In his 1996 book Democracy’s Discontent, the political philosopher and Harvard professor Michael J. Sandel sharply outlined why decentralisation is crucial for democracy. Encapsulating Woodrow Wilson’s 1912 argument against centralised monopoly powers of all kinds, which was one of the many precursors to the massive economic shifts of the 1930s, he writes: “Restoring liberty meant restoring a decentralised economy that bred independent citizens and enabled local communities to be masters of their destiny, rather than victims of economic forces beyond their control.”
This sums up not only the founding principle of the country, but the core challenge of our era — how to reconnect global markets and the value created within them to nation states, in a way that supports shared, sustainable growth. There are lots of different approaches being bandied about right now. Harvard economist Dani Rodrik has been fleshing out “productivism,” an economic theory that would focus on encouraging localism and work — rather than finance, consumerism, and globalism.
Treasury Secretary Janet Yellen and the Council of Economic Advisers chair Cecilia Rouse talk about “modern supply-side” economics. This is the idea that government should be in the business not just of redistribution, but of production, too, in order to supply certain goods and services that the public needs, but that the market might not deliver — like, say, semiconductors. In today’s world, the idea that “it doesn’t matter whether a country makes computer chips or potato chips,” a quip attributed to Michael Boskin, an economic adviser to George H.W. Bush, seems totally ridiculous.
I’m obviously for the US and Europe underwriting things like chip production. But there are those who see a thin and precarious line between smart industrial strategy and protectionism, or even warmongering. Last Friday, I attended an all-day conference, co-sponsored by the Columbia Law School, the FT, and the Columbia World Projects Center for Political Economy called “Connecting the Dots,” which aimed to foster discussion about the post-neoliberal world and what the balance between local and global should be. It was organised by myself and Columbia law professor Kate Judge. I hope it will be the first of many.
One of the most interesting panels, moderated by INET founder Rob Johnson, featured Open Markets executive director Barry Lynn, and historians Gary Gerstle (author of The Rise and Fall of the Neoliberal Order), and Quinn Slobodian (who wrote The Globalists: The End of Empire and the Birth of Neoliberalism).
Slobodian pointed out that the global trade framework has always had a “national security exception,” but that there is a risk right now that the US is veering too close to fear-mongering about China as a strategy to unify diverse interest groups around one economic strategy, rather than simply focusing on the domestic merits of that strategy.
I take his point, and I worry a lot about both the reality and the perception of this. For example, President Joe Biden is taking a lot of heat for export controls on high-end chips to China, which some consider unduly aggressive. (It’s true that he did more in a week to shift the dynamics of that supply chain than Trump did in four years.)
Personally, I don’t know how you can consider China the country’s top strategic adversary and continue shipping dual-use chips that can potentially be used in things like hypersonic weapons. I think that the truth of the matter — that the US and China are very different countries, with different political systems and few shared strategic interests (with the exception of climate change) — simply scares people, understandably so. They blame Biden, because it’s easy, but also because they want the core conundrum to simply go away.
But the US is in many ways just reacting to China’s own stated goal of being independent from western technology within the next few years, as well as decades of intellectual property theft (and more recently, reports of increased political cyber-hacking).
Meanwhile, the footage of former President Hu Jintao being roughly escorted out of the party congress, didn’t make me feel any more confident in Xi’s regime. Both the US and China clearly want more control over the direction of their domestic economies, but the path to getting there is tricky. I think the Biden administration made the right decision on chip controls, particularly given that the lines between civilian and military use of such technology have become so blurred. Ed, would you agree?
Scary piece from the Times of London on the possibility of China invading Taiwan within the year. Fits with what I’ve heard from some White House sources and supply chain experts.
I find it fascinating what pops on TikTok, like the videos of sandwichmaking that have become a gold mine for certain fast food workers profiled in this New Yorker piece. After years of posting, my own son once — and just once — made a TikTok that went viral. Around 7mn people watched him — a skinny kid, looking to bulk up in the gym in a video that featured inspirational work out music and a gentle sort of self-deprecating humor. It was cute, but 7mn? Why that one and not the hundreds of other similar ones? Who the heck knows. But that was his 15 seconds of internet fame.
I hope Swampians will enjoy the FT Weekend cover essay I wrote based on my new book. It summarises my view of our deglobalising world, and what the opportunities and challenges are, in six rules.
Edward Luce responds
Rana, I think Biden’s semiconductors move was highly consequential because it takes US-China relations much closer to a point of no return. I wrote about it in my column last week. High end chips are indeed used in military applications. They are also integral to all parts of the modern economy. So America’s new stance on chips is also an admission that 40 years of opening has not resulted in a China that acquiesces to the US-led global order. Both Biden and Xi Jinping are now proponents of a zero-sum world in which the rise of one comes at the expense of the other. This is very dangerous territory for everybody. Other countries will increasingly be forced to make a binary choice between the US and China. Most of them do not want to have to do so.
Could Biden have done otherwise? That’s a hard question to answer. If America now sees China as a mortal threat, then Biden’s move was arguably belated. No power should help its adversary’s military expansion. But it is also a gamble. They say semiconductor chips are the oil of the 21st century. In July 1941, Franklin Roosevelt’s administration imposed an oil embargo on Japan. Five months later Japan attacked Pearl Harbor. That infamous day came a decade after Japan’s invasion of Manchuria, which was arguably the real start of the second world war. China, by contrast, is not at war with anyone. Its last military expedition was in 1979 when Vietnam gave it a “bloody nose”. My fear is that the events of the last three weeks — both Biden’s semiconductor ban and Xi’s tightening grip on power — have made Taiwan’s forcible reunification with China more likely. On four occasions Biden has said the US would come to Taiwan’s defence. I hope Biden has the correct measure of Xi. I also hope Biden and Xi will engage at length with each other in Bali at the G20 summit next month. The risks of world war three are too real to cede the field to the economic and military hawks who dominate thinking in Washington and Beijing.
And now a word from our Swampians?.?.?.
In response to ‘America is back to being world’s tallest dwarf’:
“Whatever the outcome with Russia and China, America has the deepest and most flexible capital markets of both countries combined. It has the chips, artificial intelligence skills and technology. It has the energy commodity supply, talented and increasing immigration (and not emigration like the two other countries) — and more importantly — a market driven economy which has the capacity to adjust within a few weeks to a year, not over a long term plan and bureaucratic stalled meetings.” — Albert May, London, England