Reckonings: The Year Ahead 2022

Diplomatic Courier &

&

2022

Reckonings

Introduction

After the plague year that started this decade, 2021 got off to a menacing start with the ransacking of the US Capitol by insurrectionists incited by outgoing President Donald Trump. Since then, dangerous new variants of the coronavirus have contributed to an ever-rising COVID-19 death toll, complicating the long-awaited economic reopening and recovery in many countries – including those that were the first to roll out vaccines.

w h i l e u s p r e s i d e n t j o e b i d e n ’s

inauguration signaled a return of US global leadership on climate change and many other issues, whether “America is back” remains a matter of intense debate. The Biden administration hit the ground running with large legislative victories.

Yet, in its eagerness to withdraw all US forces from Afghanistan before the 20th anniversary of the September 11, 2001, terrorist attacks, the administration misread the situation on the ground so thoroughly that only a hasty, chaotic, and ignominious retreat became possible.

The United States has justified its abandonment of Afghanistan by citing the need to focus on larger issues such as China. And SinoAmerican antagonism has indeed deepened on almost every front, including nuclear arms. While China continued to keep the coronavirus largely contained within its borders, it also continued to block inquiries into the pandemic’s origins.

It has escalated its crackdown in Hong Kong, persisted in its brutal treatment of Uyghur Muslims and other minority groups, threatened Taiwan, and intensified its “wolf warrior” rhetoric abroad.

In navigating these new geopolitical dynamics, the European Union’s efforts to assume a true global leadership role have remained

focused on achieving and promoting its climate agenda. Following the announcement of the European Green Deal in December 2019, the EU has now rolled out its Fit for 55 reform package to reduce emissions by 55% by 2030. As always, success will depend on the complicated politics within and between member states (particularly the coal-dependent “illiberal” regimes in Hungary and Poland). While Germany adjusts to the post-Angela Merkel era, France will hold a presidential election in April 2022, and the EU more broadly will continue to grapple with the still-new politics of Brexit and older, recurrent issues such as immigration.

Political, social, and economic conditions elsewhere have reinforced a widespread sense of systemic uncertainty. The COP26 conference left plenty of doubt about the world’s ability to meet the goals of the Paris climate agreement, and the erosion of democracy remains a paramount concern. The military junta has reseized power in Myanmar, rioting and discord have rocked South Africa, and instability, war, and starvation have returned to the Horn of Africa.

Populist nationalism continues to prevail in major emerging economies such as Brazil and India, where the true COVID-19 death toll is estimated to be orders of magnitude higher than the official figures.

Even if the pandemic were to end miraculously tomorrow, the world would have only just begun to confront the new systemic challenges posed by renewed nationalism, rising debt levels, cyber warfare, and technologies such as artificial intelligence and genetic editing.

Major document releases such as the Pandora Papers and the Facebook Papers confirm that not everyone is abiding by the same rules – or even playing the same game.

Governments have met this decade’s social, biological, and climate threats with the exhortation to “build back better.” But sloganeering will offer little respite. Throughout history, plagues have often compelled reconsideration of fundamental principles and spurred the emergence of new institutional arrangements.

In seeking to understand what might follow from this dark period, the first task is to admit this possibility.

PS Editors

Reckonings

01

. Reckonings

01.

Editors’ Introduction

20.

America’s Killer Capitalism ANNE CASE ANGUS DEATON

06.

The Alchemy of Angst ELIF SHAFAK

24.

Europe’s Time to Shine 12.

The Year of Results ABHIJIT BANERJEE CHEYENNE OLIVIER

16.

America’s Struggle at Home JEFFREY D. SACHS 02

Reckonings

LAURENCE TUBIANA

28.

Germany’s Post-Merkel Checklist HELMUT K. ANHEIER EDWARD L. KNUDSEN

34.

To Democracy and Back in Southeast Asia

46.

Brazil’s Besieged Democracy

ANWAR IBRAHIM

CAMILA VILLARD DURAN

38.

Asia’s Regional Threats SHIVSHANKAR MENON

50.

The Middle East’s Backwater Blues MARWAN MUASHER

42.

Shinzo Abe’s Asia-Pacific

54.

Post-Peak China

MINXIN PEI

CHRIS PATTEN

Reckonings

03

. Reckonings

58.

Preventing a US-China Nuclear Arms Race

74.

Recovering Stronger Together in 2022

KEVIN RUDD

SRI MULYANI INDRAWATI

62.

China Bets on Common Prosperity

66.

No Wiggle Room Ahead

KEYU JIN

JOSEPH E. STIGLITZ

78.

Restoring Dynamism to Development ODILE RENAUD-BASSO

82.

COVID-19 and the Rise of Digital Capitalism DANIEL COHEN 04

Reckonings

86.

Advisory Board

Publishing

Bertrand Badré

Trevor Bohatch Digital Marketing Manager

Gordon Brown

A Reckoning for Big Tech?

Nicolas Chatara-Morse Chief Executive Officer

Mark Cliffe Gene Frieda Alexander Friedman Chair

ANU BRADFORD

Michael Hanley Connie Hedegaard

Damen Dowse Executive Vice President of Business Development Katarína Ďurináková Global Relations Manager Derek Halsey Institutional Sales Manager

90.

Advancing the Trade Cure

98.

Big State Inflation ROBERT J. BARRO

NGOZI OKONJO-IWEALA

Jonathan Hoffmann Chief Operating Officer

Whitney Arana Editor

Gergana Ivanova E-Commerce Specialist

Rachel Danna Deputy Managing Editor

Tanja Jagnic Publishing Data Analyst

Richard Eames Senior Editor

Peter Kupček Chief Financial Officer

Roman Frydman

Jason Linback Vice President of Publishing

Anatole Kaletsky Contributing Editor Nina L. Khrushcheva Contributing Editor

102.

Reopening the World and Ourselves MAYA JASANOFF

94.

Debt-for-Climate Swaps Make Sense

Editorial Team

Sami Mahroum Contributing Editor Lara McCoy Associate Editor

Eric Meyer Website Administrator Carmen Morejón Publishing Data Analyst Petra Nemčeková Data Analyst Zuzana Pavlíková Office Manager

Kenneth Murphy Editor in Chief Andrzej Rapaczynski Joanna Rose Science/Health Editor Jonathan Stein Managing Editor Laurence Tubiana Contributing Editor Stuart Whatley Senior Editor

BEATRICE WEDER DI MAURO

Caitlin Rudolph Assistant Digital Marketing Manager Shirin Shity Account Coordinator Brooke Sloan Distribution & Copyediting Manager Colette Whitney Assistant Distribution & Copyediting Manager

Designed by Studio Texture www.studiotexture.co.uk

© Project Syndicate 2021

Reckonings

05

06

Reckonings

The Alchemy of Angst ELIF SHAFAK

Turkish novelist

Reckonings

07

Ours is the Age of Angst. It is an era of anger, apprehension, fear, confusion, division, polarization, and an increasing distrust in and disdain for institutions.

Thanks to the proliferation of digital technologies, we are both spectators and gladiators. We can switch roles in the blink of an eye, whizzing back and forth between the audience seats and the dry, dusty arena.

s o c i a l m e d i a p l at f o r m s h av e

become the Colosseum of the twenty-first century. In these digital arenas – small and large, local and international – a new fight is staged almost every day, and though the contenders tend to change often, the language of loathing and mistrust remains constant. But whereas the ancient Romans were entertained by their brutal and bloody spectacles, we moderns are only made angrier by ours.

The etymology of the word is important. Anger comes from the

Old Norse angr, which connotes distress, affliction, sorrow, agony, hurt. Anger is directly related to pain of a kind that so many of us, East and West, now feel, though we might not express it in those terms.

Underlying the shouting matches and pervasive silences, driving them, is the simple truth that we are hurting.

Not that long ago, the world felt like a different place. In the late 1990s and early 2000s, optimism abounded.

But it was an optimism that verged dangerously on complacency. History, many commentators maintained, could move in only one direction: linear, forward. Its arc would inevitably bend toward justice. Back then, we easily used expressions such as “being on the right side of history.” The underlying assumption was that tomorrow would be more democratic, inclusive, egalitarian, and interconnected than yesterday.

The biggest optimists of those days were the techno-visionaries. Their buoyancy knew no bounds. Whenever they left Silicon Valley and took part in international conferences or cultural and literary festivals, they confidently assured us that information had become pure gold.

It was all we needed to build a better future. With more information, and then even more, people would surely make the right political choices.

The speedy spread of information would topple dictatorships and bring about much-needed social change.

The growth of digital platforms would carry democratic ideals to the farthest corners of the world. Even those countries that were lagging behind in democratization would sooner or later have to join “the civilized world.”

At the beginning of the Arab Spring, this mood was so prevalent that many took it for granted that Facebook was having a positive impact on the world. Pundits and experts hailed the post-election uprising in Iran in 2009 as the “Twitter Revolution.”

Around the same time, a young Egyptian couple named their newborn daughter “Facebook.”

A few months later, a family in Israel

08

Reckonings

When we are bombarded with so much information, we do not process what we read or what we hear.”

named their third child “Like.” I often think about those kids, Facebook in Egypt and Like in Israel. What kind of a world have we given them?

Sound and Fury The spread of information of course neither guaranteed nor generated democracy. Today, we live in a world where there is far too much information (let alone random misinformation and malicious, systemic disinformation), but very little knowledge and even less wisdom. They are completely different things, and in focusing solely on information, we have neglected knowledge and abandoned wisdom.

Information is about speed, discrete snippets of data, numbers. Between “numbers” and “numbness” there is more than rhythm and rhyme. When we are bombarded with so much information, we do not process what we read or what we hear. A constant overload of information gives us the illusion that we have knowledge about anything and almost everything.

Little by little, we have forgotten how to say, “I don’t know.” If we are unfamiliar with an issue, we can easily Google it, and in the next five to ten minutes we will be able to come up with something to say about it. And if we take a few more minutes, we can even convince ourselves that we are experts – even though those snippets of information do not amount to knowledge.

emotional intelligence, empathy, a sense of humility, and compassion.

We need to hear each other’s stories and pay attention to the silences.”

OMMUTERS WAIT C F O R A S U B W AY T R A I N I N TO K Y O , J A PA N .

E L I F S H A FA K .

We need to hear each other’s stories and pay attention to the silences.

The Roots of Wisdom At the beginning of the pandemic, when Londoners were allowed to go out for walks in public parks, I started noticing signs placed here and there. “When all this is over, how do you want the world to be different?” they asked. Beneath the question, passersby had scribbled their own answers, using their own pens. Someone had written, “When all this is over, I want to live in a world where I can be heard.”

It is a sad irony that in an age when we were all supposed to have a voice thanks to digital platforms and the inevitable, unstoppable spread of liberal democracy, almost the opposite has happened. Millions of people around the world feel voiceless.

Amid the deafening cacophony, they know that they are not being heard.

Our daily lives are replete with negative emotions that we don’t know how to process or where to

How can we decrease the amount of information we deal with on a daily basis, but increase our knowledge and ultimately our wisdom? For knowledge, we need to slow down and beware of dogmas, not least our own. We need to get up and leave the audience seats and the dry, dusty arenas. Knowledge requires books, reading across disciplines, slow journalism, in-depth analyses, nuanced conversations, avoiding hasty judgment. And wisdom requires us to unite the mind and the heart. For wisdom, we need not only purely rational analysis but also Reckonings

09

Our voices might not be heard by those in power.

But we are not powerless, and we are not voiceless.”

channel. But we don’t like to talk about it, certainly not in the United Kingdom, my adopted land, where expressing emotion is considered a sign of weakness. And certainly not in my homeland, Turkey, where many simply presuppose that women are emotional beings whereas men are more rational (which of course is pure nonsense).

Human beings of all ages and genders are emotional creatures. When we connect with each other, we do so through stories and emotions.

What we believe in or fight for depends on stories and emotions.

And what we remember and take with us even when we are uprooted and deracinated, we remember through stories and emotions.

I have always regarded every emotion as a source of raw energy, like a mineral that can be processed into various forms, a metal that can be sculpted into different shapes.

Rather than trying to suppress our emotions, it seems healthier, and perhaps a little wiser, to recognize their existence, talk about them openly, and create inclusive spaces where we can understand and explore how our mental health is strained.

It is okay not to be okay in an age such as ours. It is okay to feel worried or displeased in the face of all that is happening. The crucial question is not whether we are angry or distressed, fearful or frustrated, but what we will do with these feelings. Can we turn raw emotions into something positive and constructive, both for ourselves as individuals and for our communities and societies?

R OT E S T E R S AT T H E P WOMEN’S MARCH O N W A S H I N G TO N .

10

At the end of the day, if there is one thing that is far more destructive than any emotion, it is the lack of all emotion: Numbness. Indifference.

Lethargy of the spirit. The moment we become so desensitized to the deluge of information that we barely register what is happening in another part of the world, or just next door, is the moment we are completely severed and disconnected from each other.

And that is a far more dangerous threshold. We are at a crossroads.

Reckonings

The decisions that we make today will have long-lasting consequences for the planet, for our societies, and for our individual and collective mental health. This might be the Age of Angst, but from here to the Age of Apathy is but a short and fateful step.

We need to make sure we don’t take it.

Liquid Times Many years ago, when I lived and wrote my novels in Istanbul, I was interviewed by an American scholar who was in the city researching “Women Writers in the Middle East.”

We had a nice conversation, and in passing, with a soft, amiable smile, she told me that it was understandable for me to be a feminist: I was Turkish, and I was in Turkey. The way she spoke made it clear that she saw no reason why she should be a feminist: she was from America, a country where women’s rights had already been achieved, and where democracy was solid, stable, and safe.

Yet ever since 2016, this dualistic view of the world has become incoherent. After Brexit, the election of Donald Trump, the rise of populist nationalism across Europe and beyond, the erosion of liberal democracy, and the emergence of “illiberal democracies” flirting with authoritarianism, this deep-rooted duality has lost its purchase on the minds of even its staunchest advocates.

rights everywhere. Whether we are dentists, students, engineers, or poets, whatever we do and wherever we live, we do not have the luxury of apathy. From the possibility of another pandemic to environmental catastrophe, from cyberterrorism to refugee crises, we have massive global challenges ahead of us, none of which can be solved with the rhetoric of nationalism, isolationism, tribalism, or group narcissism.

We must connect with nature and understand our responsibility to our planet. We must connect with each other and strive to become engaged, involved, knowledgeable, and wise citizens. Connecting is our only way forward.

While stories bring us together, untold stories and entrenched silences keep us apart.

Our voices might not be heard by those in power. But we are not powerless, and we are not voiceless. We are capable of changing the world.

Now we know that there is no such thing as “solid” countries. We are all living through liquid times, to use a term coined by the late sociologist and political thinker Zygmunt Bauman.

History does not necessarily advance in a linear way. If these are liquid times, it feels like the current has accelerated with the pandemic, the climate crisis, and the widening and deepening of inequalities – social, digital, racial, gender, class-based.

This is a moment when we need global sisterhood, global solidarity. We need feminism everywhere, just as we need to care about human rights and freedom of speech and minority

Elif Shafak is one of Turkey’s bestselling writers. Her books include The Bastard of Istanbul, Three Daughters of Eve, and, most recently, The Island of Missing Trees.

Reckonings

11

12

Reckonings

The Year of Results ABHIJIT BANERJEE Nobel laureate in economics

CHEYENNE OLIVIER Illustrator

We are waiting for a result – again. One of our loved ones, a little boy, may have caught it at school. We’ll have the results by tonight, supposedly, but who knows? Perhaps they’re up already? Why is the screen so slow to refresh? Could the delay mean something? Is it possible that they are giving us a moment to catch our breath before hitting us with the news? Nothing yet. Wait, how come the screen got refreshed? i n c h a r l i e c h a p l i n ’ s wo n d e r f u l

film Modern Times, the defining image of modernity is time sped up.

Fast machines drive faster lives in his dystopian vision. And yet it is hard to imagine time moving fast for someone in a tollbooth watching cars whizz by, or in a print shop watching the high-speed printer spit out thousands of pages.

It is not machines, it seems to us, but predictable milestones that make time fly – the 12:30 lunch, the 3:00 coffee, the 5:00 commute home, the weekend shopping, the afternoon soccer game, the upcoming school vacation, the annual trip to see the family. Life in the old days felt slow because there was always a wait – for the rains to save the crop, for the wars to stop, for the womb to conceive, for the pests to recede.

Waiting often comes with an element of chance, for better or for worse. Maybe the call will come, maybe the letter is late, maybe the storm will erupt just in time and the exam will be canceled. Perhaps the report will be good news after all. Until we know, our hearts will beat a little quicker, our breathing will be a little shallower, and our minds will skip desultorily from idea to idea while never drifting very far from that one overwhelming concern. Waiting is sweating.

Waiting is sweating.”

This was, above all, a year of waiting for results that arrived unexpectedly and threw us into a tizzy: someone we had lunch with, whom we knew to be extra careful, unexpectedly ended up with a positive diagnosis.

We were contact cases – one of those dreaded new phrases that has invaded our lives, along with PCR tests and viral loads, mRNA vaccines and Reckonings

13

KN95 masks. So, we had to be tested multiple times. We had to wait for results multiple times. Sometimes, the news was good, sometimes it was bad, and sometimes we weren’t sure what to think. Was it better to receive a negative test, or to learn that you had already contracted the virus and never noticed it?

We would have done anything to make some results come more slowly.

In India’s second COVID-19 wave, the numbers rose to breathtaking heights within days, overwhelming the underprepared health-care system.

Millions of families were left waiting for hospital beds and oxygen tanks for their loved ones; and then, all too often, they waited for a place in the cremation line or burial ground.

Other waits have spanned years.

We, like many around the world, were waiting for another US presidential election from the day Donald Trump took office. That wait extended into this year, until Joe Biden’s election was finally certified by Congress.

The wait for the election results, with its minute-by-minute media coverage, seems to have grown more maddening than in the past. Will Wisconsin turn? Will Georgia flip?

