How has the 21st century gone so wrong?

“Never before has our nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats,” Bill Clinton exulted in his last State of the Union address as US president, on January 27, 2000.

The Nasdaq had reached 4000, a nearly sixfold increase in seven years. Unemployment in the world’s largest economy had shrunk to 3 per cent, the lowest in more than a generation. Having borne the burden of the Cold War, the American people were reaping the peace dividend.

Xi Jinping, Donald Trump and Vladimir Putin all seek radical change to the current world order.Credit: AP

In other countries, the news was equally bright. The Europeans had introduced both a single market and a single currency and were well on their way to becoming a “United States of Europe”. The once-mighty communist international had dwindled to Cuba, North Korea and a few university departments. World trade in manufactured goods had doubled in the 1990s and would double again in the 2000s. Global poverty was receding faster than ever.

A quarter of a century later, the mood could not be more different. A sizeable majority of the global population – three in five people – believe the world is getting worse. This is as true in traditionally optimistic America (which has just elected an irascible 78-year-old to succeed a faltering 82-year-old) as it is in stagnating Europe.

The world’s second-biggest economy, China, is run by a proud Marxist-Leninist, Xi Jinping, whose achievements include removing limits on his time in power. The world’s most populous country, India, is in the hands of an illiberal strongman, Narendra Modi.

China and Russia have built an axis of authoritarian states that are determined to push back against Western liberalism. Vladimir Putin’s “war on the West” has involved not just the invasion of Crimea and Ukraine and the dispatching of private militia across Africa, but numerous sorties, by plane and submarine, into Western territory.

Xi has declared that any foreign power that tries to “bully, oppress, or enslave us” will “be battered and blooded from colliding with a great wall of steel forged by more than 1.4 billion Chinese people using flesh and blood”.

In the 1990s, we looked forward to a world of entrepreneurial vigour, public sector discipline and spreading peace.

Optimists might point out that the first quarter of the 21st century has been better than the first quarter of the 20th, when the Great War took the lives of 15 million people and provided the material for both communism and fascism, not to mention World War II. But the contrast with the optimism of the 1990s is nevertheless astonishing. And worse is almost certain to come.

Some security officials believe we are engaged in an undeclared war with the “axis of autocracy”. Donald Trump, elected with a clear majority, has hinted he will pursue a policy of America First and may well destroy the institutions that undergirded postwar security.

The EU is in a state of paralysis, with the leaders of the two most powerful countries, France’s Emmanuel Macron and Germany’s Olaf Scholz, discredited and their economies stagnant. And tens of millions of people are likely to flee Africa and Latin America in coming years, driven by a combination of economic stagnation, political fragility and climate change, empowering the far right and undermining the stability of the West.

As for the miracle of technology, one survey of AI researchers discovered that 48 per cent thought there was at least a 10 per cent chance that its impact would be “extremely bad”, that is, lead to human extinction.

What has gone wrong with the 21st century?

Let’s start by acknowledging that there have been successes. We have created an entire virtual world. Today, more than half the world’s population has some sort of internet access, and there are about as many mobile phones in the world as people – 8 billion-plus. This has ushered in a world of information and entertainment that never existed.

There are more than a billion fewer people living on less than $US2.25 a day than there were in 2000, thanks to catch-up growth in developing countries. In 2012-13, the global poverty headcount fell by 130 million people, marking it as one of the most remarkable years in history. In December 2020, China declared it had eliminated extreme poverty completely.

Yet even these positives contain negatives. The information revolution has undermined the business models of “old media” companies that put a premium on checking facts while, at the same time, empowering rumourmongers who depend on polarisation and misinformation.

There has been no significant impact in reducing global poverty in the decade since 2015.Credit: Getty Images

The spread of smartphones has coincided with the spread of psychological problems, particularly among the young.

The war against poverty is going into reverse. In China, economic growth has slowed to a crawl. In Latin America and Africa, poverty rates are again rising, thanks to economic stagnation, political instability and rapid population growth. In all, the number of people living in absolute poverty has barely declined since 2015.

The West has made a succession of policy errors that both weakened its elites and emboldened its autocratic critics. George W. Bush invaded Iraq based on false information and then bungled the occupation. Angela Merkel, Germany’s powerful chancellor from 2005 to 2021, failed to address her country’s two biggest weaknesses: its dependence on Russian energy supplies and its failure to invest in its own defences. In the UK, David Cameron dealt with a feud within the Conservative Party by holding a popular referendum on Britain’s membership of the EU, plunging the country into chaos and reducing its economic growth rate.

The world has also lived through the worst financial crisis since the Great Depression, which deepened the growing sense of economic injustice and paved the way for the rise of populism.

The problem lies with more than just a handful of policy mistakes. It lies with the broader development of the global economy-cum-polity. In the 1990s, we looked forward to a world of entrepreneurial vigour, public sector discipline and spreading peace. What we got was the very opposite: oligopoly, government splurge and militarised blocs.

