumb make sense.

We have seen that there was a sense on all sides of the post-referendum conflict that immigration control was intrinsic to Brexit, and rejection of freedom of movement was common ground across the Conservative Party and much of Labour. The Labour and Tory MPs who continued to pursue the Norway option highlighted its economic benefits rather than movement rights, and freedom of movement was explicitly defended only by the European movement, for whom it was the core of European citizenship. Immigration declined rapidly in polling salience after 2016; while this was sometimes attributed to the reduced numbers of new European immigrants, it was much more likely to have been because of the fact that Brexiters – having won the principle of ending freedom of movement and being focused instead on blocking May's deal – no longer felt the need to campaign on these numbers, while many of their supporters believed that they were actually being controlled. Even Farage, when he launched his Brexit Party for the 2019 European elections, did not campaign on immigration. Followers who had attended one of his rallies boasted to me on Twitter that he had not mentioned it in his speech; it was so central to Farage's brand that he did not need to emphasize it at every twist and turn, since when he talked of the “betrayal” of Brexit his supporters would have understood that immigration control was part of what he was complaining about. The position of Conservative leaders, in contrast, was more ambiguous, and whenever they appealed to the public or their party membership over the heads of parliament, political racism came into the open. When May wrote an “open letter” to the public on 25 November 2018 in an attempt to get support for her agreement, her first point was: “It will honour the result of the referendum. We will take back control of our borders, by putting an end to the free movement of people once and for all” (BBC News 2018a), and official advertisements reinforced this message.

The extreme right, Farage and Johnson in the crisis

By this point, May's project was in deep crisis and this represented Johnson's opportunity.

The referendum campaign had been “the UK's most divisive, hostile, negative and fear-provoking of the 21st century” (Moore & Ramsay 2017: 164) and indeed in living memory. The narrow result, perceived by many on the losing side as achieved through extensive dishonesty and abuse, provoked deep divisions both within parties and across society. These sharpened the cleavage between “open” or “liberal” and “closed” or “authoritarian” groups in parliament and the electorate, which now became known as “Leavers” and “Remainers”. This would almost certainly have been the case whatever the 2016 outcome, since a narrow Remain win would have antagonized the emboldened Leave movement and electorate – and especially the more aggressive Leavers – probably leading to new conflict. Indeed, it is highly possible, given the climate which developed in the late stages of the referendum and its immediate aftermath, that with the Brexit press having paved the way for viewing a Remain win as illegitimate and almost half of Leavers believing that the vote would be rigged, this could have led to the kind of protest and violence which followed Trump's defeat in 2020. There would have been a temptation for the Brexit tabloids, Farage and some Tory Leavers to stoke this situation; extreme right groups, some of which leaned towards violence, would also have brought themselves to the fore. However, the Leave victory meant that open intimidation and violence, after initially surging, slowly dissipated and the climate which they created instead reshaped the political project as it passed into the hands of the Conservative government.

The intensity of racial politics around the 2016 referendum shocked those observers who had accepted the narrative of positive change in British society. Yet, while some forms of liberalization were real, overall the country was far from being “post-racial”, and many sources of continuing racism were embedded in social relations, institutions, beliefs and attitudes. However, the constant renewal of a tradition of political racism had also played a crucial role in perpetuating the general level of racism and blocking fuller liberalization. This tradition, originating in the nineteenth century, was revived in the context of non-white immigration in the second half of the twentieth, most notoriously through Powell's speeches in 1968. As we have seen, race is a “floating signifier”, and it tends to be constantly filled with new meanings, especially by political actors who need to adapt to changing circumstances and the challenges which these pose for the achievement of their goals. It was possible for Brexit to catalyse racist tendencies in society because political racism had been regularly reproduced by sections of the political right and the press, and fed by the immigration policies of both Labour and Conservative governments. Although this tradition was “Powellite” in the sense that his example was seminal for most of the actors, contemporary racemongers are not simply Powell tribute acts, even if that is how some present themselves at times. While they attempt to emulate his considerable success in popularizing racism, they have also learned from the problems which he encountered and the political dead ends in which the extreme right – who followed him in overt racism – also found themselves.

As the Vote Leave slogan, “Take Back Control”, suggested, the overt meaning of the project for British exit from the EU, developed by the British right-wing over a quarter of a century, was a nationalist attempt to recover autonomous sovereign power for the UK state from its enmeshment in the shared sovereignty of EU legal and state institutions. “Regaining” sovereignty was also the most widely acknowledged motivation for voting Leave in 2016 (Centre for Social Investigation 2018), but since restricting immigration – long described as immigration “control” – was not only the second most popular reason for voting Leave but also (as we shall see in Chapter 4) the dominant way in which regaining sovereignty was justified by the Leave campaigns and the Brexit press, the majority for Brexit was both widely informed and in its narrow margin (51.9 versus 48.1 per cent) probably also decided by anti-immigration politics. While racism and hostility to immigration did not define Brexit as a project or process, they are central to understanding it, and no serious appraisal can avoid comprehensively examining their relationships to its overtly dominant nationalist theme. This I do over three chapters: this chapter discusses the ideas behind Brexit and the Eurosceptic/Europhobic campaign in the decades up to 2016; Chapter 4 analyses the referendum itself; and Chapter 5 examines the Brexit process and conflict following the referendum, between 2016 and the UK's formal exit in 2020.

British nationalism, Atlanticism and Europe

The movement for Brexit is part of a wider tendency towards economic and political nationalism in powerful states in the twenty-first century, which has increasingly threatened international cooperation. In this sense, Brexit can be compared to other policies, especially but by no means only of authoritarian regimes; but as the only secession from the unique international state entity which is the European Union, it is also very distinctive. Likewise, Euroscepticism is a major European political current and exists in most member states, but nowhere else has a Europhobic movement become dominant or come close to producing withdrawal from the EU; indeed, so far the British experience has acted as a deterrent rather than an incentive to others. Geopolitical repositioning linked to changes in ruling parties and regimes can also be found elsewhere, but Brexit is unique in its simultaneous transformation of international and domestic constitutional arrangements.