14

Reckonings

Who will control the Senate?

What’s taking North Carolina so long?

And the waiting didn’t end there.

The race for control of the US Senate did not have to come down to one county in Georgia, and less than 1% of the votes, but it did. The certification count in the Senate eventually happened, but not before Trump and his supporters sought to block it by staging an insurrection at the US Capitol.

When we look back on the scars left by the pandemic, what will we see...?”

COVID-19’s arc has in some ways mirrored the presidency of the man who refused to take the disease seriously. There was a shock when it arrived, a lull when it looked like it would be okay, and then a slow turn for the worse. Along the way, there were new results to obsess over – vital signs, oxygen levels, fevers. Results arrived daily – one more thing to wait for without quite knowing what the outcome meant or how to react. Was it good news because the patient’s condition had not worsened, or bad news because it had not improved?

The same ambivalence attended the delivery of daily infection counts, which showed up every evening on our phones, courtesy of the French

UPPORTERS OF DONALD TRUMP S P R OT E S T O U T S I D E O F T H E M A R I C O PA C O U N T Y E L E C T I O N D E PA R T M E N T.

E M O N S T R ATO R S D E M A N D A C C E S S D TO C O V I D -1 9 V A C C I N E S AT T H E S O U T H A F R I C A N H E A LT H P R O D U C T S R E G U L ATO R Y A U T H O R I T Y I N P R E TO R I A .

government’s TousAntiCovid app (we spent the last academic year in France). Is 20,000 high or low? Too high for comfort, surely, but apparently too low for the government to do much about it.

Other results arrived unexpectedly fast. The vaccine trials came as a pleasant surprise. The results rolled in almost before we had mastered the distinction between efficacy and effectiveness. The news was good. Many vaccines worked better than anyone had a right to hope.

And yet, with the virus acquiring new mutations that could reduce current vaccines’ effectiveness, there are always more results to wait for and puzzle over.

COVID-19 vaccines offered a new source of hope, and a new reason to wait. Much of the world is still wondering when and if enough vaccines will be available for their citizens, while “world leaders” struggle to back their declarations about the need for universal vaccination with actual doses.

But for those lucky enough to be vaccinated, there is a new question that won’t be answered by hitting

refresh. When we look back on the scars left by the pandemic, what will we see – just the pain of isolation, or also the joy of everyday human contact? Perhaps it is time to start building on those still-vivid memories toward a new solidarity that is universal without being abstract, built on the palpable pleasure of being together, but stretching to the ends of the world. Maybe that can help us cope with the biggest anxiety of our times.

Those results are also in: the planet was quite literally igniting last summer, and the cyclone season started early. Earth is heating and will continue to heat, making life impossible in some of the densest human settlements today. The wait now is to see whether there is the collective will to face up to these results, to stand up and say “Enough,” to acknowledge that there is no more time for excuses, and that our leaders must do more than talk.

Abhijit Banerjee, a Nobel laureate in economics, is Professor of Economics at MIT. Cheyenne Olivier is an artist and illustrator.

Reckonings

15

16

Reckonings

America’s Struggle at Home JEFFREY D. SACHS University Professor at Columbia University

Almost a year after Joe Biden’s narrow election victory over Donald Trump, the United States remains on a knife-edge. Many political outcomes are possible.

These range from the gradual economic and political reform that Biden is seeking to the subversion of elections and constitutional rule that Trump attempted last January – and that he and the Republican Party are still intent on pursuing.

i t ’ s n o t e a s y t o d i ag n o s e e x ac t ly w h at a i l s

America at its core so deeply that it incited the Trump movement. Is it the ceaseless culture wars that divide America by race, religion, and ideology?

Is it the increase in inequality of wealth and power to unprecedented levels? Is it America’s diminishing global power, with the rise of China and the repeated disasters of US-led wars of choice leading to national agony, frustration, and confusion?

All of these factors are at play in America’s tumultuous politics. Yet in my view, the deepest crisis is political – the failure of America’s political institutions to “promote the general Welfare,” as the US Constitution promises.

Over the past four decades, America’s politics have become an insider’s game to favor the super-rich and corporate lobbies at the expense of the overwhelming majority of citizens.

Reckonings

17

The 1% Above the Rest Warren Buffett homed in on the essence of the crisis in 2006. “There’s class warfare, all right,” he said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

The main battlefield is in Washington, DC. The shock troops are the corporate lobbyists who swarm the US Congress, federal departments, and administrative agencies. The ammunition is the billions of dollars spent annually on federal lobbying (an estimated $3.5 billion in 2020) and campaign contributions (an estimated $14.4 billion in the 2020 federal elections).

The pro-class-war propagandists are the corporate media, led by mega-billionaire Rupert Murdoch.

Nearly 2,500 years ago, Aristotle famously observed that good government can turn into bad government through a flawed constitutional order. Republics, governed by the rule of law, can descend into populist mob rule, or oligarchic rule by a small and corrupt class, or a tyranny of personal, oneman rule. America faces such possible disasters unless the political system

18

Reckonings

can detach itself from the massive corruption of corporate lobbying and campaign financing by the rich.

America’s class war on the poor is not new but was launched in earnest in the early 1970s and implemented with brutal efficiency over the past 40 years. For roughly three decades, from President Franklin D. Roosevelt’s inauguration in 1933 in the midst of the Great Depression to the Kennedy-Johnson period of 1961-68, America was generally on the same development path as postwar Western Europe, becoming a social democracy. Income inequality was declining, and more social groups, most notably African-Americans and women, were joining the mainstream of economic and political life.

Then came the revenge of the rich. In 1971, a corporate lawyer, Lewis Powell, laid out a strategy to reverse the social democratic trends toward stronger environmental regulation, worker rights, and fair taxation. Big business would fight back. President Richard Nixon nominated Powell to the US Supreme Court in 1971, and he was sworn in early the next year, enabling him to put his plan into operation.

The US has diverged from Europe in basic economic decency, wellbeing, and environmental control.”

Under Powell’s prodding, the Supreme Court opened the floodgates to corporate money in politics. In Buckley v. Valeo (1976), the court struck down federal limits on campaign spending by candidates and independent groups as violations of free speech. In First National Bank of Boston v. Belotti (1978), Powell wrote the majority opinion declaring that corporate spending for political advocacy was free speech that could not be subjected to spending limits. The Court’s onslaught on campaign finance limits culminated in Citizens United v.

Federal Elections Commission (2010), which essentially ended all limits on corporate spending in federal politics.

When Ronald Reagan became president in 1981, he reinforced the Supreme Court’s assault on the general welfare by cutting taxes for the rich, waging an assault on organized labor, and rolling back environmental protections. That trajectory has still not been reversed.

ONALD RE AGAN R A D D R E S S E S T H E N AT I O N O N TA X R E D U C T I O N L E G I S L AT I O N .

As a result, the US has diverged from Europe in basic economic decency, well-being, and environmental control. Whereas Europe generally continued on

the path of social democracy and sustainable development, the US charged ahead on a path marked by political corruption, oligarchy, an ever-widening gap between the rich and the poor, disdain for the environment, and a refusal to limit human-induced climate change.

A few numbers spell out the differences. Governments in the European Union raise revenues averaging roughly 45% of GDP, while US government revenues amount to only around 31% of GDP. European governments thus are able to pay for universal access to health care, higher education, family support, and job training, while the US does not ensure provision of these services. Europe tops the World Happiness Report rankings of life satisfaction, while the US ranks only 19th. In 2019, life expectancy in the EU was 81.1 years, compared to 78.8 years in the US (which had a higher life expectancy than the EU in 1980). As of 2019, the share of the richest 1% of households in national income was around 11% in Western Europe, compared with 18.8% in the US. In 2019, the US emitted 16.1 tons of carbon dioxide per person, compared with 8.3 tons of CO2 per person in the EU. In short, the US has become a country of the rich, by the rich, and for the rich, with no political responsibility for the climate damage it is imposing on the rest of the world. The resulting social cleavages have led to an epidemic of deaths of despair (including drug overdoses and suicides), declining life expectancy (even before COVID-19), and rising rates of depression, especially among young people. Politically, these derangements have led in varied directions – most ominously, to Trump, who offered faux populism and a cult of personality. Serving the rich while distracting the poor with xenophobia, culture wars, and a strongman’s pose may be the oldest trick in the demagogue’s playbook, but it still plays surprisingly well.

S S E N ATO R S K Y R S T E N U SINEMA AND JOE MANCHIN.

intent on blocking any meaningful increase in taxes on the rich and US corporations, thereby preventing the growth in federal revenues urgently needed to create a fairer and greener society. They are also blocking decisive action on climate change.

Thus, we are arriving at the end of Biden’s first year with the rich still entrenched in power, and with obstacles in every direction regarding fair taxation, increased social spending, protection of voting rights, and urgently needed environmental safeguards. Biden could still eke out some modest wins, and then build on them in the coming years. The public wants this. Roughly twothirds of Americans favor higher taxes on the rich and corporations.

Powerful Headwinds

Yet there is a real possibility that Biden’s setbacks in 2021 will help the Republicans win control of one or both chambers of Congress in 2022. That would put an end to legislative reforms until at least 2025, and could even presage the return of Trump to power in the 2024 presidential election amid social disarray, violence, media propaganda, and voter suppression in Republican-controlled states.

This is the situation that Biden is trying to address, but his successes so far have been limited and fragile. The simple fact is that all congressional Republicans and a small but decisive group of Democrats (most notoriously Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona) are

America’s turmoil has disturbing international implications. The US cannot lead global reforms when it cannot even govern itself coherently. Pehaps the only thing that unites Americans nowadays is an overwrought sense of threats from abroad, mainly from China.

With America in domestic disarray, politicians of both parties have escalated their anti-China rhetoric, as if a new Cold War could somehow soothe America’s homegrown angst.

The only thing that Washington’s bipartisan belligerence will produce, alas, is more global tension and new dangers of conflict (over Taiwan, for example), not security or real solutions to any of our urgent global problems.

The US is not back, at least not yet.

It is still in the throes of a struggle to overcome decades of political corruption and social neglect.

The outcome remains highly uncertain, and the outlook for the coming years is fraught with peril for both the US and the world.

Jeffrey D. Sachs, University Professor at Columbia University, is Director of the Center for Sustainable Development at Columbia University and President of the UN Sustainable Development Solutions Network.

Reckonings

19

20

Reckonings

America’s Killer Capitalism ANNE CASE Professor Emeritus of Economics and Public Affairs at Princeton Universityic Forum

ANGUS DEATON Nobel laureate in economics

A great failure of contemporary American capitalism is that it is not serving everyone. The educated minority – the one-third of the adult population with a four-year college degree – has prospered, but the majority has lost out, not just relatively but absolutely. The facts are increasingly clear and hard to ignore. Less-educated Americans’ prospects are getting worse: they are losing materially, they are enduring more pain and social isolation, and their lives are getting shorter.

Reckonings

21

1970, t h e e n g i n e o f a m e r i c a n progress began to falter. From the early 1980s onward, economic growth slowed, and what was once a largely equal distribution of gains became increasingly top-heavy.

Economists Thomas Piketty and Emmanuel Saez’s important work with US tax records shows just how well those at the very top have done. after

While many commentators with alternative calculations have questioned the extent of rising income inequality, none has succeeded in dismissing the trend.

Others argue that it is not a cause for concern, provided that everyone is prospering. For them, the evidence of falling material measures is a more serious challenge. Among men without a college degree, real (inflation-adjusted) median wages have undergone a trend decline for more than 50 years – experiencing interruptions during economic booms, but never recovering enough to return to the previous peak. Even at the height of the boom just before the COVID-19 pandemic, median wages were lower than at any point in the 1980s.

The critics argue that these data exclude various worker benefits, such as employer-provided health insurance. Yet the extraordinary increase in the cost of these benefits is itself contributing to the wage decline and to the destruction of jobs for the less skilled. Including these benefits in the analysis is like mugging someone and charging him for the cost of the attack.

Our findings on “deaths of despair” put another dent in the argument that working Americans are flourishing despite material evidence to the contrary. Death is a lot easier to measure than real income. In 1992, life expectancy at age 25 was two and a half years longer for men and women with a college degree than for those without one. By 2019, the gap had grown to six and a half years; from 2010 to 2018, life expectancy at 25 fell every year for those without a degree.

Accidental drug overdoses are an important part of the story. More than half of the increase in deaths of despair since the late 1980s came from overdoses. In the late 1980s, about 60,000 people in the United States died each year from drugs, alcohol, and suicide. Just prior to the pandemic, annual deaths of despair 22

Reckonings

The despair story is one of a society that is not serving large numbers of its people, effectively consigning them to second-class citizenship.”

were running at 170,000 – an increase of more than 100,000 per year – with overdose deaths accounting for the largest share, but less than half of the total. With a little more than half of the increase due to drug overdoses, perhaps it is true that the US is suffering an epidemic not of despair but of drug overdoses. That is something that societies throughout history have had to endure, and will no doubt have to endure again.

Drugs or Despair?

The distinction matters. If the deaths are “just” drug overdoses, they can be pinned on a few unscrupulous and under-regulated pharmaceutical companies and distributors. There is nothing fundamentally awry in society, and certainly no sign of a deep flaw in the way that contemporary American capitalism is working.

Despair, by contrast, is a disease of working-class Americans – people without a bachelor’s degree – whose job opportunities, marriages, and social and economic institutions have weakened over the last halfcentury. The drug epidemic story is one of a few bad apples. The despair story is one of a society

N U N E M P LO Y E D M A N A IN HIS MOBILE HOME, L ACKING ELECTRICIT Y O R R U N N I N G W AT E R , I N O W S L E Y C O U N T Y, K E N T U C K Y.

that is not serving large numbers of its people, effectively consigning them to second-class citizenship.

Many signs point to an epidemic of despair among Americans without a college degree. Measures of poor mental health climb year on year for this group. They have experienced a widely documented increase in pain – a problem so severe among later-born cohorts that middle-aged Americans are now reporting more pain than the elderly, something that is not true in Europe.

Drug epidemics are not like plagues of locusts or earthquakes. They afflict societies that are already in trouble. Consider China in the 1840s. Nothing can excuse the depredations of the Scottish opium merchants William Jardine and James Matheson, nor British Prime Minister Lord Melbourne’s decision to send in the navy to support them.

But there is little doubt that the advanced disintegration of the Qing Empire was a precondition for the opioid epidemic that followed.

In the US case, the most important previous opioid epidemic came during and after the Civil War. And on a

R OT E S TO R S S TA G E P A “DIE- IN” OUTSIDE THE PURDUE PHARMACEUTIC ALS B A N K R U P TC Y H E A R I N G .

O X Y C O N T I N P I L L S .

smaller scale, there was widespread use of opium and heroin by American troops in Vietnam. Most of these addictions disappeared when the soldiers returned from being bored out of their minds half a world away to lead well-supported, meaningful lives at home. The fact that the current surge in drug deaths is concentrated almost entirely among those without a college degree tells us that, as in nineteenth-century China, despair and disintegration were preconditions that gave the dealers the foothold they needed. (And if the Sackler family gets to keep $4 billion of its ill-gotten gains from manufacturing OxyContin, and if no one goes to jail, there will surely be a repeat episode.)

Perhaps most telling of all is what has happened to suicide rates. Whereas the fin de siècle French sociologist Émile Durkheim thought that educated people were more likely to kill themselves, suicide rates in the US today are higher among those without a bachelor’s degree.

By contrast, world suicide rates have been falling for the last two decades, including in the European Union and other high-income countries. Even Japan and Finland, rich countries

long troubled by suicide, now have lower rates than the US. There have also been particularly rapid declines in Russia – with rates cut by half since 2000 – and in the other countries of the former Soviet Union. While Russia still has a higher suicide rate than the US, the US is coming to resemble erstwhile suicide hot spots.

Rising suicide rates are hardly marks of a flourishing capitalist democracy. There is nothing wrong with capitalism in principle, but there is a great deal wrong with the version prevailing in the US today.

Anne Case is Professor Emeritus of Economics and Public Affairs at Princeton University. She is a co-author of Deaths of Despair and the Future of Capitalism.

Angus Deaton, the 2015 Nobel laureate in economics, is Professor Emeritus of Economics and International Affairs at the Princeton School of Public and International Affairs and Presidential Professor of Economics at the University of Southern California. He is a co-author of Deaths of Despair and the Future of Capitalism.

Reckonings

23

Europe’s Time to Shine LAURENCE TUBIANA CEO of the European Climate Foundation

Having done so much to elevate the global climate debate to the highest levels of diplomacy, the European Union and key member-state governments will soon be confronted with a fundamental paradox. The world’s prime-mover and normsetter on climate change is heading into a year of bruising and protracted political struggle to realize its own climate ambitions.

1 4, t o l i t t l e fa n fa r e , t h e European Commission unveiled one of the most important climatepolicy responses since the signing of the Paris agreement in 2015.

The Commission’s Fit for 55 plan offers a bold blueprint for reducing greenhouse-gas emissions by 55% by 2030, on the way to reaching net-zero emissions by 2050. With a precise set of policy proposals adapted to different geographies, social systems, energy mixes, and wealth levels, the plan is truly impressive, demonstrating clearly how the EU Green Deal will work in practice. o n j u ly

Unlike its American counterpart, Europe’s Green Deal was not born of grassroots activism. Though it is a response to demands supported by voters in the last European elections, it is an initiative based in the EU’s executive branch. Much to its credit, the Commission has managed to mobilize the necessary technocratic and legislative expertise faster than any other institution in the world.

And because the EU Green Deal will define economic policy in the world’s largest single market, it has the potential to establish new norms globally, shaping the contours of the future net-zero economy.

24

Reckonings

The EU has exerted this kind of soft power for years in areas such as vehicle emissions, appliance efficiency, and many other critical areas. As the EU Green Deal continues to take shape, this “Brussels effect” could plausibly extend to other technical issues such as electricvehicle standards, thereby hastening the world’s move away from the internal combustion engine (ICE), in conjunction with Europe’s targeted 2035 phaseout for ICE vehicles.