The consolidation of capitalism is most advanced in the US, the leading economic power, and in tech and finance, suggesting that oligopoly is the way of the future. Five tech companies are each worth more than $US1 trillion ($1.6 trillion), and one, Apple, is worth more than $US3 trillion. Three big investment houses, BlackRock, the Vanguard Group and State Street, collectively manage around $US22 trillion in assets. Over the past two decades, industries have grown more concentrated.

This may be the result of excellence: Google and Apple are superbly run, and Microsoft is undergoing a renaissance after a period in the doldrums. But would anyone argue that America’s airline industry is a model of innovation and customer service?

The success of the superstar companies slows the rate of innovation and thwarts competition; the success of second-rate companies contributes to a general sense of frustration. It’s notable that the world’s first great age of populism, before World War I, coincided with the rise of giant companies, particularly in the US and Germany.

Bill Clinton’s pronouncement in 1996 that the era of big government was “over” has proved hollow.Credit: AP

Meanwhile, Clinton’s pronouncement in another State of the Union Address, in 1996, that the era of big government was “over” has proved hollow. Americans tax themselves like a small-government country but behave like a big-government one. The US deficit is roughly 6 per cent of GDP, twice the average of recent decades and the US government stepped in to save failing companies such as Citigroup and General Motors in 2008.

The situation is worse in the EU, where government sprawl is not balanced by economic vigour. European countries spend beyond their means on welfare while the bureaucracy in Brussels prides itself on its role as “regulatory giant” rather than its ability to ignite growth.

Putin put paid to talk of the “peace dividend” with his invasion of Crimea in 2014 and Ukraine in 2022. But, in truth, the most serious threat to the global order comes from China, which has an economy 10 times the size of Russia and a much more disciplined leadership.

From its admission into the World Trade Organisation in 2000, but gathering pace with the rise of Xi to the top job in 2013, China poured a portion of the “globalisation dividend” into building up its military might. China’s navy is the biggest in the world, and its nuclear arsenal may reach 1000 warheads by 2030, according to the US Department of Defence.

It is also roaring ahead in tech. China has overtaken the West in hypersonic missiles – those capable of travelling at five times the speed of sound and evading air defences – and is pioneering lasers, orbiting space robots and high-altitude balloons.

What are the chances that the next 25 years will be better than the last?

The 21st century has seen the two most compelling ideologies of the 1990s malfunction horrendously. These are neoliberalism, the belief that, overall, markets are more efficient than governments in organising economic life, and neo-conservatism, what started as a corrective to the left’s overconfidence in the power of the state to fix everything.

The great danger in coming years is that we will see the further decline of a third ideology: liberalism. Across the West, liberal leaders are flailing. Kamala Harris decisively lost to a candidate who has broken one of the most important liberal rules: giving up power graciously when you lose an election. The two most flamboyant liberal politicians of the past decade – Macron in France and Justin Trudeau in Canada – are flailing. Keir Starmer won a landslide election victory in the UK on the promise of reviving the pragmatic centre only to make a mess of governing.

Liberal elites have prepared the way for a populist backlash by a combination of commission and omission. They have fixated on cultural issues such as pronouns at a time when regular people are suffering from stagnant living standards. They have betrayed the principle of race-blind meritocracy by embracing race-conscious policies. And they have paid too little attention to growing worries about immigration even as expanding populations put pressure on housing and public services. The result has been to cede ground to populists such as Trump, Nigel Farage in Britain and Marine Le Pen in France.

Which future we choose depends, above all, on whether liberals can once again revitalise their beliefs.

There are some reasons for optimism about the future. The AI revolution has the potential to cut administrative costs while giving everyone the equivalent of a smart assistant. The collapse of Bashar al-Assad’s regime in Syria is a serious setback for the “axis of autocracy”, reducing Russia’s influence in the Middle East and suggesting that even the most vicious dictators can be overthrown. The Republicans’ triumph in 2024 could prove self-correcting, creating opportunities for a new generation of middle-of-the-road Democrats.

Yet all this potential could go the other way. AI may destroy the jobs of millions of knowledge workers, creating a radicalised middle class, while handing more power to a few tech giants. A newly liberated Syria may break up into warring territories or fall into the hands of Islamic extremists. Trump and his allies may well destroy the rules-based international order that has largely kept the peace since 1945. An intriguing study of 120 years of populist governments suggests that the most common reaction to the failure of populism is for voters to demand yet more populism.

Which future we choose depends, above all, on whether liberals can once again revitalise their beliefs or whether they will continue to drift and dither.

Can they address the causes of populism, or will they continue to repeat empty phrases? Can they think like regular people, or will they continue to act like members of a global elite? Can they adapt classic liberal ideas about open competition and freedom of speech to radically new circumstances?

What happens this next quarter-century depends on how well we answer these questions.

Adrian Wooldridge, a former writer at The Economist, is the author of The Aristocracy of Talent: How Meritocracy Made the Modern World.

Bloomberg

Get a weekly wrap of views that will challenge, champion and inform your own. Sign up for our Opinion newsletter.