Exporting US capitalism

When I was in the early days of my previous journalism career, writing for the Investors Chronicle, and also pregnant with child number 1, I was taken by a stockbroker (I think it was Smith New Court, bought by Merrill Lynch in 1995) on an investors’ tour of Budapest and its environs. It was early 1990, and the ‘shock therapy’ privatisation of companies in the formerly communist countries was under way. One visit vivid in my memory was the day trip to Ganz Electric on the outskirts of Budapest, where it seemed like iron ore went in at one end and everything from tractors and trains to light bulbs emerged at the other. But the toilet paper for the office suite was locked up in a cupboard to which only the Director’s formidable secretary had a key.

Ethan Kapstein’s Exporting Capitalism: Private Enterprise and US Foreign Policy brought this all back to me because one of the chapters covers that post-perestroika era. (Indeed, my previous job had involved interpreting perestroika for western European clients of an economic forecasting company and I, like many others, was coming to realise that the figures for material output of the Soviet bloc had led us to greatly over-state the prior economic growth of those countries.) Kapstein, now a Prof at Arizona State and a Director of a conflict studies center at Princeton, had previously been a banker and worked for the US Government and the OECD. He therefore had a seat on various front lines in variously troubled economies. This experience illuminates the book’s analysis. I found it a very interesting read.

The book is a history of the ups and downs of the US’s consistent focus on relying on private investment, particularly FDI, as a vector for economic development and a handmaiden to US foreign policy goals – above all, limiting the spread of Communism to developing countries. Starting with postwar Taiwan, the US has insisted on the central role of private enterprise. One explanation is ideological, the deep-seated US reverence for business and the market. Another is simple pragmatism: official aid will never be sufficient to meet the scale of the investment need in low or middle income countries. A third is an implicit theory of change: that multinational FDI builds local supply chains and has multiplier effects, setting down long-term roots for sustained development, and inoculating local people against socialist ideas and undesirable (from the American perspective) other overseas influence.

Of course, the record has been mixed, to say the least, even among the post-Communist countries. The multinationals required to do the investing have their own aims, which are not obviously aligned with long-term national development needs. Some – such as ITT in overthrowing Allende in Chile – played deeply troubling roles. With hindsight, shock therapy was too much shock and not enough therapy – the idea being to create quickly enough people with enough of a stake in the market to prevent a reversal to communism. But heterogeneous local institutional and political conditions turned out to make a big difference to outcomes.

The historical chapters in this book are fascinating. I was stopped short in one of the final chapters by the reflection that times are changing (indeed) and the US is now converging on China’s state capitalism. This seems a bizarre over-interpretation of the shift – more complex than often painted – away from globalisation. And anyway, as this chapter observes, official aid is still absolutely dwarfed by investment need. The private sector will fill the gap, or the investment won’t happen. It would be good to get away from the old chestnut that state and market are opposites, when they succeed or fail together, and for the same reasons. The history of FDI underlines the need for contextual nuance. Still, a very interesting and enjoyable read, gaining much from the author’s personal practical experience.

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Post-neoliberalism?

The Rise and Fall of the Neoliberal Order: America and the World in the Free Market Era by my Cambridge colleague Gary Gerstle has quite rightly been highly praised. It covers a whole century, starting with the New Deal and post-world war 2 era to preface the bulk of the book, its characterisation of the neoliberal turn from the start of the 1980s. It ends with Trump and the turn away – so Gary argues – from neoliberalism to something as yet undefined. Neoliberalism is described as a commitment to free trade and financial flows, to free movement of people and openness to others, and to deregulation and the expanded scope of markets. Interestingly, he frames the point about the expansion of the market domain in terms of characterising people as consumers, instead of workers, and argues that Ralph Nader played a key role in this regard through his influence on Jimmy Carter, as the old order started to give way to the new.

The book gives a twin-tracked account of what drives these transitions from one era to another. One set of drivers consists of events – economic crisis in particular, so the 1970s commodity shocks at the start and the GFC at the end. More surprising is the role attributed to the Soviet Union: the 1917 Revolution as a stimulus for New Deal politics; Cold War contestation paving the way for business and financial interests to reach a modus vivendi with organised labour through the 1960s in order to avert any threat of domestic socialism; and consequently the collapse of the Soviet Union in 1989 as a destabilising force because it took the brakes off corporate and financial self-restraint.

Another interesting aspect of the argument is the linking of administrations generally seen as being opposed to each others’ policies – the difference between Republican and Democrat being less decisive than that between Eisenhower and Reagan or Kennedy and Clinton. As Gary puts it, the feature of a ‘political order’ is that the opponents of the government also buy into it; it becomes the water in which almost everyone swims.

The FT review described the book as an instant classic. There are lots of talks and pods online for anybody who wants a taster. As the subtitle says, it’s US-focused; an analysis of how the neoliberal order got exported would be interesting. I highly recommend it – I read it in just a couple of days of travel. And it set me thinking about what the next political order might turn out to be…..

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Co-operation vs sovereignty in an unequal world order

Global governance is understandably something of a preoccupation as economic globalisation seems to be in retreat at the same time that the scale and intensity of global challenges – climate change, the AI race, actual or simmering conflict, organised crime – is increasing. The Bretton Woods institutions – IMF and World Bank – established in the wake of World War Two remain important and powerful, and will have a lot on their plates in the next year or two, including the possibility of a new debt crisis alongside a surge in poverty and hunger. This context raises two questions. One is what is their guiding philosophy in terms of economic analysis and policy recommendations going to be now the old Washington Consensus version of conditionality has been more or less ditched? The other is whether they can help address the new kinds of challenges, or whether instead new institutions are needed?