The Fit for 55 package is both concrete and already funded, at least in its early stages. Together with the EU’s goal of achieving a 40% share for renewables in its energy mix by 2030, the plan’s emissions targets send a clear signal to other advanced economies: they, too, must think bigger and raise their ambitions.

The EU is also a global leader in sustainable finance. Its Taxonomy for Sustainable Activities will provide urgently needed clarity on what counts as a “green” investment.

By codifying new standards, the EU taxonomy is likely to influence capital markets globally.

With SinoAmerican tensions at all-time highs, it remains to be seen precisely what role Europe will play in the next phase of climate diplomacy.”

Reckonings

25

European diplomats have long excelled at encouraging other major powers to step up their own climate ambitions. In this sense, implementing the Green Deal will be a major test for Europe. With Sino-American tensions at all-time highs, it remains to be seen precisely what role Europe will play in the next phase of climate diplomacy.

Much will depend on whether it can muster a single, integrated European voice, rather than passively relying on its member states’ existing bilateral and trade ties. To use its weight on the world stage, Europe must act as one bloc. But can it?

The Challenge Ahead For the first six months of 2022, France will hold the European Council presidency (coinciding with its own presidential and legislative elections in April and June, respectively). Its success will require a delicate touch to balance different interests, and to adjust to outgoing German Chancellor Angela Merkel’s departure from European politics. Among France’s top duties will be to champion the Fit for 55 package at home and among member states. To “bring the Green Deal home,” it must help translate the Commission’s targets across a broad array of domestic political contexts.

Navigating these political challenges will not be easy. But European leaders should remember a simple proposition: The Green Deal is an invitation to rethink the social contract. Rather than being imposed as a one-size-fits-all policy, the Green Deal should be presented as a deal between citizens themselves.

Because it calls for legislation, it represents an opportunity for open debate on critical issues of social justice and equity. Meanwhile, the tide of support for climate action only keeps swelling. Tellingly, a recent poll in France showed nearly nine in ten right-wing voters believe the environment is a cross-party issue, adding to a cascade of similar findings across the continent.

One model to be considered is France’s Citizens Convention on Climate, which was organized as a response to the gilets jaunes (yellow vests) protests in 2018. While the French government’s commitment to the convention’s proposals has been uneven, polls show that virtually all of them are supported by most 26

Reckonings

E M M A N U E L M A C R O N .

of the country. In this outcome, we see the obvious institutional obstacles that must be overcome, but also the untapped potential.

Other like-minded efforts, including in Ireland, Scotland, and beyond, as well as a forthcoming global initiative, are further signs of momentum for democratic innovation.

As the energy crisis ensnaring much of Europe has shown, anxiety about carbon pricing is already high, even when it has contributed only marginally to the problem.

The implementation of Fit for 55 will raise these issues time and again.

Policymakers will be confronted with hard questions and trade-offs whenever higher carbon prices are extended to sectors that affect citizens’ wallets directly, such as transportation and heating.

Combine these challenges with the

Continued economic growth in Europe will need to look quite different from what is envisaged in today’s models.”

task of reskilling entire segments of the European workforce, particularly in more fossil fuelintensive economies, and one can already see the contours of Europe’s coming political battles.

At the heart of the issue is the debate over borrowing and debt. Managing common debt and member-state sovereign debt will remain one of the most important – and difficult – political issues on the European agenda. As the clouds of the pandemic begin to part in Europe, there will be pressure to return to the previous fiscal rules limiting member-state debt-to-GDP ratios. The battle lines have already been drawn. While countries such as France, Italy, and Spain favor loosening the rules, a “frugal” bloc – led by Austria and supported by the Netherlands, the Czech Republic, and Sweden – strongly opposes such revisions.

UROPE AN COMMISSION E PRESIDENT URSUL A VON DER LE YEN UNVEILS THE EUROPE AN GREEN DE AL.

At any rate, continued economic growth in Europe will need to look quite different from what is envisaged in today’s models. A net-zero model raises many important questions.

What will the new growth path look like? Will private consumption have to fall? Will investment, especially public investment, play a larger role? If so, where will those resources come from?

Clearly, European governments will have to reconcile an investment program capable of implementing the Green Deal with a viable plan for deficit consolidation. That means we will need to reconsider the very meaning of borrowing and debt – starting in the year to come.

At the height of the COVID-19 crisis, EU member states showed true solidarity with one another in their commitment to boosting

public spending, much of it financed with mutualized debt.

The recovery fund was a historic breakthrough. But the political contest ahead will test Europe further – by orders of magnitude.

There is an obvious case to be made for excluding climate investments from the debt-to-GDP calculation, and for rethinking short-term fiscal rules when the real priority is to preserve the planet for future generations. The net-zero transition is an extraordinary challenge. But it is also Europe’s moment to shine.

Let us make the most of it.

Laurence Tubiana, a former French ambassador to the United Nations Framework Convention on Climate Change, is CEO of the European Climate Foundation and a professor at Sciences Po, Paris.

Reckonings

27

Germany’s

28

Reckonings

HELMUT K. ANHEIER Professor of Sociology at the Hertie School of Governance

In 2022, Germany will adjust to being governed by its first new chancellor in over 16 years. But that does not mean the era of Angela Merkel is over. Germans – and Europeans – will live with her legacy, and though she was almost universally praised as a steadfast leader, history ultimately may not be so kind to her.

EDWARD L. KNUDSEN Research Associate at the Hertie School of Governance

Post-Merkel Checklist at a t i m e w h e n t h e wo r l d i s

undergoing rapid, fundamental change, both Germany and Europe have failed to chart a decisive new course. Although Merkel averted multiple catastrophes, her caution may have exacerbated many other problems, such as the Greek financial crisis. Moreover, many slowmoving crises – such as Germany’s demographic challenge, technological stagnation, climate change, and rising inequality – were left to fester.

To be sure, future historians will emphasize Merkel’s reliable crisis management, her cautious leadership style, and her habit of listening to all sides before making decisions. Yet, with hindsight, it also will be clear that she was a kind of queen in a kingdom of the blind. At a time when Europe was beset by one emergency after another, she stood out not for her own foresight but by dint of the lack of leadership around her.

Merkel was no political visionary.

Having begun her chancellorship after just barely defeating former Social Democratic Chancellor Gerhard Schröder, she never attempted the drastic liberalizing reforms that she and the Christian

Democratic Union had promised in their 2005 election campaign.

Whether the result of electoral calculus or a true lack of ideological commitment, strategic ambition would be sorely missing from the rest of her political career.

The same can be said for her role within Europe. Although hailed as the consummate European, her approach to crisis management often revealed a lack of EU solidarity. She frequently made unilateral decisions without consulting or involving allies, such as when she swore off nuclear energy or supported Nord Stream 2, the Russia-to-Germany gas pipeline that bypasses Poland and Ukraine, rendering them more vulnerable to Kremlin pressure.

Moreover, in the various eurozone crises, Merkel did the bare minimum to keep the European Union intact, eschewing the kinds of changes needed to put the bloc on a more stable and egalitarian footing.

In many ways, her solid-butvisionless leadership represented a continuation of a paradox that has been prevalent throughout the postwar period. The country has long preferred non-threatening

leadership of the kind expressed in Konrad Adenauer’s famous election slogan “No experiments” (or Merkel’s “You know me”). The alternative, as Germans see it, is to invite political risk-taking à la French President Emmanuel Macron or the brinkmanship exhibited by British Prime Minister David Cameron when he allowed the Brexit referendum.

Although Germany craves progress and recognizes the need for reforms, it shuns bold change.

The chancellorships of Adenauer, Helmut Kohl, and Merkel (who together governed for a total of 46 years) embodied Germans’ yearning for political stability, deeply ingrained after the tumult of the 1910–1950 period. The less risk-averse postwar chancellors, like Willy Brandt and Schröder, barely made it beyond one term.

The upshot is a country incapable of sustaining a program of long-term reform. “If it isn’t broken, don’t fix it” sums up the prevalent attitude.

When the need for a shift in direction becomes overwhelming, Germans follow the principle enunciated

by Tancredi Falconeri in Giuseppe Tomasi di Lampedusa’s novel

Reckonings

29

11% GERMANY’S HE ADLINE U N E M P LO Y M E N T R AT E I N 2 0 0 5 .

3% GERMANY’S HE ADLINE U N E M P LO Y M E N T R AT E I N 2 01 9 .

The Leopard: “If we want things to stay as they are, things will have to change.”

Indeed, Germany’s political center believes that it already lives in the best of all possible worlds. This attitude, expressed as a combination of collective denial and inertia, is maintained by the country’s federalism (a complex balance between the central government and those of the 16 states, which vary substantially in size and economic output) and by a system of public administration that has yet to catch up to the twenty-first century.

The Road Ahead Notwithstanding the tendency toward stasis, Germany did make some progress under Merkel.

During her leadership, the headline unemployment rate declined from more than 11% in 2005 to just over 3% in 2019. While some of that was the result of the Schröder-initiated Hartz IV labor-market reforms, Merkel successfully oversaw a tightening labor market and growth above that of many of Germany’s European peers (though still below that of the United States).

M E R K E L’ S G E R M A N Y: W E A LT H Y A N D W O R K I N G , B U T S TA G N A N T

30

MEASURE

GERMANY 2 01 9

FR ANCE 2019

US 2019

UK 2019

U N E M P L O Y M E N T R AT E

3.15

8.43

3.67

3.83

G D P P E R C A P I TA (CURRENT USD)

46,468

40,380

65,208

42, 3 5 4

I N T E R G E N E R AT I O N A L MOBILIT Y ( G E N E R AT I O N S F R O M B OT TO M 10 % TO M E D I A N )

6

6

5

5

CO₂ EMISSIONS PER C A P I TA ( 2 01 8 )

8.6

4.6

15.2

5.4

PUBLIC INVESTMENT (GENER AL GOVERNMENT G R O S S F I X E D C A P I TA L F O R M AT I O N , % G D P )

2.9

3.8

3.5

3.5

CURRENT ACCOUNT BAL ANCE, % GDP

7. 4 3

-0.29

-2 . 2 1

-3.09

D I G I TA L I Z AT I O N ( O E C D D I G I TA L I Z AT I O N INDEX)

0.4

0.57

N /A

0 .74

I N C I D E N C E O F L O W PAY (LESS THAN 2/3 OF MEDIAN WAGE, OECD)

17. 6 4

7.74

23.38

18.1

T R U S T, I N T E R P E R S O N A L ( W O R L D VA LU E S S U R V E Y, 2 017 )

4 4.6%

26.3%

3 7. 0 %

40.2%

Reckonings

And yet, the overall growth and unemployment figures hide a darker picture. In Germany today, one in five children grow up in poverty. Social mobility is among the lowest in the OECD. And inequality has grown, such that 10% of the population now possesses 56% of the wealth, whereas the bottom half owns only 1.3%.

And on the international front, Germany has exported harmful austerity policies throughout the EU, hampering growth and reducing living standards in much of Southern Europe.

At home, Germany has failed to prepare for the future. According to the OECD’s digitalization index, the country lags behind many of its peers.

Public investment also trails other European countries, which helps to explain why Germany’s per capita carbon-dioxide emissions remain stubbornly high. And Germany’s world-leading trade surplus has resulted in dramatic macroeconomic imbalances, potentially imperiling the already fragile eurozone and indirectly endangering Germany’s own long-term economic interests.

Germany thus suffers from “Reformstau,” a serious backlog of measures that either face long implementation delays or have yet to be enacted. The problem is visible not only in public administration and digitalization, but also in climate action, infrastructure, education, and social care. Reforms in all these fields have been held back not because of a lack of financing – Germany consistently ran a budget surplus prior to COVID-19 and can still borrow at negative rates – but because of a lack of political will to challenge established interests and entrenched ideologies.

Germany is in urgent need of forwardlooking, strategic policymaking.

The new government must bring an updated leadership style to shake the country from its self-satisfied complacency. The country must invest in digitalization and climate action, stabilize the eurozone by supporting greater investment in

The new government must bring an updated leadership style to shake the country from its self-satisfied complacency.”

EU debtor states, and develop a coherent foreign policy in conjunction with its European partners.

It won’t be easy. Greater spending on climate action, digitalization, and social care will run into barriers from the so-called “debt brake” (balanced-budget requirement).

But these rules can be revised and adapted to allow for greater investment. Similarly, while a more flexible eurozone policy will face political headwinds, the German ministry of finance has already shown that joint EU debt is possible under the right circumstances.

Finally, developing a cohesive foreign policy within the EU will always be difficult, especially when it involves substantially greater defense spending. But rising international tensions leave no choice but to devote more attention to the world outside of Europe.

The next German government must show that it is willing to tackle these challenges head-on.

The alternative is yet another term of stagnation, which neither Germany nor Europe can afford.

Helmut K. Anheier, Adjunct Professor of Social Welfare at UCLA’s Luskin School of Public Affairs, is Professor of Sociology at the Hertie School of Governance in Berlin.

O L A F S C H O L Z .

E ACHERS INSTRUCT THEIR STUDENTS T IN A CL A SSROOM IN DORTMUND.

Edward L. Knudsen is a research associate at the Hertie School of Governance in Berlin.

Reckonings

31

PS. Subscribe Now. Access unrivaled insights about the issues shaping your world.

Annual Subscription

Includes access to: –P S On Point, exclusive long-form commentaries, book reviews, and interviews with leading experts, delivered weekly –P S Say More, weekly interviews where PS contributors expand on topics covered in their commentaries, address new issues, and share recommendations about everything from books and recordings to hobbies and social media –P S The Big Picture, curated collections of commentaries on the topics driving the global conversation – The Year Ahead, our annual print magazine, shipped to your door – PS Opinion Has It, a hub for podcasts on the world’s pressing issues – PS digital archive

$100 Bring Project Syndicate content to your company or classroom

PER YEAR

Group subscriptions are available at advantageous rates for companies, organizations, or academic institutions.

Please contact us to discuss a subscription plan that’s right for you.

Contact us at subscriptions@project-syndicate.org for more details.

project-syndicate.org/subscribe 32

Reckonings

33

To Democracy and Back in Southeast Asia ANWAR IBRAHIM Malaysian opposition leader

For several decades, “people-powered” grassroots movements across Southeast Asia have fought for democratic reforms, human rights, improved access to quality education and health care, and, ultimately, an end to extreme poverty. These movements have been motivated by a vision of inclusive prosperity and social justice that stands as an alternative to the neoliberal “road to serfdom” on which much of the region has been traveling by default.

34

Reckonings

Reckonings

35

The rise of fascism and authoritarianism, and the collapse of free societies, is becoming increasingly likely; indeed, it is already happening.”

u n f o r t u n at e ly , t h e h a r d - f o u g h t

gains of recent decades are now in jeopardy. Southeast Asia is backsliding on democracy, and the erosion of accountability will lead to familiar outcomes, including concentration of power, massive corruption and rent-seeking by business and political elites, media repression, and limits on freedom of assembly. Add to that the destabilizing impact of climate change, mass migration, rising food insecurity, and economic inequality, and the risks are set to grow even more acute.

The rise of fascism and authoritarianism, and the collapse of free societies, is becoming increasingly likely; indeed, it is already happening. The only way to counter these forces is through a strong commitment to institutional reform, good governance, and accountability.

Democratic backsliding is a global trend, affecting even some of the world’s most resilient exemplars. But it is particularly apparent in Southeast Asia nowadays. Authoritarianism has gained the upper hand in Myanmar, following a military coup early this year; in Thailand, where a royal36

Reckonings

military bloc has consolidated its grip on power; and in the Philippines, where penal populism – including extrajudicial killings – has gained ground. Across the region, corruption continues to flourish, robbing citizens of quality jobs, infrastructure, education, and health care.

Fears of foreign interference and terrorism, together with the COVID-19 pandemic, have exacerbated democratic erosion by giving leaders a pretext to restrict civil liberties and human rights.

In countries with long histories of authoritarianism and conflict, such as Myanmar, democratic institutions never fully matured, and were thus easily dismantled. Meanwhile, in Thailand and the Philippines, a failure to meet the rising social and economic expectations of the majority fueled polarization, enabling the rise of charismatic, illiberal leaders.

Malaysia’s Malaise But perhaps nowhere in Southeast Asia has democratic backsliding been more apparent – and more dramatic – than in Malaysia. Just a few years ago, things were looking up for the

S U P P O R T E R S O F M A H AT H I R M O H A M A D , THEN CHAIRMAN OF PA K ATA N H A R A PA N , I N 2 01 8 .

F O R M E R P R I M E M I N I S T E R NAJIB R A Z AK UPON BEING F O U N D G U I LT Y I N H I S CORRUPTION TRIAL. T E M P O R A R Y S H E LT E R D U R I N G T H E C O V I D -1 9 LO C K D O W N O R D E R I N KUAL A LUMPUR .

country. In 2018, after more than six decades under a one-party regime, Malaysians elected the multiracial Pakatan Harapan coalition.

nepotism, and other excesses,” I warned, the “East Asian Economic Miracle” would be short-lived.

In Malaysia, grand corruption and rent-seeking have been the norm for more than three decades. In 2015, Malaysia was rated fifth in the world for illicit capital flight, having lost nearly $420 billion since 2004.

Malaysian politicians, including current and former finance ministers, have appeared in the Panama and Pandora papers – caches of leaked documents revealing how the wealthy hide their money. The true extent of offshore holdings of politicians, their family members, and their close associates is likely much larger than these leaks demonstrated.

Further investigation by the relevant authorities is needed.

The coalition’s victory capped a two-decade-long movement, led by a diverse group of students, civil-society groups, and grassroots activists. And the ensuing transition was peaceful and brimming with hope. Malaysia seemed finally to have escaped the yoke of semiauthoritarian rule, with sweeping institutional reforms to follow.

