Democracies in the western world are in crisis, marked by deepening polarisation, mistrust in democratic institutions and rising populism that is making those countries take an insular turn.
Over two decades ago, economist Dani Rodrik put forward a proposition he termed the political trilemma of the world economy. Examining the state of economic integration in the western world, he claimed that countries face a difficult choice – over time, they could only have at the most two of the following: international economic integration (globalisation), the nation-state (sovereignty), and mass politics (popular democracy).
Rodrik’s paper, “How Far Will International Economic Integration Go?” (2000), introduced this concept, arguing that despite the rhetoric of globalisation, international economic integration remains remarkably limited. Countries, adopting a protectionist stance, have erected barriers to free trade. National borders and the transaction costs significantly hamper international commerce, limiting the extent to which gains from globalisation could be realised.
From theory to reality
This idea, once an academic theory, is now playing out in real time across the world. And nowhere is its impact more visible than in the West where the contradictions resulted in consequences worse than what Rodrik might have envisioned. Let us examine the trilemma more closely.
First, countries can embrace popular democracy and globalisation, but in order to do so, they have to cede elements of their national sovereignty. The European Union (EU) is the best example of this. Nations within the EU agreed to give up control over key policies — for instance, monetary policy, trade, migration — to be part of a larger economic and political bloc. While this has been an economic success, with a single market of 450 million people and Gross Domestic Product of $18.5 trillion representing about 15% of all global trade, it has also led to pockets of popular resentment from those who perceive that they have not had access to the same degree of economic opportunities, or from those who feel their way of life has come under threat from allowing free movement of people within the bloc.
In turn, many people blame their governments for allowing EU regulations that are disadvantageous to them to prevail. This resentment has fuelled nationalist movements in Europe, from Brexit in the United Kingdom to now, the rampant rise of far-right parties across Europe — the backlash now is against both democracy and globalisation, accompanied by an antiquated and isolationist view of national sovereignty.
The second and third choices
The second choice that countries have is to pursue globalisation and national sovereignty while restricting the ability of ‘mass politics’ to influence economic choices. Rodrik suggests that in this context, governments take a technocratic turn, with economic policymaking controlled by independent central banks and autonomous regulatory authorities. Such institutions are insulated from the vagaries of popular politics and these countries run the risk of sacrificing popular democracy in the interest of pursuing economic integration. The engagement of international financial institutions in many developing countries around the world bear the hallmarks of this choice — these institutions have actively pushed governments to take steps aimed primarily at restoring the confidence of foreign investors and lenders at the expense of popular will.
This writer would argue that this is also in effect, countries ceding sovereignty to ‘global markets’. Over the last two years in Kenya for instance, the International Monetary Fund (IMF) has had to face a severe backlash for having pushed extreme measures of fiscal discipline at the expense of public welfare and consumer sentiments in the domestic economy. While this in itself is up for debate, the widespread criticism of the IMF does indicate the consequences of this choice — it would seem to degrade both democracy and sovereignty, while not particularly delivering on the benefits from economic integration either.
The third possibility in Rodrik’s trilemma is the option he calls the ‘Bretton Woods compromise’, where countries choose to preserve democracy and sovereignty, while limiting globalisation. Many developing countries such as India seem to have chosen this path, using a mix of protectionism, restrictions on foreign investment, and domestic industrial policies in order to promote their domestic economies. China and the East Asian tigers grew by leaps and bounds by picking and choosing how they allowed globalisation to work in their countries. They invited foreign investment and encouraged export-oriented enterprises, but maintained a tight grip on political power. The consensus among the elites in these countries have come to support this model, as did the social contract between the state and their citizens. Also in order to keep a tight grip on domestic politics, the state has (such as in China) had to impose restrictions on foreign news sources — also limiting the extent to which they have allowed globalisation or economic integration to truly take root. For years now, this model has delivered an impressive rate of economic growth, but curtailing political dissent and restricting individual freedoms could come at a price.
The crisis in the West today is a consequence of Rodrik’s trilemma playing out. For years, western democracies tried to balance all three — democracy, sovereignty, and globalisation — believing that free trade and open markets, national self-determination and popular participation in democracy could co-exist and flourish concurrently. But this balance has been unattainable.
A backlash
Globalisation, while lifting overall living standards in the West, has created winners and losers. Manufacturing jobs have vanished in many parts of the United States, the U.K., and Europe as industries moved to cheaper locations, deepening economic insecurity among those that feel left behind. These grievances, of people such as workers in old industrial towns, and small businesses struggling against global competition, have been coalesced by populist political leaders such as Donald Trump, Geert Wilders and Viktor Orbán. Over the years, one has seen an erosion of trust in mainstream political parties and democratic institutions, and a backlash against globalisation. In response, these political leaders have offered more protectionism, immigration controls and withdrawal from areas such as climate change and international development that require global collective action.
Rodrik’s trilemma remains as relevant as ever — countries cannot have it all, and as argued above, the consequences have been far worse than Rodrik might have envisioned. The choice between furthering globalisation, asserting sovereignty and popular democracy is a stark one. But if countries fail to navigate the trade-offs, they stand to suffer from social unrest and a poorer future. The western world has to find a way out, where it can ensure that economic gains are more broad based, and democratic institutions are responsive to all. This requires much more than a simple turn towards populism or the reckless dismantling of government.
Suvojit Chattopadhyay is an international development professional with experience working on governance reforms across Africa and South Asia
Published – April 28, 2025 12:16 am IST