The Retreat of Western Liberalism

1. The West's economic dominance is ending as the global center shifts East

China's economy is likely to be twice the size of America's and larger than all the Western economies combined.

Shifting economic power. The global economy is undergoing a massive rebalancing, with China and India driving much of the world's growth. By 2050, China's economy is projected to be twice the size of America's. This represents a return to historical norms - for most of human history before 1800, China and India were the world's largest economies.

Rapid convergence. The speed of this shift is unprecedented. China has gone from 1% of global trade in 1978 to nearly 25% today. India's rise is following a similar trajectory. This convergence is dramatically reconfiguring the global power structure.

Implications for the West. As economic power shifts East, the West's ability to shape global affairs is diminishing. Western-led institutions like the World Bank are being displaced by China's development banks and initiatives like the Asian Infrastructure Investment Bank. The West must adapt to a world where it no longer dominates economically or geopolitically.

2. Rising inequality and stagnant middle-class incomes fuel populist backlash

Between half and two-thirds of people in the West have been treading water – at best – for a generation.

Stagnant middle class. While the global economy has grown, middle-class incomes in the West have stagnated for decades. In the US, median household income is barely higher than in the 1970s, while the costs of healthcare, education, and housing have soared. This economic insecurity has fueled anger and resentment.

Winners and losers of globalization. The benefits of globalization have accrued disproportionately to the wealthy and educated elites, while many working-class people have seen their jobs outsourced or automated. This is visualized in the "Elephant Chart," showing stagnant growth for Western middle classes but huge gains for the global top 1% and emerging market middle classes.

Rising inequality. Income and wealth inequality in the West have risen to levels not seen since the Gilded Age. In the US, the top 1% now own more wealth than the bottom 90% combined. This extreme concentration of economic power is corroding social cohesion and faith in democratic institutions.

3. Automation and AI threaten jobs across all skill levels, reshaping work

From janitors to surgeons, virtually no jobs will be immune.

AI revolution. Unlike previous technological revolutions that primarily affected specific industries, artificial intelligence and automation threaten to disrupt nearly every sector of the economy. Even traditionally high-skill professions like law, medicine, and finance face partial automation.

Gig economy growth. The nature of work is changing, with more people engaged in temporary, part-time, or freelance "gig" work. While offering flexibility, this shift often comes with less job security and fewer benefits. Nearly a third of US workers now engage in some form of independent work.

Policy challenges. Governments and societies must grapple with how to:

• Retrain displaced workers
• Ensure economic security in a more volatile job market
• Distribute the gains from increased productivity
• Maintain social stability with potentially higher structural unemployment

4. Liberal democracy faces an existential crisis as trust in institutions erodes

The crisis of Western democracy is also a crisis of international relations. They are two sides of the same coin.

Declining faith in democracy. Support for democracy has declined across the West, especially among younger generations. In the US, less than a third of millennials say it's essential to live in a democracy, compared to over 70% of those born before WWII.

Institutional breakdown. Trust in governments, media, and other democratic institutions has plummeted. Many feel the system is rigged in favor of elites. This has fueled support for populist outsiders promising to upend the status quo.

Global reverberations. The crisis of Western democracy has global implications:

• Emboldening authoritarian regimes
• Weakening support for human rights and democratic values
• Eroding the rules-based international order
• Increasing geopolitical instability

5. Populist nationalism surges as people seek to "take back control"

What was good for General Motors was good for America. That is an outmoded way of measuring growth in today's world.

Backlash against globalization. Many voters feel they've lost control over their economic destiny and cultural identity due to globalization, immigration, and rapid social change. Populist leaders promise to reassert national sovereignty and protect traditional values.

Economic nationalism. There is growing skepticism of free trade and support for protectionist policies. This represents a rejection of the neoliberal economic consensus that has dominated Western politics for decades.

Cultural anxiety. Beyond economics, many voters, particularly older and rural citizens, feel their cultural values and way of life are under threat from immigration and social liberalization. This fuels support for nativist policies and politicians.

Key examples:

• Brexit vote in the UK
• Election of Donald Trump in the US
• Rise of far-right parties across Europe

6. The US-China rivalry risks conflict as American hegemony wanes

Chaos, not China, is likelier to take America's place.

Thucydides Trap. Historical analysis shows that when a rising power threatens to displace an established power, the result is often war. The US-China rivalry fits this pattern, creating a risk of conflict as both sides jockey for global influence.

Flashpoints for conflict:

• South China Sea territorial disputes
• Taiwan's status
• Cyber warfare and economic espionage
• Competition for resources and markets

Multipolar instability. As US hegemony declines, the world is becoming more multipolar. This creates a more unpredictable and potentially unstable international system, with increased risk of miscalculation and conflict.

7. Western elites must reconnect with ordinary citizens to save democracy

Governments of all types – democratic and authoritarian, small states and superpowers – are losing their ability to anticipate events.

Elite disconnect. Many Western elites have become disconnected from the economic and cultural realities of ordinary citizens. This fuels resentment and undermines democratic legitimacy.

Rebuilding trust. To preserve liberal democracy, elites must:

• Address economic insecurity and inequality
• Engage with cultural anxieties instead of dismissing them
• Reform political systems to be more responsive and accountable
• Demonstrate that democracy can deliver tangible benefits

Dangers of inaction. Failure to bridge this divide risks further democratic erosion and potential authoritarian backsliding in the West.

8. A new social compact is needed to address economic insecurity

Protecting society's weakest from arbitrary misfortune is the ultimate test of our civilisational worth.

Rethinking the welfare state. The post-WWII social contract is breaking down as globalization and automation create new economic pressures. A new model is needed to provide economic security in a more volatile world.

Potential reforms:

• Universal basic income or negative income tax
• Portable benefits for gig economy workers
• Free or heavily subsidized retraining programs
• Universal healthcare to decouple insurance from employment

Balancing dynamism and security. The challenge is to create a system that provides a basic level of economic security while maintaining incentives for work and innovation.

9. Global cooperation is vital despite the retreat of globalization

Populist nationalism is staging a comeback just as global cooperation is most desperately needed.

Transnational challenges. Many of the most pressing issues facing humanity require global cooperation:

• Climate change
• Pandemics
• Nuclear proliferation
• Regulating artificial intelligence
• Managing migration flows

Reforming global institutions. International organizations like the UN, WTO, and IMF need to be reformed to be more representative and effective in a multipolar world.

Balancing global and local. The challenge is to find a new balance between national sovereignty and the need for global governance on key issues. This requires rebuilding public trust in international cooperation.

Last updated: January 24, 2025