As I optimistically wrote at the time, with the new government in place, Malaysia could “finally begin to build the just, equitable, and effective democracy that its reformers [had] long envisioned.”

Some progress was made. The media gained more independence, and a constitutional amendment extended voting rights to citizens above the age of 18. Moreover, in 2019, Malaysia rose ten places on Transparency International’s Corruption Perceptions Index.

Yet the most vital reforms – to ensure judicial independence, eliminate preventive detention, and establish term limits for the prime minister – did not take root.

And hope that they would was soon dashed: in March 2020, the ousted regime carried out a coup d’état, enabled by the toxic influence of racial polarization and the new government’s failure to deliver tangible improvements to the lives and livelihoods of Malaysia’s working class and marginalized communities.

The COVID-19 crisis, which erupted shortly afterward, provided a smokescreen for the government to implement an emergency ordinance and suspend parliament for seven months, thereby evading parliamentary oversight and institutional checks and balances.

In 2020, Malaysia dropped six spots on the Corruption Perceptions Index.

Malaysia’s 70-member cabinet – the world’s most bloated government, on a per capita basis – utterly failed to manage the pandemic or the economic crisis that it caused. Several global pandemic-response indices – by the Economist, Bloomberg, and Nikkei Asia – placed Malaysia at or near the bottom of the list. Not surprisingly, Malaysia’s economy contracted by 5.6% in 2020 – its worst performance since the Asian

5th M A L AY S I A W A S R AT E D F I F T H IN THE WORLD FOR ILLICIT C A P I TA L F L I G H T I N 2 01 5 .

financial crisis of the 1990s – and growth estimates for 2021 have been repeatedly revised downward, from 7% to below 3%, with some economists predicting an even slower recovery.

As Malaysia’s experience shows, giving politicians hefty remuneration, perks, and access to government procurement, while shielding them from public accountability, is a surefire way to squander public resources and destroy an economy.

And yet, even as pandemic shutdowns have pushed nearly 50% of the middle class – roughly 580,000 families – below the poverty line, the country’s wealthiest 10% continue to prosper.

The Corruption Trap As I wrote more than 25 years ago, prosperity in East Asia is “not likely to be sustainable or secure if it prioritizes wealth accumulation” over “social justice and trivializes social problems.”

I argued that good governance, accountability, and transparency were the cornerstones of sustainable economic growth and development.

If we allow the “elites to gloss over their moral entropy, corruption,

Malaysians have little faith that their country’s political leaders can produce solutions to their many problems. And for good reason: meaningful governance reforms and effective economic management are impossible in an environment of resource-hoarding, rent-seeking, and declining institutional independence.

Only by rooting out corruption – and the politicians who perpetuate it – can Malaysia rebuild its economy and the livelihoods of its people after the COVID-19 pandemic. The same is true for the rest of Southeast Asia: countries must commit to building a “humane economy.”

A first step should be to apply clear time limits for the emergency powers governments have activated during the COVID-19 pandemic. Politicians must not be allowed to use the crisis to strengthen their grip on power and erode democratic institutions any further. The timely restoration of checks and balances is essential to support progress toward a more tolerant, pluralistic Southeast Asia, capable of ensuring social justice, inclusive prosperity, and sustainable development at home, and of contributing to global efforts to address shared problems.

Anwar Ibrahim, a member of Malaysia’s Parliament, is Leader of the Opposition, President of Parti Keadilan Rakyat, and Chairman of the Pakatan Harapan coalition.

Reckonings

37

38

Reckonings

Asia’s Regional Threats SHIVSHANKAR MENON Former Indian National Security Adviser

In Asia today, the economy is global, politics are local, and security is local, regional, and transnational. The Taliban’s rapid return to power in Afghanistan reminded Asians that our security is interlinked.

Likewise, the COVID-19 pandemic has raised the question of how to engineer an economic revival for the entire region.

t h at i s n o t t h e e n d o f t h e r e g i o n ’ s

challenges. Between the ongoing standoff on the India-China border, the tensions over Taiwan and the South China Sea, and the uncertain trajectory of Iran’s nuclear program, it is clear that Asia is now the epicenter of security risks.

The United States’ withdrawal from Afghanistan has forced together a coalition of regional powers – China, Russia, and Pakistan, with Iran’s acquiescence – to deal with the extremism and terrorism that the Taliban’s “Islamic Emirate” will nurture. Pakistan, the Taliban’s longtime patron, will try to prevent the “Talibanization” of its own politics, but radical Islamists within its borders have already been empowered and emboldened. China, Pakistan, Russia, and the Central Asian countries all face the prospect that homegrown separatists and extremists will find safe haven, weapons, and support in the new Taliban-controlled Afghanistan.

The broadest response thus far has been an effort to reinvigorate counterterrorism cooperation in the Shanghai Cooperation Organization (SCO) – a regional group uniting

China, India, Pakistan, Russia, and the four Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

In India, the change in Afghanistan raises the threat level marginally.

But that is because India was starting from a higher baseline. For decades, it has faced a significant threat of cross-border terrorism from Pakistan, and it has had increasing success in dealing with the problem.

In the new great-power competition, all of the IndoPacific is in play.”

In the broader regional context, the US military withdrawal from Eurasia leaves it free to concentrate on its main strategic priority: the maritime containment of China. In September, the US hosted the first in-person summit of the Quad (Australia, India, Japan, and the US) and unveiled the AUKUS agreement to supply nuclearattack submarines to Australia (the first such transfer to a non-nuclearweapons state). Once deployed, Australia’s eight nuclear submarines will have the potential to change the military balance in China’s near seas.

The Quad has evolved from a security dialogue to a real-world institution capable of providing valuable public goods in the domains of Reckonings

39

cybersecurity, public health, climate change, and technology. Regional and maritime security will still depend on bilateral, trilateral, and plurilateral cooperation arrangements, the string of US bases in the region, and interoperability created by exercises like the Malabar naval war games. If fully implemented, these arrangements would constitute a comprehensive and flexible response to China’s rise and the shifting balance of power in the Indo-Pacific.

The New Great Game Although intensifying Sino-American tensions have so far primarily affected countries and waters to India’s east, they will seep westward soon enough. In the new great-power competition, all of the Indo-Pacific is in play. The Biden administration’s initial hope of compartmentalizing areas of competition and cooperation (namely, on climate change) has already been undermined, perhaps fatally, by China’s insistence that every issue remain interlinked.

At the same time, it is hard to see the China-US strategic rivalry remaining undiluted by the two sides’ mutual economic dependence.

40

Reckonings

There is now a belt of nuclearweapon states stretching from the Mediterranean to the Pacific, from Israel to North Korea.”

For others in Asia, the Sino-American rivalry poses difficult choices.

Many members of the Association of Southeast Asian Nations seek security from the US while relying economically on China. Accordingly, governments across the region have responded by hedging their bets.

They are forming local coalitions where possible, while studiously avoiding having to choose between China and the US. But, given the trajectory of the Sino-American relationship, it remains to be seen whether this strategic option will remain available to them. What is already clear is these countries’ aversion to anything like an Asian NATO. Coalition-building as a form of hedging explains the continued vitality of the BRICS (Brazil, Russia, India, China, and South Africa), the SCO, and other alternatives.

Another hedging strategy is to build deterrent capability. Over the past three decades, Asia has been the site of an escalating arms race (one that China has led). There is now a belt of nuclear-weapon states stretching from the Mediterranean to the Pacific, from Israel to North Korea.

Offensive-arms acquisitions were

N A F G H A N C H I L D AT A K A B U L A I R P O R T. S STURGEON CL A SS U NUCLE AR SUBMARINE.

reaching new highs just before the COVID-19 recession, and they may now be seen as an effective form of stimulus to drive the recovery.

Meanwhile, China’s belligerence on the Line of Actual Control in the Himalayas has led India to double down on strengthening its military and intelligence ties with the US. More than 100,000 troops are now stationed along the border, and senior Indian officials have made it clear that the country’s partnership with the US must deepen, even if a formal alliance is not in the cards.

The India-China border will remain a live issue, because Chinese actions have cast doubt on the utility of the confidence-building measures that have been implemented since 1993.

Both sides are signaling a desire to move away from confrontation, but they differ on how to do so. India seeks a restoration of the status quo that existed on the border before the spring of 2020, and thus links the border issue to the rest of the bilateral relationship. China hopes to move on in the relationship while maintaining the new status quo that it has created. Trade between the two countries continues to

NTI-L ANDING SPIKES A A N D R E T I R E D TA N K S P L A C E D A LO N G T H E C O A S T O F TA I W A N ’ S KINMEN ISL ANDS.

grow, setting a record in the first half of 2021. But strong bilateral trade and aggressive territorial incursions do not sit well together.

That said, the risk of local clashes, civil wars, and proxy conflicts has certainly grown, as has the risk of miscalculation and accidents.

Other threats to regional security include now-familiar flashpoints like the South China Sea, Taiwan, the Senkaku/Diaoyu Islands, as well as somewhat newer transnational risks like cyberattacks, climate change, energy crises, and pandemics. Now that China has extinguished Hong Kong’s autonomy and destroyed the credibility of its “one country, two systems” policy, Taiwan has been subjected to ever-greater military coercion and pressure from the mainland.

More worrying, then, is the international and regional system’s inability to address these issues, most of which have been apparent and festering for some time. Global governance institutions have steadily weakened, and there is a notable absence of effective regional security institutions. There is no balance of power or set of rules, norms, and practices that would ensure stable and predictable interstate relations in Asia. Concerned primarily with their own political survival, many governments are relying increasingly on nationalism and populism to establish their legitimacy, leaving less room for maneuver to address regional security issues or pursue multilateral solutions.

Mutually Assured Insecurity Should we worry that all this kindling will soon lead to a bonfire? I believe that a great-power war remains unlikely, at least in the current environment. Though several Asian powers are revisionist, particularly China, the gains to be made from any direct conflict do not seem to justify the potential costs. Moreover, nuclear deterrence should help keep the peace between the major powers.

For now, Asia seems fated to live with chronic uncertainty and darkening prospects.

Shivshankar Menon, a former foreign secretary and national security adviser of India, is a visiting professor at Ashoka University.

Reckonings

41

Shinzo Abe’s AsiaPacific MINXIN PEI

Professor of Government at Claremont McKenna College

42

Reckonings

Reckonings

43

It has been over a year since Shinzo Abe, Japan’s longest-serving prime minister, resigned due to illness. His successor, Yoshihide Suga, has come and gone. But institutional innovations that Abe spearheaded – namely, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Quadrilateral Security Dialogue, or Quad – look likely to shape Asia’s geopolitical landscape for a long time to come.

M E M B E R S O F T H E C P T P P T R A D E PA C T.

a b e wo r k e d t i r e l e s s ly t o d e l i v e r

the CPTPP, after Donald Trump effectively torpedoed its predecessor pact, the Trans-Pacific Partnership, by withdrawing the United States.

The agreement that Abe revived currently includes 11 Asia-Pacific countries, with combined economic output of nearly $14 trillion.

Moreover, the CPTPP’s ranks are set to grow. The United Kingdom formally applied to join the pact last February.

In September, China did the same, in an apparent effort to highlight its commitment to free trade – and set itself further apart from the US. Taiwan applied six days later.

If the UK joins the CPTPP, as now seems likely, it will add $2.7 trillion – or about 20% – to the bloc’s total economic output. Dealing with the Chinese and Taiwanese applications will be trickier. Taiwan 44

Reckonings

is technically better qualified to join than China is, but the decision to admit Taiwan and reject China could stoke tensions and even spur conflict – a prospect that CPTPP signatories would prefer to avoid.

But, from a strategic perspective, it is with regard to the US that the CPTPP will make the biggest difference.

While Trump is out of the White House, the US has not shaken Trump’s protectionism, and President Joe Biden has not mustered the political courage to join the pact. Yet the CPTPP is integral to the success of US efforts to counter China’s economic influence in Asia. Eventually, Biden should acknowledge this. When he does, he will have Abe to thank for the fact that there is a free-trade agreement in place that the US can join.

Abe’s legacy has been even more consequential and far-sighted in

the security arena. He proposed the Quad as a regional security forum – comprising Australia, India, Japan, and the US – back in 2007, during his brief first stint as Japan’s prime minister. Although the Quad was largely inactive for the next decade, the parties agreed to reinvigorate it in 2017, owing largely to Abe’s prodding and China’s growing assertiveness.

The Biden administration now regards the Quad as a critical component of its strategy to keep China in check. In September, the group’s leaders met for an in-person summit at the White House – a gathering future historians will likely point to as a pivotal moment in the Sino-American strategic rivalry.

But the Quad is about far more than diplomatic symbolism. It is also strengthening its joint military capabilities. Last year, it held its first

J A PA N E S E P R I M E M I N I S T E R FUMIO K ISHIDA .

B I L AT E R A L M I L I TA R Y T R A I N I N G E X E R C I S E S I N M I YA Z A K I P R E F E C T U R E , J A PA N .

joint naval exercise, Malabar 2020, off the southeast coast of India. It followed up in August with Malabar 2021, held off the coast of Guam.

Given his leadership in forging the CPTPP and the Quad, one might assume that Abe was an unapologetic China hawk, bent on containment. But that assessment overlooks the third pillar of Abe’s geopolitical strategy: direct engagement with China.

In fact, even as he actively promoted the CPTPP and the Quad, Abe took care to ensure that Japan’s relations with China remained stable and cooperative. He visited Beijing in October 2018, and invited Chinese President Xi Jinping to visit Japan in April 2020, though that plan was derailed by the COVID-19 pandemic.

Ultimately, Abe was a supreme realist when it came to China. He knew

Thanks to Abe’s strategic foresight, Japan is now in a stronger geopolitical position than China.”

that bilateral engagement was vital to ease tensions and mitigate risks.

But to ensure peace and prosperity in Japan, such engagement had to be complemented by solid economic and security alliances with other major powers, especially the US and India. Only then would China take Japan seriously, treating it as an equal partner in East Asia.

Today, the third pillar of Abe’s China strategy appears to have collapsed. The Biden administration convinced Suga to ramp up Japan’s security commitments in ways that China’s rulers view as hostile.

The Sino-Japanese relationship soon reached a new low.

Fortunately, Suga’s successor, Prime Minister Fumio Kishida, might have more room to maneuver. Thanks to Abe’s strategic foresight, Japan is now in a stronger geopolitical position

than China. Indeed, China needs Japan more than Japan needs China, because China must maintain a workable relationship with Japan if it wants to frustrate America’s strategy of economic decoupling and security containment. So, if tensions begin to subside, China may well be the one to reach out to Japan in an effort to restore relations. Such an initiative would leave all of Asia better off.

Minxin Pei is Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States.

Reckonings

45

46

Reckonings

Brazil’s Besieged Democracy CAMILA VILLARD DURAN Professor of Law at the University of São Paulo

Reckonings

47

A mere 36 years after its exit from dictatorship, Brazil is teetering at the brink of an authoritarian abyss. The year ahead will show whether the country’s still-young democratic institutions can withstand an all-out assault from a populist president who seems determined to remain in power by any means.

b r a z i l i a n pr e s i de n t ja i r b ol s ona ro ’ s

election in 2018 owed much to a mobilization of right-wing groups demanding economic liberalization and to widespread alienation from the country’s traditional political parties and their chronic corruption scandals. During the election campaign, Bolsonaro built his political base by tapping these two sources of support while also availing himself of the backing of an important bureaucracy that had largely been keeping its nose out of politics: the military.

But Bolsonaro’s two campaign commitments – liberalizing the economy and fighting corruption – proved to be empty. In 2020, Sergio Moro, the star judge responsible for jailing former President Luiz Inácio Lula da Silva on corruption charges ahead of the 2018 election, resigned as Bolsonaro’s minister of justice. Moro was the key figure lending any credibility to Bolsonaro’s anti-corruption posturing. Since his departure, corruption scandals have engulfed Bolsonaro’s own family members, and Brazil’s famous “Car Wash” anti-corruption task force has been disbanded.

J A I R B O L S O N A R O .

Having presented himself as an “outsider” (despite having served as a federal legislator for 28 years), Bolsonaro promised that he would make no concessions to small political parties in exchange for support.

Yet he has come to depend on these parties, even negotiating aggressively 48

Reckonings

for financial resources to ensure their survival. By forging an alliance with the President of the Chamber of Deputies, Arthur Lira, Bolsonaro has been able to head off 139 separate requests for impeachment from more than 1,550 individuals and 550 organizations. (By comparison, the National Congress received 68 such requests with respect to President Dilma Rousseff between 2011 and 2016, and she actually was impeached and removed from office.)

Finally, Bolsonaro has not followed through on his promise to liberalize the economy. When he came to office, he had a neoliberal platform devised by his economy minister, Paulo Guedes. Known as a “Chicago boy” because he had studied with the free marketeers at the University of Chicago, Guedes hoped to follow the model of Chilean dictator Augusto Pinochet’s economic programs in the 1970s and 1980s. But now, both Bolsonaro and Guedes seem ready to abandon their previous commitment to liberalization in order to improve their chances for re-election in 2022.

Among other things, the administration is pushing for a massive expansion to Bolsa Familia (now relabeled Auxilio Brasil), a conditional cash-transfer program originally instituted by Lula’s Workers’ Party in 2003. That is understandable: As of September 2021, annualized inflation was running at over 10%, with soaring gas, food, and electricity prices severely

2,765 ACTIVE AND RETIRED M I L I TA R Y O F F I C E R S OCCUPYING CIVILIAN POSITIONS IN THE BR A ZILIAN FEDER AL G O V E R N M E N T I N 2 01 8 .

6,157 ACTIVE AND RETIRED M I L I TA R Y O F F I C E R S OCCUPYING CIVILIAN POSITIONS IN THE BR A ZILIAN FEDER AL GOVERNMENT IN 2020.

affecting the least-advantaged social groups. To guarantee the resources for the Auxilio Brasil, however, Guedes has played a dangerous card, signaling that he is ready to abolish the constitutional spending ceiling.

