The slowing world economy and its ideology: The crisis of neoliberalism

Capitalism's ideology of "we must increase growth at all costs" has begun to falter. Global growth has averaged between 2.6 and 3 percent since Covid. It is projected to remain around 3 percent in 2026. This indicates that profit rates are trending toward a decline.

For example, although China finished the past year of 2025 by breaking an export record (1.2 trillion dollars), it had to face the concept of involution.

What is involution (Neijuan in Chinese)?

We could also call it a "dumping economy" where cutthroat competition leads to stagnation. In China, where overinvestment is widespread, companies operating at a loss due to dumping are also on the agenda. China's exports hit a record in the year the US increased customs tariffs and despite declining exports to the US. The cost of this is certainly not the 2.5 billion euro loss coming from photovoltaic panel manufacturers. Strangely enough, the effect of zeroing out customs duties on the increase in exports to Africa is significant.

But will China, which is also rapidly increasing its exports to Latin American and ASEAN countries, be able to continue the process it has accelerated with excess capacity and overproduction, using its financing and logistics capabilities? This is the fundamental question. Furthermore, what should we make of the US—the world's largest importer, whose hegemony is now being questioned—using customs tariffs as a threat, while on the other hand, the 90-million-member Chinese Communist Party is zeroing out tariffs with Africa and Latin America?

A CHINESE CURSE: "MAY YOU LIVE IN INTERESTING TIMES!"

The world system is entering 2026 by truly passing through what the Chinese call "interesting times." However, as far as I know, the Chinese do not use this phrase as a blessing. They are said to tell people they are angry with, "May you live in interesting times!"

Next year, India's growth, driven by the IT sector, will continue to outpace China's, but this growth lacks support from the manufacturing industry and is not inclusive. It also does not seem possible to achieve sustainable growth with the service sector alone. The faltering of the neoliberal order is partly due to this. The developing periphery and semi-periphery are caught in the vortex of services. If we add to this the effect created in the world market by the rapid price drops (dumping) caused by China's overproduction in sectors such as electric vehicles and renewable energy tools, things get complicated.

The negative producer price effect in China is of great importance, especially in the decline in Germany's PMI (Purchasing Managers' Index). Contrary to some politicians who claimed they would compete with China after the Covid-19 pandemic, difficulties in exports are also being seen in Turkey, especially among solar panel and textile manufacturers.

In summary, the engine of capitalism is sputtering; China's pushing with production and the US and EU's tug-of-war with weapons are not paying off at all.

The atrocities in Ukraine and Gaza seem to have affected demand to the detriment of other sectors by growing the energy and arms sectors beyond expectations. In energy, China's process of loading up on green energy will continue. Because while green energy production, which constitutes nearly half of the energy used in China's current massive production, appears to be an advantage for China, the fossil fuel policies imposed by the US are unfortunately not receiving "excessive" interest in the EU or the rest of the world.

Although the EU has set a "net zero" carbon emission target by 2035 since 2015 with the Paris Agreement and is trying to make its trade climate-compatible with the Carbon Border Adjustment Mechanism, we also know that the EU has recently increased its imports of shale gas from the US due to its hostility toward Russia.

This dilemma in energy is forcing the world system to produce weapons for certain conflict zones. What did we say? The ideology of growth at all costs is the engine of capital. Developments in commercial competition offer us important clues about the future...

TRADE WARS ON STAGE

It was clear that after currency wars, we would also experience trade wars. That is happening too. Isn't the shifting of textile factories in Turkey to Egypt a part of this cutthroat competition and labor exploitation? By which factors can the increase in trade be supported? Is the increase in world trade sustainable? Yes, China has significantly boosted its technology and production level with the scientific moves it made after the 2008 crisis.

While China's share in world value-added was 5 percent in 2000, this figure rose to 19 percent in 2014. Of course, the fact that it increased the share of R&D investments in GDP by 4 times has a significant role in this. If you allocate 500 billion dollars to research, you can have sectors that will provide an advantage in competition with the US. If we add to this the employment of Chinese PhD holders returning from the West at high salaries, we can fully understand the impact.

Undoubtedly, it is not easy to keep the manufacturing industry at the top in the world market. For this, it is also difficult to constantly play for first place in exports with reserves that will keep the Yuan's value low, in addition to being the second-largest importer despite restrictions. Involution, that is, responding to cutthroat competition with constant cost reductions, has also become a way for China to suppress its competitors. In fact, China, which announced that it will maximize its coal production until 2030 for this involution, is also aware that it has entered the climate crisis as the largest carbon producer...

CHINA, NEOLIBERAL HARMONY, AND INVOLUTION

Although each of these phenomena creates problems for the US, they do not create problems for China's adaptation to neoliberalism within the world economy, but the most problematic one is involution. If Russia reaches an agreement with the US regarding Ukraine, we can talk about a China that is not guaranteed to get its energy inputs more cheaply. Also, the Chinese Communist Party's idea of "educating capital" (whatever that means) and returning to pro-market, central planning should not be underestimated to overcome involution. These issues were discussed in depth in Le Monde diplomatique last month...

This phenomenon has also begun to be reflected in IMF reports as a revision ("BW at 80"). Are we to think that we have entered a period where we understand that the excess production in China cannot be sustained and that, far from increasing its trade surplus in the coming period, it will fall back to its old position, as we understand from the "BW at 80" report by IMF and World Bank experts, who also see the issues of "inequality, climate crisis, and public finance"?

THE WEIGHT OF HISTORY

On the other hand, the weight of history has fallen upon us again. Do you think it is a coincidence that the Algerian parliament is asking for compensation from France, which it was a colony of between 1830 and 1962? If India does the same to the United Kingdom, we should not be surprised. Neoliberalism may collapse due to influences from the periphery, but the magic of artificial intelligence investments has already surrounded central capitalism. The high energy consumption capacity of artificial intelligence, which we think will increase company efficiency but also increase unemployment, leads us back to the energy debate and involution in trade. In other words, energy prices, which are likely to increase with high energy demand, do not make involution possible.

So, it seems there is an end to involution compatible with the neoliberal order. I wish the revision topics mentioned in "BW 80" had been brought to the agenda 40 years ago, but it seems it took 80 years after the Bretton Woods system for this agenda to emerge. Moreover, conservative and far-right governments are not expected to pay much attention to the proposals in BW 80. However, the fire is already burning in the semi-periphery and periphery. Knowing that they cannot keep up with the scramble at the center, they have started to say, "whatever we can grab is profit."

This shows that the bells are tolling for neoliberalism.

May 2026 bring beauty to everyone!