They were forged out of a crisis of course, but in The Meddlers: Sovereignty, Empire and the Birth of Global Economic Governance Jamie Martin traces their forbears in the international economic institutions established near the beginning of the 20th century. The key issue he highlights is on the one hand the delicate balance between mutually beneficial co-ordination and voluntary loss of sovereignty among peer countries, and on the other the exercise of power by some countries over others (Imperial powers over colonies or later the US over its debtors) at the expense of the latters’ sovereignty. Co-ordination and co-operation require ceding some decision-making ground but when there is a parity of power this expands the opportunities or benefits each party experiences. However, the international institutions also embed inequalities of power – symbolised by the Asian crisis image of an IMF bureaucrat (Michel Camdessus) leaning over a local politician (Indonesia’s President Suharto) signing up to loan conditions.

Some technocratic institutions governing for example international post or shipping have lasted throughought the century plus, while the BIS (established in 1929/30) is an interesting example of an organisation with a broader mandate yet lasting throughout the 20th century and beyond, despite its missteps during the 1939-45 conflict. Other pre-WW2 international bodies such as the Economic and Financial Section of the League of Nations fell with the implosion of the international order at the outbreak of war. The book argues that the context of post WW1 reparations, the tensions in the European empires, the growth of US economic power and the pressures of the gold standard and the tariff wars of the 1930s all contributed to their downfall. International co-ordination was both essential and impossible.

The lesson for the 21st century, it concludes, is that today’s context of shifting economic power and economic crisis pose similar challenges for the Bretton Woods institutions. The history of earlier institutions suggests that it is fundamentally hard to resolve the core dilemma of a need for co-operation with the desire for sovereignty in a world of unequal power: “Tweaks to existing international institutions, like the IMF and World Bank, may be insufficient to produce a more stable reconciliation of global governance and democratic politics.” But what form should new institutions take? This very interesting book leaves the question hanging.

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All the Cs but how many Gs?

The title of Fred Bergsten’s latest book is somewhat misleading: it’s The US vs China: the quest for global economic leadership. But the argument of the book goes against the polarisation presumed in the title. Bergsten’s argument is that while the US and China are bound to compete in some economic domains, they should, and will find they must, co-operate in others. Tackling climate change and ensuring global financial stability are two of the examples of the latter. Indeed, he calls for ‘conditional competitive co-operation’, with the formation of a G2 on issues of global public goods, pandemics and other crises.

This all seems super-sensible. But it also has the flavour of a book from a distant era. Although the pandemic had happened, the Russian invasion of Ukraine had not. Nor at the beginning of 2022 might we have expected both China and the US to seem as unstable internally as they do at this moment, with astonishingly bad covid-exit policies on the one hand and the resurgence of Trumpism in public life on the other, alongside what is going to prove the most serious crisis of capitalism for at least a generation. The (geo)political pack has been not just shuffled but thrown up in the air. (And who had a monkey-pox epidemic on their 2022 bingo card??) At least Bergsten does warn about the dangers of a leadership vacuum, a G0 world, with the 1930s as a spectre of what could be.

The author’s knowledge of the international monetary system is legendary, and this is a terrific book to read for the economic insider’s perspective. Alongside Adam Tooze’s books, particularly Crashed, I now feel as informed as I’m going to be about international monetary matters. But the future now looks even more frightening than the most frightening prospect described here. Screenshot 2022-05-20 at 15.53.40

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Globalisation past and future

Sitting in quarantine in my office is the Piketty tome, Capital and Ideology, the book that’s so ridiculously massive it arrived with its own tote bag. I’d got far enough in to it to reach the long historical section, to which my first reaction was he didn’t need to show us all his workings in such immense detail.

Another economist who has turned to history is Jeff Sachs in his latest, The Ages of Globalisation: Geography, Technology and Institutions. Sachs has long been alert to the implications of geography for economic outcomes; in this book he adds a very long historical perspective. So long that we start in paleolithic times at 10,000 BCE. The narrative is framed in terms of seven ages: paleolithic, neolithic, equestrian (domestication of horses), classical (Rome/Han China, ocean (start of European empires), industrial and digital.

There has been a trend towards these long-perspective books in recent times: Ian Morris’s Why the West Rules (For Now), Jared Diamond’s Guns, Germs and Steel and Collapse, James Scott’s Against the Grain, the dreadful Sapiens by Yuval Noah Harari. If you have read a number of these, then much of the ground covered in Sachs’s book will seem familiar; there’s only so much that is known about paleolithic times. Its great merit – especially if you haven’t read any of the others – is that it’s concise, and sends the interested reader to other sources. It doesn’t need its own tote bag, and Sachs wears his own extensive reading lightly. He’s a very clear writer, too, and the book has some lovely (colour) charts and maps.

The pitfall of taking this synoptic approach is that a lot hangs on the narrative thread and underlying argument. Sachs’s seven ages work quite well in this regard, and do include sections on China, India, and the Islamic world. The argument in this book – a bit like Martin Sandbu’s new book, The Economics of Belonging, which I am reviewing for another publication – is that we shouldn’t be turning our back on globalisation. It can be made to work better for the many, not just the few, if we take the SDGs and international organisations seriously and reform the latter.

I’m sceptical that reforming the UN will fix anything. One of the earlier threads that gets lost in the final ‘what to do’ chapter is the way technologies shape what is feasible in terms of governance as well as shaping the form of economic globalisation that occurs. Still, it’s a good thing there are still some advocates for globalism rather than nationalism, and for the global public good. It’s a pre-pandemic book but post-publication events suggest this is the time to argue for at least some parts of the international order to be strengthened.

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