Established under former President Michel Temer, this medium-term fiscal rule stabilizes real (inflationadjusted) primary spending at its 2016 level, thereby limiting the growth of the federal government.

Brazilian markets duly sank after Guedes announced his intentions.

But perhaps the feature of Bolsonaro’s term as president that warrants the most attention is the presence within his administration of high-ranking military officials. As Brazilian Army Reserve Colonel Marcelo Pimentel points out, Bolsonaro has not needed to belong to any political party since 2019 because he is already supported by a de facto “Military Party.” This arrangement represents a dangerous politicization of the armed forces, with dire implications for the political system.

The sovereign debt crises, fiscal mismanagement, and hyperinflation of the 1980s severely eroded the image of the Brazilian armed forces, and should have put an end to their political aspirations. But Bolsonaro has given some of the generals another taste of power. His vice president, Hamilton Mourão, is a retired general. In 2018, there were 2,765 active and retired military officers occupying civilian positions in the federal government; by 2020, that figure had jumped to 6,157.

The Brazilian government now has proportionately more military officers serving as ministers than Venezuela does. Military personnel also lead roughly one-third of publicly owned companies, where they command high salaries.

Having regained the levers of state power, the armed forces must also assume the brunt of the blame for the country’s disastrous COVID-19 response. While the official death toll has exceeded 600,000, the actual tally is surely much higher. In October 2021,

A second mandate for Bolsonaro and his military sponsors would pose a grave threat to Brazilian society and its democratic institutions.”

A R Q U E TA R U M A P CEME TERY IN MANAUS D U R I N G T H E C O V I D -1 9 PA N D E M I C .

a Brazilian Senate inquiry accused the Bolsonaro administration of crimes against humanity for its misguided pandemic policies.

From June 2020 to March 2021, the Ministry of Health was led by a three-star army general, Eduardo Pazuello, who proved incapable of negotiating vaccine purchases with Pfizer. That set the stage for an aggressive second wave of infections, during which Pazuello demonstrated still more incompetence in failing to muster a coordinated national response. He has even been the subject of a criminal investigation for his inaction in the face of a health-system collapse in Manaus, the capital of Amazonas, where COVID-19 patients died from a lack of medical oxygen.

Pazuello is hardly alone. Throughout Bolsonaro’s administration, military officials have been awarded positions for which they lack the necessary knowledge or expertise. A general’s traditional training and professional experience, whether in war or peace, simply does not translate to the management of public services, particularly in Brazil. Whereas the military maintains a rigid hierarchy, Brazil’s technocratic civil service tends to afford employees more initiative and autonomy than in many countries. While military officials do not dare question their superiors’ decisions, open deliberation is central to democracy and a key virtue of efficient public administration.

The 2022 presidential election will be a decisive moment for Brazil.

It remains to be seen whether Bolsonaro’s opponents will be capable of mobilizing support for an alternative. But one thing is clear: A second mandate for Bolsonaro and his military sponsors would pose a grave threat to Brazilian society and its democratic institutions. Though there would be no return to the era of military coups, that is only because the military is already in power – and has every intention of remaining so.

Camila Villard Duran, Professor of Law at the University of São Paulo, is Senior Research Associate at the Global Economic Governance Programme at the University of Oxford and Visiting Researcher at the ISJPS at Paris 1 Panthéon-Sorbonne University.

Reckonings

49

The Middle East’s Backwater Blues MARWAN MUASHER

Former Foreign Minister of Jordan

50

Reckonings

The year 2021 brought major developments across the Middle East and North Africa, the effects of which will extend far into the future. The US withdrawal from Afghanistan was only the latest sign that the region is not only changing fast but also falling down the international community’s list of priorities.

Reckonings

51

a l r e a dy , t h e r e g i o n l o o k s v e ry

different than the one the world has known in recent decades, owing to recent developments in the Arab-Israeli conflict (especially the signing of the Abraham Accords), Lebanon’s implosion, and the crisis in Tunisia, among other issues. Much conventional wisdom about the region – and within it – no longer holds true.

The United States’ disastrous invasion and occupation of Iraq in 2003 had long since left the American public wary of military interventions and nation building, and the withdrawal from Afghanistan was the final manifestation of this disenchantment. American voters and subsequent US administrations have concluded that their country is not particularly adept at promoting democracy or building institutions outside its borders. And since America’s shale boom effectively eliminated its dependence on oil from the Middle East, the US has taken a diminishing interest in countries that seem unwilling or unable to establish more productive, inclusive political and economic systems.

One can also detect frustration among large swaths of the Arab world. Between America’s blundering interventions in Iraq, Libya, and Syria, and its continued unconditional support for Israel despite that country’s long occupation of Palestinian territory, Arabs have grown increasingly disillusioned with US policy. The result is that the US and the Arab world have never been further apart.

The Arab uprisings a decade ago sought to usher in sustained political and economic reforms.

But that agenda struggled to get off the ground and is now under tremendous pressure in the one country where it did. Until recently, Tunisia stood out as a model of political diversity, peaceful transfers of power, and gender equality.

Yet it is now being subjected to the dictatorial impulses of an elected president who enjoys wide popular support. Similarly, Lebanon, long 52

Reckonings

A PA L E S T I N I A N W O M A N W A L K S PA S T A D E S T R O Y E D B U I L D I N G I N G A Z A C I T Y.

an exponent of cultural diversity in the region, is now in a state of near collapse, because its corrupt political elites refuse to put the country’s interests ahead of their own.

In Tunisia’s case, it remains to be seen whether the recent instability is an anomaly that can be corrected, or instead heralds the renewal of the pre-2011 status quo. And many Arabs are wondering whether Lebanon’s political and economic breakdown will also spell the end of its commitment to cultural diversity, or whether the Lebanese people will once again manage to preserve a model that has exported much talent and hope to the rest of the region.

The past year also brought major developments on the Arab-Israeli front. Two political leaders who had previously wreaked havoc on the peace process have left the

scene. US President Donald Trump, whose “deal of the century” was completely skewed toward Israeli interests at the expense of the Palestinians, was sent packing (and he took his “peace plan” with him). And a similar fate was visited upon Binyamin Netanyahu, Israel’s longest-serving prime minister, who openly opposed any withdrawal from the occupied territories to allow for the establishment of a viable Palestinian state. But Israel now has a new government headed

by Naftali Bennett, whose position on that particular issue is even more extreme than his predecessor’s.

Beyond these electoral outcomes, 2021 will be most remembered for the clashes between Israeli forces and the Palestinians in Jerusalem’s Sheikh Jarrah and Silwan districts, and then in Gaza. More than at any other time in the history of the conflict,

R OT E S T S A G A I N S T N E W P “E XCEPTIONAL ME A SURES” DECREED

BY TUNISIAN PRESIDENT K AIS SAIED.

the Biden administration’s resolve to renew the Iran nuclear deal, nor have they had any moderating effect on Israel’s position vis-à-vis the Palestinians. Saudi Arabia, while not having taken part in such agreements, seems to be acquiescing, behind the scenes, in an effort to build an Arab-Israeli coalition against Iranian influence in the region. The kingdom has also taken unprecedented economic and social liberalization measures, while keeping its political system intact so far.

In short, while the region is undergoing rapid change, much remains the same. Most Arab leaders refuse to accept that the road to stability and prosperity runs through strong institutions, respect for diversity, inclusive economic systems, and legal equality for all citizens. Instead, they are clamping down on dissent and entrenching their own positions.

the international community has begun to view these episodes through the lens of human rights, with less tolerance for Israeli violations.

In 2018, Israel enacted a nation-state law that formally consigned its Palestinian citizens to second-class status. Now, three major reports in the past year have heavily criticized Israel’s separate and unequal treatment of Palestinians, including both those who are Israeli citizens and those under occupation. The Israeli human-rights organization B’Tselem, the highly respected Carnegie Endowment for International Peace, and Human Rights Watch have all come out and argued (to varying degrees) that Israel has established a legal system akin to apartheid.

The “A-word” was considered taboo until just a few years ago. But with Israel’s leaders openly declaring

their opposition to a Palestinian state, the political dynamics have changed. Israel is evidently committed to sustaining the longest military occupation in modern history; but its alleged human-rights violations have reached a level that very few in the international community can continue to justify.

The Abraham Accords, Israel’s bilateral agreements establishing diplomatic relations with four Arab countries (the United Arab Emirates, Bahrain, Sudan, and Morocco) in late 2020, turned out to do nothing for the peace process. Instead, they merely allowed signatory governments to secure political and economic gains from the US. The Trump administration hoped that the Accords would serve as a counterweight to Iran, which now has a new hardline president. But they have not had any impact on

Looking ahead, the Arab-Israeli conflict appears to be entering a new phase. Palestinians, particularly those from younger generations, no longer believe that a two-state solution is possible, and thus are refocusing their struggle on equal rights and possibly a one-state democratic outcome.

While the region is undergoing rapid change, much remains the same.”

Beyond that conflict, however, the international community’s interest in the region will continue to decline. If Arab states are to have any real hope of achieving peace, stability, and prosperity, they will have to launch a credible process of political and economic reform. And they will have to do it in-house.

Marwan Muasher, a former foreign minister and deputy prime minister of Jordan, is Vice President for Studies at the Carnegie Endowment for International Peace and the author of The Second Arab Awakening: And the Battle for Pluralism.

Reckonings

53

Post-Peak China CHRIS PATTEN Chancellor of the University of Oxford

Dictators do not like others grading their performance. Any sort of assessment of such leaders’ successes or failures, even by their close colleagues and advisers, is a big step toward undermining them. Permitting criticism, let alone encouraging it, is out of the question.

54

Reckonings

Reckonings

55

people rise in the morning until they switch off the bedside light at night.

And even then, Xi is still watching them and watching over them.

But even if Xi does not want others to scrutinize his record, his closest advisers must see that he may have squandered the years of peak power China had gained because of its economic strength and the problems faced by Western countries since the 2008 global financial crisis.

“Post-peak” China’s existential problems will now become ever more apparent. The country is not looking so unquestionably like the new and worryingly successful power that it has been. In some ways, that makes it potentially even more troublesome and threatening for the rest of the world.

Three Problems

chinese pr esiden t xi jinping, the

Communist Party of China’s most powerful boss since Mao Zedong, must feel particularly strongly about this.

In 2022, Xi will seek the endorsement of the CPC’s 20th Congress for his plan to remain in power for a third term, thereby abolishing the two-term limit established by Deng Xiaoping and adhered to ever since.

That arrangement was in part an attempt to prevent any return to Mao-like dictatorship, and it succeeded in collectivizing the CPC’s leadership. But one only has to look at the personality cult established by Xi and penetrate the meaning of “Xi Jinping thought,” which has now been incorporated into the Party’s constitution, to understand the current Chinese president’s intentions.

First, Xi’s all-embracing philosophy asserts that the CPC is the inheritor of all that is best in Chinese history and culture. Second, there is a strong element of grievance-infused nationalism. Third, and probably most important, is the instruction to party and country that they should never forget that Xi is in charge of everything from the moment 56

Reckonings

The most dramatic recent manifestation of China sliding past a tipping point has been the crisis at the property developer Evergrande.

Comparing this to the 2008 collapse of Lehman Brothers does not seem to me a sensible starting point.

The Evergrande debacle goes well beyond a huge market failure, and brings together two of the three big existential perils confronting the Chinese government.

The first is excessive indebtedness – not least in the real estate sector.

Today, China requires twice as much borrowing to produce every measure of growth as it did ten years ago.

Kenneth Rogoff of Harvard University and Yuanchen Yang of Tsinghua University estimate that the property and construction sectors account for 29% of Chinese GDP. Land sales are especially important for generating local government revenue, and some 78% of Chinese personal wealth is tied up in housing. Yet, China’s total debt increased eightfold between 2008 and 2019, and is now almost three times the size of its GDP. China’s second major problem is demographic: spiraling debt and falling productivity have been accompanied by a dramatic decline in the size of the working-age population.

The country’s economically active population is projected to shrink by 194 million by 2050.

Moreover, both the number of families and the fertility rate are falling as

China’s skewed male-to-female ratio persists. The imbalance is greatest among the youngest age cohorts: among those aged 10-14, there are 120 boys for every 100 girls. Given China’s declining number of families, it is no wonder that the house-building boom has resulted in so many empty apartments and at least 50 ghost cities.

Xi’s response to these growing economic problems has been to double down on his commitment to increase control over China’s more productive private sector and to favor state-owned enterprises. This policy is driven by his fear of ceding control to successful big tech firms, and seeing the rewards of privatesector achievement exacerbate the inequalities that constitute a third Achilles heel of Chinese communism.

But the Gini coefficient, which measures wealth and income inequality, shows that China is now more unequal than many Western developed countries, and is approaching US levels of economic disparity. Forcing a few billionaires to hand over some of their fortunes to the state or to state-directed projects will not change much. To make China more equal, its leaders would have to dismantle the CPC power structure that shovels rewards toward the Party’s controlling regiments.

In addition to high indebtedness, unfavorable demographics, and widening inequality, Xi’s China is confronting huge resource and environmental challenges. It imports more crude oil than any other country and faces problems of food security.

Meanwhile, climate change is taking its toll, in particular leading to a water shortage in northern China.

The country has only 7% of the world’s fresh water, but 18% of its population, and there is a complete mismatch between where people live and where water is found.

China’s contribution to global reductions in carbon dioxide emissions is likely to be a further drag on economic growth, which in any event will probably flatline as a result of the country’s debt and demographic problems. Xi may therefore seek to retain political control through even more surveillance and intimidation as the population feels a growing economic pinch.

X I J I N P I N G .

The Hubris of Xi

The objective truth, as Marxists might put it, is that China’s aggressive diplomacy has failed.”

It should also be clear that Xi’s regime has overplayed its geopolitical hand.

Obsessed with the idea that the United States and its liberal democratic allies were in terminal decline, Xi bragged that China was seeking “a future where we will win the initiative and have the dominant position.” Through its “wolf warrior” diplomacy, China would supposedly boss the IndoPacific region and show the world a model of successful totalitarianism.

But China’s neighbors – from India to Japan, South Korea to Singapore, and Australia to Vietnam – have become increasingly willing to resist Xi’s muscle-flexing. Moreover, the US has begun with some success to build cooperative partnerships with others. The aim is not to create a bamboo curtain around China as part of a second Cold War. Rather, liberal democracies want to constrain China’s bad behavior, make it pay for its bullying breaches of international agreements, and work with it when this serves the global interest – provided that China keeps its word.

The objective truth, as Marxists might put it, is that China’s aggressive diplomacy has failed. Now China will have to change tack. The danger is that Xi, whom some think is a risk-taker, may become even more aggressive.

So, instead of securing the Chinese public’s tacit political agreement through economic growth, he would seek their support at a time of greater hardship by whipping up nationalist fervor – particularly over Taiwan.

An alarming number of experts now regard a Chinese attack on Taiwan as a real possibility. In many respects, therefore, these are more perilous times for all of us. Liberal democracies must discreetly but firmly make it clear to Xi’s regime that they have red lines that China must not cross, and that one of them lies in the waters of the Taiwan Strait.

Chris Patten, the last British governor of Hong Kong and a former EU commissioner for external affairs, is Chancellor of the University of Oxford.

Reckonings

57

Preventing a USChina Nuclear Arms Race KEVIN RUDD Former Prime Minister of Australia

China’s recently reported tests of a nuclearcapable hypersonic missile in July and August 2021, though officially denied, are threatening to undermine strategic nuclear stability. They have already added to escalating tensions between the United States and China.

58

Reckonings

Reckonings

59

t h ro u g h o u t t h e s u m m e r , s at e l l i t e

images revealed that China was in the process of building as many as 300 new missile silos in its northern deserts. Some of these silos are likely to be used merely as empty decoys.

But if even half of them become sites for nuclear-armed missiles, it would represent a near-tripling of China’s nuclear arsenal.

Following these revelations, the US State Department warned in October that, “The rapid buildup of the PRC’s nuclear arsenal is concerning and threatens international security and stability. … We encourage Beijing to engage with us on practical measures to reduce the risks of destabilizing arms races and conflict.” But China’s Ambassador for Disarmament Affairs, Li Song, fired back the same day, describing the US’ new pact with Australia and the United Kingdom (AUKUS) to help Australia acquire nuclear submarines as a “textbook case” of nuclear proliferation spurring a regional arms race.

To date, China has steadfastly refused to engage in talks with the US on strategic arms control (whether bilaterally or trilaterally with Russia) until the US makes substantial 60

Reckonings

reductions in its own arsenal of nearly 4,000 active warheads. Yet by pursuing its own rapid expansion, China has begun to undermine this argument, making the need for talks increasingly urgent.

In September 2021, former Chinese Ambassador for Disarmament Affairs Sha Zukang became the latest prominent voice in Beijing to argue that China’s no-first-strike nuclear policy is “no longer suitable.”

The “strategic pressure on China is intensifying,” noted Sha, “as [the US] has built new military alliances and as it increases its military presence in our neighborhood.” The policy should no longer apply, he said, “unless China and the US negotiate a mutual understanding on no first use of nuclear weapons, or unless the US ceases to take any negative measures that undermine the effectiveness of China’s strategic forces.”

Sha’s intervention is serious.

Chinese officials do not randomly engage in the Chinese public debate. They are authorized to do so, especially regarding an issue as existential as nuclear security.

S AT E L L I T E I M A G E O F THE CHINA R ADIOMETRIC C A L I B R AT I O N S I T E AT D U N H U A N G .

F O R M E R C H I N E S E AMBASSADOR FOR D I S A R M A M E N T A F FA I R S , SHA ZUK ANG. S P R E S I D E N T J O H N F. U KENNEDY ’S TELE VISION ADDRESS DURING THE CUBAN MISSILE CRISIS.

A new Chinese nuclear posture would represent a destabilizing shift. But Sha’s comments also serve to highlight the root of the current standoff. The US needs to clearly understand the Chinese government’s deeply anxious view of its own nuclear and wider geostrategic vulnerability. Chinese President Xi Jinping has repeatedly characterized the situation as a decades-long “struggle” against a power that is determined to contain China’s rise by any means.

But the same insight also provides the key to breaking the current impasse. China’s strategic culture is deeply realist. Moral appeals to China about doing the right thing won’t get American negotiators anywhere; but cold, pragmatic arguments can.

The deepening US-China rivalry may itself create an incentive for Beijing to come to the table,

Even in the depths of the Cold War, the US and the Soviet Union managed to establish real safeguards and limits on nuclear arms.”

provided that the US can convince the Chinese that they would be less vulnerable with an arms-control agreement than without one.

How can this be done? China may not be willing to jump into large-scale talks right away, but it is clearly concerned about US capabilities, and therefore may be willing to begin with smaller-scale bilateral talks on strategic transparency and crisis management. A series of “Track-1.5” dialogues – unofficial talks between government officials – focused on such issues was suspended in 2019. Relaunching this or a similar process, possibly after the Biden administration completes its ongoing Nuclear Posture Review in early 2022, would be a good first step.

Next could come modest confidencebuilding measures designed to increase predictability, reciprocity,

and trust. These could include a notification system for ballisticmissile tests, joint technical assessments of missile-defense capabilities, and eventually even Chinese participation in the New START Treaty’s monitoring regime.

To make real progress, the developments that most perturb China – including US missile defenses, the development of lowyield tactical nuclear weapons, hypersonic conventional precisionstrike systems, and America’s ambiguity about its nuclear posture – will also have to be discussed. And the same goes for US concerns over China’s rapid modernization of its nuclear arsenal and its ambiguity about moving to a less restrictive “launch on warning” doctrine.

While starting with bilateral efforts would be valuable in itself, the eventual aim should be to pursue a multilateral arms-control agreement that at least includes Russia. The ultimate goal would then be to agree on force limitations at the lowest possible level for each country, thereby forestalling the slide toward an Indo-Pacific nuclear arms race.

Even in the depths of the Cold War, the US and the Soviet Union managed to establish real safeguards and limits on nuclear arms. They had good reasons for cooperating. Both had experienced the harrowing weeks of the Cuban Missile Crisis, when the world came perilously close to catastrophe. Today, the US and China – and the world – cannot afford to wait for another such crisis before taking similar precautions.

Kevin Rudd, a former prime minister of Australia, is President of the Asia Society and Chair of the International Peace Institute.

Reckonings

61

China Bets on Common Prosperity KEYU JIN Associate Professor of Economics at the London School of Economics

The year 2021 marked the start of a new paradigm for the Chinese economy.

China is shifting from a model championing GDP growth above all to one emphasizing efficiency, consumer welfare and protection, climate-change mitigation, and environmental protection. Chinese companies’ growth will be less unbridled and more regulated and monitored.

The goal of building a global manufacturing powerhouse has evolved into the pursuit of techno-nationalism. China’s leaders believe their country is on the verge of a transformation into a truly “modern socialist economy.”

62

Reckonings

Reckonings

63

Contrary to conventional wisdom in the West, China’s push for greater regulatory oversight is not motivated by a desire simply to crack down indiscriminately on the private sector.”

china is not alone. regardless

of what epithet they apply to their respective political systems, and despite bilateral tensions, China and the West are facing some similar challenges. Both are confronting increasing income disparities, the boundless growth of Big Tech firms, and a deepening divide between elites and the grassroots. But unlike the rest of the world, China has decided to tackle these issues head on.

Over the course of 2021, the Chinese government took 20-30 major steps to regulate and discipline an array of leading corporations, ranging from consumer-facing platform companies to education firms. The grounds for these interventions were antitrust, data security, and social equality – and sometimes all three at once.

Even as these sweeping moves generated much overwrought commentary in the international press, they merely scratched the surface of the deeper transformation that is underway. Regulatory and enforcement actions are both necessary and welcome in a country where companies’ growth prospects and contributions to GDP have long overridden consumer welfare and protection.

The changes introduced in 2021 represent a “coming of age” for the Chinese economy, signaling that people matter more than aggregate numbers. Under the new rubric of “common prosperity,” 64

Reckonings

the government’s official goal for the coming decade is to create the conditions for the growth of a large, prosperous middle class, better opportunities for everyone, and more “empathetic” behavior on the part of Chinese companies. The unrestrained Western-style capitalism that has resulted in a “middle-class squeeze” is to be avoided in favor of a more “olive shaped” income structure.

The Turning Point Forty years ago, Deng Xiaoping lifted the ideological taboo on individual profit-seeking to allow some people to get rich first, and then let the rising tide lift all boats. Today’s Chinese leadership believes that it is time to let the tide come in. COVID-19 has laid bare the inequality between haves and have-nots. Big Tech companies have grown even bigger and more powerful during the pandemic. With everyone homebound and cozily stuck together – elites along with masses – attention has turned to domestic issues and the need for national self-reliance and independence.

Contrary to conventional wisdom in the West, China’s push for greater regulatory oversight is not motivated by a desire simply to crack down indiscriminately on the private sector, to cut billionaires down to size, or to limit Chinese companies’ international access. There were 407 public listings for Chinese companies in 2021, and over 83%

of them were private corporations, not state-owned enterprises.

Common prosperity is linked to the broader goal of social harmony.

One of the greatest ironies in contemporary Chinese society is the hyper-competition in education, which has left parents anxious and children miserable. Families are spending inordinate amounts of time and money on extracurriculars, filling kids’ schedules with things they don’t necessarily need for the modern economy. The phenomenon has been likened to a crowded theater in which a few people decide to stand up to get a better view, forcing everyone else to do the same.

In the end, no one is better off.

Now that most Chinese have fully embraced the digital life, there is also growing concern about the misuse of personal data. In a few high-profile cases, such abuses have cost people not only their personal wealth but their lives. Moreover, the Chinese tech giants have shown scant concern for employees’ welfare, leading to a loss of motivation among overworked young people who had hoped to build a family and are now “lying flat” (no longer going above and beyond at their jobs).

China’s authorities have recognized the social tensions and vulnerabilities that come with unchecked marketdriven growth. While the market failures and inequities of the new digital age are not unique to China,

N EXHIBITION HALL A FOR THE CHONGQING N E W -T Y P E “ I N T E R N E T O F T H I N G S .”

A SSENGERS USE THEIR P MOBILE PHONES IN A B E I J I N G S U B W AY T R A I N .

the Chinese approach to tackling these problems is characteristically different from that of most other countries. For starters, the responses are often swifter and more dramatic. By contrast, US policymakers have done almost nothing to rein in Facebook, for example, despite serial revelations of the company’s questionable practices and frequent reminders of the deep societal problems its business model has caused.

A second difference is that China is unlikely to adopt the kind of large welfare state that one finds in some European countries. The country prizes hard work as a national and traditional virtue. And, unlike in the United States, the top 1% are not castigated, even if some individual shaming (or worse, where law-breaking is involved) occasionally plays a role. Chinese leaders want to eliminate only the “unfair” sources of inequality, such as entry barriers, excessive monopoly powers, and legal loopholes that enable “illegitimate income.”

A convenient critique is that China’s efforts to regulate companies and limit their growth ambitions will kill the incentive to innovate. But this argument ignores the fact that Chinese entrepreneurship is driven by more than monetary reward. To become “important” through a committed career or a major contribution to society is a way to “glorify one’s ancestors,” as the Confucian saying goes.

Driven by a larger purpose, Chinese entrepreneurs adapt agilely to changing circumstances as they tenaciously pursue their goals.

Like many other countries, China will have to be mindful of various nearterm cyclical issues in the coming year.”

A H U A W E I E M P LO Y E E W ATC H E S A P R O G R A M O N HIS SMARTPHONE AS HE R E S T S AT H I S C U B I C L E .

that excludes China. Another big risk, according to some outsiders, is that policies designed to transform the investment climate and business environment will make matters worse or amount to overkill. And an even more consequential risk is that ideology will take precedence over prudent economic management, reversing the mental unshackling that enabled the shift toward a full-fledged market economy over the last 40 years. But this is unlikely to happen.

Risks and Rewards

Fortunately, the past year also brought many market-friendly developments, from BlackRock launching its first China fund to Hong Kong’s stock exchange being cleared to offer A-share futures. Foreign players are gearing up to expand the scope of foreign-funded institutional investments in China, proving that greater economic liberalization can coexist with stricter regulatory oversight. Moreover, since the phaseone trade deal with the US, China has approved 28 financial licenses and 100% of all tariff exemptions requested by US companies. Despite Sino-American tensions and pandemic-related disruptions, trade and financial flows have held up.

China’s road ahead is fraught with challenges. No country of similar size has fostered a political economy that is both equitable and capable of fully harnessing dynamic innovation and efficiency. There are risks associated not only with deglobalization but also with a continuation of globalization

China has also strengthened its climate commitments and announced that it will halt external financing of coal-fired power generation.

With growing awareness of the issue among corporates and households, the People’s Bank of China, local governments, and

Moreover, for every unhappy billionaire who needs to be “persuaded” to contribute more philanthropically, there are many more happy millionaires who genuinely welcome new regulations on big firms’ size and scope, as these will improve their own chances of becoming billionaires.

financial institutions have pledged to support smaller companies, and regulators have published a green-bond taxonomy as part of a broader effort to integrate climate issues into macroprudential management. Climate diplomacy remains an important channel through which China can strengthen its ties with the rest of the world and demonstrate global leadership.

That means both working with advanced economies and helping other developing countries achieve their targets for net-zero emissions.

Like many other countries, China will have to be mindful of various near-term cyclical issues in the coming year, including the slow recovery from the pandemic, increasing indebtedness and default risk, more frequent natural disasters, and subdued investment and consumption. But beneath the natural ebb and flow of market economies, the country will be moving toward greater equanimity, tolerating lower growth rates with emphasis on quality, and greater cyclical volatility. Most Chinese will regard the sacrifices made to achieve “common prosperity” as both necessary and wise.

Keyu Jin, associate professor of economics at the London School of Economics, is a World Economic Forum Young Global Leader.

Reckonings

65

No Wiggle JOSEPH E. STIGLITZ

Nobel laureate in economics

66

Reckonings

Last year felt like a roller coaster, as hopes rose and fell with pandemic statistics and shifting political winds. The new year looks much the same, except that there will be midterm elections in the United States in November – the stakes of which could not be higher. Given all the uncertainty, it would be foolhardy to make predictions with any confidence. Still, I will offer my best bets.

Room Ahead

Reckonings

67

f o r s ta r t e r s , c ov i d -19 w i l l finally be tamed, though not eradicated. Enough people will have been vaccinated in enough parts of the world as to allow most people in most places to overcome the fear that has gripped us for the past two years. But although this process will unleash a burst of “contained” energy, restarting the global economy will not be as straightforward as shutting much of it down was.

The price system can offer reliable guidance for marginal decisions – the economy needs a little bit more of this, a little bit less of that – but it is not as good at handling big structural transformations like the shifts from agriculture to manufacturing, manufacturing to services, and peace to war (or vice versa). We are already seeing many hiccups, and there could well be more. We should be prepared for large changes

Restarting the global economy will not be as straightforward as shutting much of it down was.”

in production and consumption patterns: more Zooming and e-commerce, less in-person shopping in brick-and-mortar retail stores.

Demand for commercial real estate may decline, while demand elsewhere in the real-estate sector may rise.

The labor market has been disrupted like never before, and some of the changes might prove permanent.

Many workers are asking whether their jobs are even worth it. Why endure so much stress under such poor conditions for so little pay? Labor scarcities in the US have persisted even after the expiration of enhanced unemployment benefits. Workers are demanding more, and this may finally tilt the balance of power toward labor after four decades of capital taking an ever-larger share of the economic pie.

The new scarcities will be reflected in prices, and there will be unfortunate

asymmetries in these adjustments.

Price increases from shortages tend to be disproportionately larger than price reductions from surpluses, which means that inflation is likely, and whoever is in power will be blamed for it. The problem is that while we know how to control inflation when it arises from excess demand, what we are experiencing now is different. In the current context, raising interest rates will increase unemployment more than it will dampen inflation, giving workers one more thing to worry about.

Equally worrying, the waning effect of earlier fiscal measures enacted around the world to mitigate the pandemic’s economic fallout might lead to a weakening of growth. Much will depend on the fate of the recovery plans that have been proposed in many countries. For example, over the medium term (and possibly even the short term), the supply-side measures embedded in US President Joe Biden’s Build Back Better agenda are likely to help sustain growth. More and better daycare facilities will enable more women to join the labor force; doing more to control the pandemic will reduce fears about working and reopening schools; and investments in better infrastructure will reduce the costs of moving goods and people.

In any case, a concerted global effort to increase vaccine supply and ensure equal access for the poor would do far more to alleviate inflationary pressures than interest-rate hikes would. We should be celebrating the fact that, well over a decade since the onset of the Great Recession that began in 2008, global aggregate demand is once again robust. One hopes that the economic expansion this time will be used to address real societal needs, including retrofitting the economy for the age of climate change, remedying longstanding infrastructure deficiencies, and investing in people and technology.

H E R E P U B L I C A N PA R T Y T LO G O ( T R U M P - C O I F E D ) I N W A S H I N G TO N , D C .

68

Reckonings

Two Risks

The policies we choose now will have consequences for decades to come.”

Unfortunately, two dark clouds loom on the horizon. The first is political: the US Republican Party has sold its soul to Donald Trump, abandoning all reason and any commitments it once had to democracy. Republicans have already shown there are few limits to what they would do to gain and then hold on to power. Where once the party engaged in voter suppression clandestinely, now it does so openly and proudly.

Having abandoned respect for truth, budgets, democratic accountability,

and pluralism, the Republican Party represents a clear and present danger to both the US and the rest of the world. Prudence dictates that investors account for the global economic uncertainty generated by this political dynamic. But, as we saw in 2008, markets often do not acknowledge large looming risks until it is too late. Whether they will do so in 2022 is anybody’s guess. It is just as likely that investors will focus more on minutiae like the prospect of the corporate tax rate being increased by a couple percentage points.

F R O N T- PA G E C O V E R A G E OF JOE BIDEN’S I N A U G U R AT I O N I N A C H I N E S E N E W S PA P E R .

Reckonings

69

O R K E R S I N H U A I ’A N , W C H I N A , P R O C E S S A U TO PA R T S O R D E R S F R O M NORTH AMERIC A .

C E L E B R AT I O N A MARKING THE 10 0 T H A N N I V E R S A R Y OF THE COMMUNIST PA R T Y O F C H I N A .

The second dark cloud is geopolitical: China and the US are in an escalating rivalry, and other countries are increasingly finding themselves in the crossfire. To be sure, the conflict today looks markedly different than it did just a year ago, in the Trump era, when anything that benefited China was assumed to be at America’s expense, and when there was little concern about human rights or democracy.

Even so, US decision-makers remain fixated on economic competition and national security issues vis-àvis China. It is noteworthy that the Biden administration still has not removed the Trump-era tariffs.

The conventional wisdom is that the US and China are too interlinked economically to wage a real twentieth-century-style cold war.

But even if that is true, significant decoupling is still possible. The conventional wisdom also holds that a Sino-American rupture would be extraordinarily costly, curtailing opportunities for economies of specialization and comparative advantage. Yet the broader reappraisal of globalization in recent decades has shown that the GDP benefits from these advantages may be smaller, and the distributive costs (and the costs in loss of resilience) may be greater, than previously thought.

Some commentators have also voiced concerns about the loss of know-how that comes from excessive offshoring to countries like China.

But the political calculus in the 70

Reckonings

US is probably not based on fine calculations of economic costs and benefits. Moreover, the dynamic economic consequences are complex.

For example, the industrial policies that the US is now adopting in response to what it sees as its new competitive threat may prove to be a spur to growth both in the short run and over the long term.

The policies we choose now will have consequences for decades to come. We may have brought an end to the pandemic roller-coaster, but in 2022 we must act just as wisely and as quickly to enact strategies that will lead us into a better post-pandemic future.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and a member of the Independent Commission for the Reform of International Corporate Taxation.

Reckonings

71

“Cogs and Monsters explains, compellingly and lucidly, why economics, while far from perfect, matters more than ever, not just to our economies but to our societies.”

“This innovative and wideranging book promises to change how we think about labor in the Gulf region.”

—Andy Haldane, Chief Economist at the Bank of England

—Adam Hanieh, Institute of Arab and Islamic Studies, University of Exeter

“Nordhaus, winner of the Nobel Prize for his pathbreaking contributions to the economics of climate change, shows . . . we have the reasons, economic tools, and technologies to achieve a Green Earth.”

“A delightfully written account of the finance pioneers who have shaped our understanding of how to build optimal investment portfolios.”

—Jeffrey D. Sachs, Columbia University, president of the UN Sustainable Development Solutions Network

—Burton G. Malkiel, author of A Random Walk Down Wall Street

“Now, for the first time in history, women can have families and careers. Read Goldin’s masterpiece to understand the causes of this twentieth-century transformation and the pathway to gender equality.”

—Alice Evans, King’s College London

“Zeira’s brilliant book analyzes the factors that led to Israel’s remarkable economic development, and also offers a sober assessment of some of the most pressing economic challenges the nation faces today.”

—Effi Benmelech, Northwestern University

NEW TITLES

The Best American Magazine Writing 2021 presents outstanding journalism and commentary that reckon with urgent topics, including COVID-19 and entrenched racial inequality.

FROM

COLUMBIA UNIVERSITY PRESS

“This is an amazing book that gives us a peek inside the mind of one of the giants of contemporary neuroscience.”

—V. S. Ramachandran, author of The Tell-Tale Brain: A Neuroscientist’s Quest for What Makes Us Human

“A brilliant engineer and incisive intellectual, “Not only do these conversations provide Vannevar Bush stood at the crossroads of important new insights into pressing issues, science and government policy at the height they also demonstrate the power of cross of the so-called American Century as few disciplinary perspectives, and offer a model figures in history ever have. His penetrating of civil and fruitful dialogue.” reflections on the public role of scientists —Peter Harrison, author of in a liberal democracy, a perennial concern, The Territories of Science and Religion help give this collection an abiding, even urgent importance.”

“A tremendous set of insights from an exceptional group of scholars, presented in short pieces that are digestible in one sitting. A wonderful chronicling of an extraordinary year.”

“What a timely and thoughtful book, posing in Socratic fashion the central questions of our struggling republic.”

—Ken Burns, filmmaker

—Shamus Khan, coauthor of Sexual Citizens: Sex, Power, and Assault on Campus

“Vivid and deeply moving ... Based on dozens of online ‘lockdown diaries’ written by Wuhan residents, this book offers a revealing and humanizing perspective on one of the most controversial and consequential events of our time.”

—Elizabeth J. Perry, Harvard University

—Sean Wilentz, author of The Rise of American Democracy: Jefferson to Lincoln

cup.columbia.edu

“Bracing and thoroughly convincing ...

This is a highly original and provocative work of global history that deserves a wide audience.”

—Michael Kazin, author of What It Took to Win: A History of the Democratic Party

Recovering Stronger Together in 2022 74

Reckonings

SRI MULYANI INDRAWATI Minister of Finance of Indonesia

As a born optimist, I consider 2021 to have been a year of recovery. The COVID-19 pandemic is not yet over, but there is a ray of hope for a better tomorrow in both the health sector and the wider economy. Safe and effective vaccines have reduced COVID-19 deaths, while governments’ fiscal interventions have helped to spur economic growth. But the global recovery remains uneven, owing to countries’ varying pre-pandemic economic conditions and divergent stimulus policies.

t o b e s u r e , c ov i d -19 vac c i n e s

have been a game changer. Rising vaccination rates boosted herd immunity, creating opportunities to ease restrictions and jump-start the economy. Yet, while multilateral institutions have made efforts to ensure fair global distribution of vaccines, many developing countries are still struggling to secure enough doses for their citizens while advanced economies deploy vaccines at warp speed. This is underpinning an uneven global recovery and exacerbating inequity.

Because we are only as strong as our weakest link in the fight against the pandemic, global collaboration is imperative. Every country wants to control the virus and return to normal life. Multilateral institutions should therefore assume a larger role in ensuring that all of them can deliver their vaccination programs promptly.

We also need to establish an early warning system and improve our crisis preparedness – in the form of resources, governance mechanisms, decision-making processes, and information sharing – for future pandemics. Managing the frequent tensions between national sovereignty and global governance will be a key challenge. As the COVID-19 pandemic has shown, failure to do so will risk further catastrophic damage in the future.

The COVID-19 crisis has put huge pressure on many developing countries’ public finances.”

As for the economy, countries are currently at different stages of recovery and are pursuing varying types of post-pandemic strategies, in terms of both policies and timing.

But in a highly interconnected world of many different but related financial and economic systems, the easing of stimulus in one country will affect others. Notably, the normalization of monetary Reckonings

75

policy in developed economies, if not communicated transparently, can increase volatility and cause potentially destabilizing capital outflows from emerging markets.

The COVID-19 crisis has put huge pressure on many developing countries’ public finances, leaving governments struggling with rising debt levels as they try to fight the pandemic. International financial institutions and private creditors must collaborate to ensure a fair burdensharing scheme to assist them. While the tailored approach envisaged under the common framework of the G20’s Debt Service Suspension Initiative is helpful, this relief remains a temporary measure. Multilateral institutions need to provide greater oversight and guidance to address developing economies’ growing debt problems and mitigate their elevated financial distress.

76

Reckonings

Energy demand has surpassed its pre-pandemic level, causing a global crunch.”

Moreover, as the economic recovery starts to take hold, global supply chains that were distrupted by the pandemic cannot adjust immediately to meet the current surge in demand.

This problem may be transitory, but it is costly. The pandemic should therefore prompt businesses and policymakers to reassess current global supply chains and resource allocation – a reckoning that may generate momentum for emerging markets to gain a larger share of the global economic recovery.

Meanwhile, energy demand has surpassed its pre-pandemic level, causing a global crunch. Aside from the risk that price spikes will spur inflation, the energy crisis is also threatening our efforts to combat climate change. Like the fight against the pandemic, measures to combat global warming can

R E P R E S E N TAT I V E S O F T H E PA K I S TA N I A N D F R E N C H GOVERNMENTS SIGN AN AGR EEMEN T CO PY O F T H E G20 D EB T SERV I CE S U S P E N S I O N I N I T I AT I V E .

I N D I G E N O U S W A O R A N I F I L E A C L I M AT E C H A N G E L AWSU I T AG AI N S T T H E C H I N E S E O I L C O M PA N Y P E T R O O R I E N TA L IN ECUAD OR .

A F O R E S T R A N G E R CARRYING HER GRANDSON IN BENER M E R I A H R E G E N C Y, INDONESIA.

succeed only if we implement them together and in a consistent way.

Today, we have an opportunity to revive the economy and combat climate change at the same time by fostering a green, resilient, and inclusive recovery. Seizing it requires us to design climatepositive economic policies and provide more sustainable financing.

As part of Indonesia’s economic recovery strategy, for example, the government has introduced programs to create alternative activities that both generate income and preserve forests for local communities.

Green recovery programs are also likely to empower women, who have generally been more adversely affected than men by the pandemic and the climate crisis. In many instances, women act as agents of change for sustainable initiatives.

As a country with one of the world’s largest areas of rainforest, Indonesia has a strong and clear commitment to implementing a green recovery.

And in my capacity as co-chair of the Coalition of Finance Ministers for Climate Action, I firmly believe that green initiatives must not be unfunded mandates.

Indonesia will hold the G20 presidency in 2022 and the chairmanship of the Association of Southeast Asian Nations (ASEAN) in 2023. It can therefore help to set these groups’ strategic direction in ensuring a sustainable, resilient, and inclusive global recovery. In particular, G20 members must establish an effective common framework to address the major global challenges of our time, especially pandemic prevention, sustainable financing, and climate change.

None of this will be easy, of course.

But, as I said, I am an optimist. By generating sufficient political will, I am confident that we can recover together, and therefore stronger, from the COVID-19 crisis.

Sri Mulyani Indrawati is Finance Minister of Indonesia and CoChair of the Coalition of Finance Ministers for Climate Action.

Reckonings

77

78

Reckonings

Restoring Dynamism to Development ODILE RENAUD-BASSO President of the European Bank for Reconstruction and Development

As 2021 ends, the global economy is being forced to adapt to significantly changed conditions. It will not be a quick or painless process. The world is facing major disturbances caused by disrupted trade links, soaring energy prices, and labormarket mismatches. While many retailers have closed their brick-and-mortar stores, driving up unemployment, there have been significant shortages of information-technology engineers and truck drivers.

Reckonings

79

m a n y o f t h e s e c h a n g e s h av e b e e n

caused – or accelerated – by the COVID-19 crisis. But make no mistake: there is no going back to the pre-pandemic normal. The crisis will bring deep and longlasting change. As we look to the year ahead, we must prepare to cope with three main challenges.

1

Rising Macroeconomic Risks

Among the biggest questions for the months ahead will be whether we are entering a new era of inflation, and how to manage high levels of public and private debt.

Over the course of 2020, in many economies where the European Bank for Reconstruction and Development (EBRD) operates, public debt rose to levels last seen in the early 1990s. In some countries, it reached historic highs. A lack of fiscal and monetary space – together with barriers to vaccine access and negative spillovers from the advanced economies – could increase the divergence between emerging and developing countries.

Action by national governments – from mobilizing finance for economic-support packages to

80

Reckonings

organizing mass vaccination campaigns – has been indispensable to the pandemic response. And, to end the crisis, trust in publichealth programs, and in the safety and effectiveness of COVID-19 vaccines, will be as important as the vaccines themselves.

Yet, to return to sustainable growth and long-term fiscal sustainability, we will have to unleash the productive power of entrepreneurship. Here, the private sector will have to play a crucial role.

2

The Climate Challenge

The pandemic highlighted the vulnerability – though also the resilience – of our global economic order. It can be viewed as a stark reminder of the intensifying dangers of non-economic factors caused or exacerbated by climate change.

According to the latest report from the Intergovernmental Panel on Climate Change, global warming is set to reach or exceed 1.5° Celsius, relative to pre-industrial levels, over the next 20 years. This will have a number of consequences, including

W I N D FA R M I N K O S O V O FINANCED BY THE EBRD. O D I L E R E N A U D - B A S S O .

WOMAN RECEIVES A T H E C O V I D -1 9 V A C C I N E IN LISBON.

efficient use of resources – which benefits both the environment and economic growth. It is the private sector that knows how to generate the needed productivity gains.

Technological advances offer hope for real progress toward meeting the Paris agreement’s goals. But that progress will come at a price.

The green transition must not repeat the mistakes of recent decades, when trade and financial globalization left many behind.

Effective responses to whole-ofsociety challenges will require whole-of-society buy-in. The more fractured and polarized we are, the more difficult it will be to devise and implement solutions. In recent years, we have seen the political consequences of rising inequality and polarization. Voters who cannot earn a living and provide for their families vote like they have nothing to lose.

more frequent and intense extreme weather – heat waves, storms, droughts, and other destructive events – and longer warm seasons.

The transition to net-zero emissions is not merely an ideal goal; it is a necessity. The faster countries manage this transition, the more competitive they will remain, and the fewer social and economic disruptions they will experience.

To this end, it will be essential to mobilize private finance. Per our new strategy, the EBRD is working to double our climate-finance resources by 2025; we expect that private resources will also double.

Moreover, green financing will account for more than 50% of our annual business volume by 2025. And, starting in 2023, all of our operations will be aligned with the goals set out in the Paris climate agreement.

In the fight against climate change, we must rely on proven market mechanisms, such as carbon pricing. Markets must be well regulated, but regulators must not stifle the private sector’s capacity for innovation or appetite for risk.

Likewise, they must not impede the

Robust, sustainable, and inclusive growth is the goal all multilateral institutions now share.”

The green transition can succeed only if it is a just transition. Provisions to support those whose livelihoods are hit hardest during the transformation are thus essential. In the short term, direct financial support must be part of the equation. In the medium and long term, the provision of quality, ongoing education and desirable work opportunities, regardless of background or gender, must be top priorities.

3

The Digital Disruption

The rapid digitalization of the economy demands a similar approach.

Pandemic lockdowns have accelerated irreversible trends in the workplace and the wider economy, such as broad acceptance of work-from-home arrangements, adoption of artificial intelligence on a sharply increasing scale, and the widespread embrace of e-banking. An average of 96% of advanced-economy consumers now use digital payment methods.

And the transformation of banking, retail, and many other sectors has only just begun. Smart grids and smart meters, for example, are set to make a massive contribution to improving the use of scarce resources. They will underpin the smart cities of the future.

Ensuring that promising technological innovations are developed and implemented responsibly requires a strong,

competitive, and transparent regulatory framework. And it demands broad access to technology services. Evidence gathered by EBRD economists shows that the COVID-19 crisis has widened the digital divide.

This is an area where an investor like the EBRD can intervene. And that is exactly what we intend to do.

Political Dynamics and the Role of Multilateralism Rising geopolitical tensions and the spread of populism poses a serious challenge to the economic models and core values of Western democracies, and to multilateralism.

Against this backdrop, multilateral institutions must – and can – play a moderating role.

The grave, persistent difficulties that low-income countries have faced in obtaining COVID-19 vaccines show how difficult it is to ensure equality and fairness at a global level. But the agreement this year on a global minimum corporate-tax rate is proof that multilateralism can deliver.

The rapid provision of liquidity to struggling countries during the pandemic further highlights the power of multilateralism. With record investment of €11 billion ($12.7 billion) in 2020, the EBRD was able to make an important contribution here.

The pandemic has also shown that multilateral development institutions with a capacity to drive policy reform, like the EBRD, can help to create conditions for private-sector investment. This will be vital to restore dynamism to development after COVID-19.

Robust, sustainable, and inclusive growth is the goal all multilateral institutions now share. Together with our partners, we at the EBRD are securing the economic riverbed. But it is the market that will form the current driving recovery and development.

Odile Renaud-Basso is President of the European Bank for Reconstruction and Development.

Reckonings

81

COVID-19 and the Rise of Digital Capitalism DANIEL COHEN Professor of Economics at the Paris School of Economics

82

Reckonings

The outbreak of the COVID-19 pandemic suddenly made every society fearful of face-to-face contact. Restaurants, cafes, concert halls, and other cultural amenities essential for a flourishing urban civilization were closed, in some countries for over a year, to protect people against the risk of infection and prevent health systems from being overwhelmed. Life retreated to the family cell, and the burden of stress and frustration grew.

Reckonings

83

T E L E M E D I C I N E C O N S U LTAT I O N .

d u r i n g t h e l o c k d ow n s t h at m a n y

governments imposed, firms took steps to allow people to work online easily, purchase goods without having to enter a brick-and-mortar store, and entertain themselves without venturing outside. The big winners were companies like Amazon, Apple, and Netflix, whose market value has soared during the crisis.

As it happens, such so-called digital capitalism hinges precisely on reducing physical interactions and dispensing with the need for faceto-face meetings. COVID-19 has rendered many activities virtual; for example, health-care consultations are now often conducted remotely.

The pandemic has thus allowed the dominant players in digital industries to conduct a full-scale experiment regarding the virtual world’s assimilation of the physical one.

To understand why the digital economy goes hand in hand with the need to protect oneself from face-to-face interaction, it helps to read (or re-read) the French economist Jean Fourastié’s seminal 1948 book The Great Hope of the Twentieth Century. Fourastié offered an optimistic vision of the world to

84

Reckonings

come: after agrarian society, which cultivated the soil, and industrial society, which worked with matter, human beings in the service society would finally cultivate themselves.

Education, health, and leisure would be central to the new world.

“The civilization of the tertiary sector will be brilliant; half or three-quarters of the population will enjoy the advantages of higher education,” Fourastié wrote. “Within a few generations, initiative even in low-skill work, and the diversity of the means of transportation and of leisure activities, will favor the individualist tendencies of human beings.” Therefore, he concluded, “the time is coming when history will have advanced far enough that human beings can legitimately endeavor to elaborate the philosophy of the new age, and work in a less oppressive darkness toward a dramatic birth.

In liberating humanity from the labor that inanimate matter can execute on its behalf, the machine must lead us to jobs that, of all created beings, only human beings can perform: those of intellectual culture and moral improvement.”

The pandemic has … allowed the dominant players in digital industries to conduct a fullscale experiment regarding the virtual world’s assimilation of the physical one.”

The idea of a transition to a “humanized” society prompted many commentaries – Léon Blum, who in the 1930s served as France’s first socialist prime minister, wrote an enthusiastic review of the book when it was published – but all identified a central problem: it anticipated a world without economic growth. Fourastié himself had no doubt that the service society, by no longer being subject to the invasion of machines, would make growth disappear. If the commodity a person sells is the time they spend with others, then growth is by definition limited by the time available.

A V I E W E R W ATC H I N G NETFLIX.

This gives rise to what economists call “Baumol’s cost disease,” a term coined

by William J. Baumol and William G. Bowen in the 1960s. Growth is necessarily kept in check when one has to meet in person, whether to examine patients, teach a class, or perform a play. It is possible, of course, to “work more to earn more,” as former French President Nicolas Sarkozy once urged his fellow citizens to do, but it would never be possible thereby to double one’s earnings every 15 years, as happened in the industrial world of the 1950s and 1960s.

Without digital technology, all service-industry workers lack economies of scale that would allow a single provider to reach an ever-greater number of clients.

The concept of economies of scale – whereby a business can increase production while keeping its costs the same or increasing them only a little – is fundamental in economic analysis. It allows a firm to set in motion a virtuous cycle: the larger its customer base grows, the more its business thrives. Otherwise, beyond a certain size, the company is condemned to stagnate.

Achieving the maximum benefit from economies of scale in the service sector requires new technologies that can increase the producers’ impact.

Film and television, for example, have allowed actors to perform before ever-larger audiences.

It took a long time, and a great deal of trial and error, to find a solution to the cost-disease problem. But the answer appears to lie in today’s emerging digital society: one has only to convert human beings of flesh and spirit into data sets – bits of information about our health or our desires – so that we may become

part of the digital world, where we can be managed by algorithms.

To achieve “efficiency,” everyone must become data bits that can be processed by other data bits.

Artificial-intelligence software will be able to treat, advise, and entertain an unlimited number of clients, provided they have been digitized beforehand. When a watch on my wrist analyzes my vital signs, an algorithm can develop a customized solution to my health problems. The prophetic 2013 film Her depicts an AI with the capacity for emotion – and the bewitching voice of the actress Scarlett Johansson – that is in love with several million people at once. Such is the promise announced by Homo digitalis: that of a world emancipated from the limits of the human body.

As Fourastié predicted, human beings are central to the service society, but they must first be digitized in order to satisfy today’s inexhaustible thirst for growth.

The great COVID-19 lockdown has made clear that growth once again becomes possible online once people are freed from the imperative of face-to-face encounters.

Obviously, the big question is whether the digital cure will be worse than the disease. Are robots going to replace humans and increase poverty?

Will industrial assembly-line work give way to a Taylorism of the mind, via Facebook and Netflix?

Through an extraordinary curvature of historical time, the old questions of the industrial world are resurfacing at the heart of the digital one that is replacing it. Do we therefore have to reprise every stage of the old world – including its episodes of moral bankruptcy, financial crises, and economic insecurity – or can we do better?

In 2022, we may start to find out.

Daniel Cohen, Professor of Economics and Chair of the Board of Directors of the Paris School of Economics, is the author, most recently, of The Inglorious Years: The Collapse of the Industrial Order and the Rise of Digital Society, from which this essay is adapted.

Reckonings

85

A Reckoning for Big Tech?

ANU BRADFORD

Professor of Law at Columbia Law School

86

Reckonings

Reckonings

87

In today’s geopolitical environment, world leaders agree on very little. But reining in Big Tech is emerging as one of the few ideas that everyone can get behind. From China to the European Union and the United States, public authorities are turning to antitrust law to curtail market power and promote fairer, more competitive economies. In the year ahead, we will likely see an even greater push for a new settlement between the markets and the state – with antitrust laws being at the heart of this effort, and large tech companies being the primary target.

$10 billion in fines. The European Commission is now investigating Google’s advertising technology and data-collection practices, Apple’s App Store and mobile payment systems, Facebook’s data collection and digitaladvertising model, and Amazon’s operation of its marketplace. And EU regulators want to do even more.

t h e w i d e ly s h a r e d c o n c e r n

fueling this development is that Big Tech has simply grown too big.

For years, tech giants have battled allegations that they favor their own products in online marketplaces that they operate, abuse their privileged access to consumer data for competitive gain, and stymie competition by acquiring every firm that threatens to challenge their market position. These practices leave little choice for consumers, who are now dependent on the products and services offered by a handful of companies.

The EU has long been leading the way in addressing these issues, by leveraging its antitrust laws to redistribute market power and enhance consumer welfare. Over the past decade, it has concluded three antitrust investigations against Google alone, resulting in almost 88

Reckonings

We are heading for a prolonged showdown between business and government.”

FA C E B O O K W H I S T L E B LO W E R FR ANCES HAUGEN TESTIFIES BEFORE CONGRESS.

In 2020, the European Commission proposed the Digital Markets Act, which seeks to give it new powers to regulate tech giants and other “gatekeeper” companies that connect businesses to end users. The DMA stems from the recognition that existing antitrust enforcement actions have not made digital markets more competitive. It would allow the EU to ban outright a set of digital gatekeepers’ practices, such as selfpreferencing or the use of competitor data. The law will likely be adopted in 2022, whereupon it will have a global impact. Through a phenomenon known as the “Brussels effect,” large multinational companies often extend EU rules to their operations globally. The tech companies are already bracing for impact.

Until recently, the US had been watching from the sidelines as the EU deployed its antitrust laws against large American tech companies.

While techno-libertarians attribute the EU’s actions to the continent’s envy-driven protectionism, US legislators and enforcement agencies are now waking up to the industry’s excesses, and are increasingly questioning whether the unfettered marketplace is yielding desirable outcomes.

The US House of Representatives has repeatedly summoned Big Tech leaders to testify before hearings on their anticompetitive practices.

In 2020, the House Subcommittee

on Antitrust, Commercial and Administrative Law issued a major report on competition in digital markets, calling for a revitalization of US antitrust laws. The Department of Justice and the Federal Trade Commission are also getting into the action, with the DOJ challenging Google’s monopolistic practices and the FTC suing Facebook for operating as an illegal monopoly. US President Joe Biden is squarely behind this policy shift, appointing industry critics known for their firm stance on antitrust matters to top government positions. In July 2021, the Biden administration issued an ambitious executive order on “Promoting Competition in the American Economy,” affirming its commitment to combat monopolistic practices in the internet-platform industry.

China, too, is undergoing a monumental shift in its approach to the tech industry. For a long time, the Communist Party of China maintained a light-touch attitude toward domestic tech companies in an effort to foster growth and advance China’s technological dominance. In return for lax regulations, the leading companies submitted themselves to government demands, including assisting the CPC with online censorship. But now, the government is increasingly turning its attention to social inequalities and wealth disparities. And fearing that Chinese Big Tech is growing more powerful than the state, the CPC leadership feels obliged to remind the industry of who is ultimately in charge.

Thus, in April 2021, the Chinese authorities hit the e-commerce giant Alibaba with a $2.8 billion fine for preventing merchants from selling products on rival e-commerce platforms. The authorities also fined

T W I T T E R C E O J A C K DORSE Y APPE ARS D U R I N G A U S S E N AT E COMMERCE, SCIENCE, A N D T R A N S P O R TAT I O N COMMIT TEE HE ARING.

the technology conglomerate Tencent, ordering it to end its exclusive music licensing deals with global record labels, and then blocking its attempt to acquire China’s top two video game streaming sites, Huya and DouYu. In addition to these enforcement actions, the government has drafted new antitrust rules targeting internet companies.

The big unknown is how effective the US regulatory agencies will be in persuading US courts to get onboard with an antitrust revolution. The past year has shown that America’s conservative-leaning courts will not be easily convinced by arguments that Facebook and Apple are monopolies.

It also remains to be seen if a deeply divided US Congress can harness its shared resentment against Big Tech and pass meaningful legislation.

The Coming Showdown What happens next is easier to predict in the EU than in the US and China.

After the EU’s likely adoption of the DMA in 2022, the Commission will be free to charge ahead with its many antitrust investigations (absent a major setback in the European courts, which are expected to rule on Google’s appeals against the Commission within the coming year).

LIBABA GROUP A CO -FOUNDER AND FORMER E XECUTIVE CHAIRMAN JACK MA .

Ironically, China’s own crackdown may pave the way for antitrust reform in the US, because it will deprive US firms of the argument that diluting their power weakens them against their Chinese rivals. Here, the question is not what the CPC can do, but rather how far it is prepared to go. China needs a thriving tech industry if it is going to become the global technological superpower; but the government needs social

harmony even more. As matters stand, the Party seems committed to ensuring that the fruits of Chinese tech companies’ success are shared more widely, in the name of “common prosperity.” Striking this balance will be the central task facing Chinese regulators not just in the coming year, but over the next decade.

Despite some uncertainties, it is clear that the new regulatory blitz reflects an emerging international consensus. In addition to the EU, the US, and China, other large economies such as Australia, India, Japan, Russia, South Korea, and the United Kingdom are moving to crack down on the technology industry.

In this environment, Big Tech will need to pick its battles and tread carefully. We are heading for a prolonged showdown between business and government that will have far-reaching implications for all societies and no immediate end in sight.

Anu Bradford, Professor of Law and International Organization at Columbia Law School, is a senior scholar at Columbia Business School’s Jerome A. Chazen Institute for Global Business and the author of The Brussels Effect: How the European Union Rules the World.

Reckonings

89

Advancing the Trade Cure NGOZI OKONJO-IWEALA Director-General of the World Trade Organization

that by the first quarter of 2021, less than a year after the pandemic began, trade volumes would surpass pre-pandemic levels and reach new record highs. Governments’ restraint in the use of protectionist trade measures, together with largescale fiscal and monetary support, helped drive economic recovery.

In October 2021, the World Trade Organization raised its forecast for growth in global-merchandise trade in 2021 to 10.8% – up from 8% previously – and to 4.7% in 2022.

Policymakers don’t know whether the next major global crisis will be financial, climate-related, or caused by a cyberattack, another pandemic, or something else. But if the past is any guide, we can be certain that trade and international economic cooperation will help us weather whatever crisis comes our way.

The only thing that is certain about the future is uncertainty. And that is true of the future of trade as well.

Despite repeated prior warnings of a possible global pandemic, COVID-19 took the world by surprise. The impact on trade was swift and dramatic. In the second quarter of 2020, when much of the world was under lockdown, the volume of global merchandise trade plunged by 15% year on year – the type of sharp decline rarely seen outside of wartime.

90

f e w wo u l d h av e g u e s s e d t h e n

Reckonings

During the pandemic, for example, trade has been a force for good.

Despite initial disruptions, some ongoing export restrictions, and supply-chain disruptions, trade has provided a lifeline in terms of food and medical supplies. In 2020, even as the overall value of global merchandise trade declined by 7.4%, trade in medical goods increased by 16% – and trade in personal protective equipment by nearly 50% – while agricultural trade remained stable. Supply chains helped ramp up production of urgently needed goods, so that previously scarce and expensive protective face masks, for example, became abundant and affordable.

Quite simply, trade saved lives.

As scientists developed safe and effective COVID-19 vaccines at record speed, multi-country supply chains came together to provide the

specialized inputs and capital goods needed for large-scale production.

The supply chains for Pfizer/ BioNTech’s and Moderna’s COVID-19 vaccines involve 19 countries, while those of Oxford/AstraZeneca and Johnson & Johnson encompass 15 and 12, respectively. While vaccine production remains far below the level that is needed, particularly for people in low-income countries, it is hard to see how the world could have administered the billions of doses it has without open trade.

The WTO has responded to the pandemic by working with COVID-19 vaccine manufacturers and all other stakeholders including distribution companies, NGOs, and regulatory agencies to keep supply chains functioning and boost vaccine output. In the longer term, we need to diversify global vaccine production so that supplies

are more resilient and equitable.

If the past is any guide, we can be certain that trade and economic cooperation will help us weather whatever crisis comes our way.”

Trade has an important role to play in addressing big global challenges, from climate change to pandemic preparedness. But for the WTO to continue to deliver on its founding objectives – to enhance living standards, create jobs, and support sustainable development – its rulebook needs to be reformed and updated to reflect changing business realities and social and environmental imperatives.

S H I P M E N T S O F T H E PFIZER- BIONTECH C O V I D -1 9 V A C C I N E A R E U N LO A D E D F R O M A I R S H I P P I N G C O N TA I N E R S .

N G OZ I O K O N J O - I W E A L A .

Trading Futures Three trends shaping the future of trade are clearly discernible. First, as the pandemic has highlighted, services and the new digital economy will become increasingly important.

Even before the COVID-19 crisis, services trade – much of it digitallyenabled – was growing much faster

Reckonings

91

than trade in goods. Between 2010 and 2019, global exports of commercial services increased by 57%, while merchandise exports rose by 25%.

And for many businesses, including micro, small, and medium-size enterprises, e-commerce has been a lifesaver since the pandemic began. Everyone knows how Amazon and China’s Alibaba have benefited commercially from the crisis. But African e-commerce platforms like Jumia also have boomed, with the continent-wide value of online payments nearly doubling between the first half of 2019 and the first half of 2020.

But more can and must be done to stimulate both trade and the innovations that advance it. Closing the digital divide would make the power of the internet available to all. New international frameworks

92

Reckonings

for services and digital trade would enhance predictability and lower regulatory costs, creating new opportunities for businesses of all sizes. Plurilateral negotiations at the WTO on e-commerce and streamlining domestic regulation of services have advanced rapidly, bringing important agreements within reach.

Second, there is absolutely no doubt that the future of trade must be green in order to respond to problems of the global commons like the sustainability of the oceans and climate change. Younger generations – tomorrow’s producers and consumers – insist on it.

Many governments have committed to achieving net-zero greenhousegas emissions by 2050, and the WTO can maximize the potential of trade to help meet that goal.

More can and must be done both to stimulate trade and the innovations that advance it.”

Y A N G S H A N D E E P W AT E R PORT IN SHANGHAI.

S S E M B LY L I N E W O R K E R S AT A T H E V I N FA S T A U TO M O B I L E PL ANT IN HAIPHONG, VIETNAM.

The International Energy Agency and the European Commission estimate that reaching net zero by mid-century could cost about 4.5% of global GDP. Rapid increases in investment in green technologies could lead to supply shortages and bottlenecks.

But open, predictable trade would help reduce any “greenflationary” pressures that risk raising the cost of emissions mitigation.

Specifically, reviving negotiations at the WTO on liberalizing trade in environmental goods and services would help lower the cost of achieving carbon neutrality. The last such initiative was shelved in 2016 because politics trumped the global public interest. We must now try again.

In addition, fragmented approaches to carbon pricing are almost certain to become a source of trade tensions.

The World Bank has identified 64 carbon-pricing instruments at the subnational, national, and regional levels, and three scheduled for implementation, with prices across industries varying from less than $6 per ton to $918 per ton. Here, the WTO and other international organizations can develop common methodologies for thinking about the carbon embodied in traded goods.

Lastly, trade must become more inclusive, both across and within countries. That means extending its benefits to poorer economies, and to the poor people in wealthier countries who were mostly left out of global supply chains in the 30 years prior to the pandemic. Firms are now shifting operations to countries like Vietnam, Laos, Cambodia, Turkey, Bangladesh, and Ethiopia in order to reduce production costs, diversify risks, and be closer to customers. We need to extend this “re-globalization” to hitherto poorly integrated parts of Africa, Asia, and Latin America.

Trade can help us face whatever the future has in store.”

We also need to expand opportunities for people and firms in all countries – and especially women and smaller businesses – to connect to global supply networks. Domestic social, educational, and economic policies have an indispensable role to play in ensuring that people are able to benefit from economic change, whether this results from trade or technology.

Trade can help us face whatever the future has in store. But this will require trade policies that deliver for people, or else we will face more angry backlashes that offer no solutions to genuine economic grievances. And a reformed and revitalized WTO has a key role to play in ensuring people-centric trade.

Ngozi Okonjo-Iweala, Director-General of the World Trade Organization, is a former finance minister and foreign minister of Nigeria.

Reckonings

93

Debt-for-Climate Swaps Make Sense BEATRICE WEDER DI MAURO President of the Centre for Economic Policy Research

$ 94

Reckonings

$

What if there was a magic bullet to address the climate crisis, the pandemic-induced debt crunch, and the need to boost development finance all at once?

i t c e r ta i n ly i s at t r ac t i v e t o t ry

to tackle these issues jointly, because we already need to mobilize climate finance from rich countries (the main polluters) to support low-income countries (who will bear a disproportionately large burden from climate change).

European Commission President Ursula von der Leyen has said that “major economies do have a special duty to the least developed and most vulnerable countries,” and International Monetary Fund Managing Director Kristalina Georgieva said that “it makes sense” to seek to address debt pressures and the climate crisis jointly. The idea is to arrange “green debt swaps.”

The idea is not new; something similar has been tested since the 1980s. During that lost decade, socalled Brady bonds were the main item on an international “menu” of debt-restructuring instruments.

Debtors used official loans from the IMF and the World Bank to acquire US Treasury bonds as collateral, allowing them to exchange existing bank loans at a heavy discount for tradable, guaranteed Brady bonds. “Debt-for-nature” swaps

were also on the menu during this period, but they were side dishes.

The earliest such instruments were structured as deals between a conservation organization, creditors, and a debtor government. In 1987, Conservation International used donor funds to acquire $650,000 of Bolivian external debt at the heavily discounted price of $100,000.

In return, Bolivia undertook to protect the Beni Biosphere Reserve, furnishing $250,000 (in local currency) for its management.

Similar approaches were used to establish a marine sanctuary in the Philippines and to protect mountain gorillas in Uganda.

Debt-for-nature swaps were attractive for conservation organizations as long they could purchase distressed debt at highly discounted prices and secure leverage for their donor funding. But there were doubts about the effectiveness and durability of these strategies, so the amounts involved remained small.

The largest deal was the $580 million debt-for-nature swap with Poland in 1992. This established a new model by creating a central

A M O U N TA I N G O R I L L A I N T H E B W I N D I M O U N TA I N S , U G A N D A .

Reckonings

95

trust fund to oversee the selection, implementation, and monitoring of conservation projects. A similar structure is currently in use in Belize, which is allowing holders of its $533 million 2034 bond “to tender their notes at a 45% discount to their principal” while also committing to earmark $23.4 million for a marineconservation endowment account.

Despite this encouraging recent example, debt-for-nature swaps have not taken off over the past 30 years. Yet the scale of both debt and climate issues has grown to enormous proportions. The number of extreme weather events each year has doubled, tripled, and even quadrupled since the 1980s.

Fortunately, the analyses produced by the Intergovernmental Panel on Climate Change are now generally accepted. The IPCC’s reports

96

Reckonings

$4.5 trillion U P P E R E S T I M AT E O F REQUIRED INVESTMENT F O R T H E T R A N S I T I O N TO N E T-Z E R O E M I S S I O N S .

consistently show that the world’s “carbon budget” for keeping global warming under 1.5° Celsius is rapidly being depleted. The world can afford to emit only around 300 gigatons more of carbon dioxide. At the present emissions rate of about 35 gigatons per year, that gives us less than a decade.

Feeling a sense of urgency at last, many countries and companies have adopted net-zero emissions targets, and the financial sector has begun to embrace ESG (environmental, social, and governance) investing criteria.

But the task ahead is daunting.

Mark Carney, the current UN special envoy for climate action and finance, estimates that a global transition to a net-zero economy will require $3.5-4.5 trillion of annual financing.

Debt distress is also at historic levels.

During the pandemic, low-income countries’ overall debt burden

increased 12%, reaching $860 billion in 2020. When the pandemic struck, the threat of a sudden stop to capital flows and a full-blown emerging-markets financial crisis loomed large. The G20 responded by adopting the Debt Service Suspension Initiative, which was used by more than 40 countries to postpone repayment. Nonetheless, an IMF analysis of 70 low-income countries finds that seven are already in debt distress, and that 63 are at high or moderate risk of debt distress.

A New Menu One problem with trying to address climate change and debt with a single package is that they do not align perfectly. Climate-mitigation financing is needed most in highincome countries, with about one-third of the required transition

investments being in Europe and the United States, and more than half in the Asia-Pacific region, mostly China. With few exceptions, lowincome countries’ contribution to global warming is negligible. The match between financing needs and addressing the environmental externality is imperfect at best.

On the other hand, because many low-income countries are highly exposed to climate change, they will need financing to invest in adaptation. Some of this could be provided through debt relief; but, again, the match between financing needs and debt distress is imperfect. While countries like Haiti, Niger, and South Sudan face both high debts and acute climate risk, many others are confronting only one of these problems.

Rich countries are responsible for causing the climate crisis and therefore have a moral responsibility to assist poorer countries in dealing with the consequences.”

A related question is whether debt swaps are the most effective way of delivering relief. Rich countries usually have granted bilateral debt relief without attaching conditionality to recipients’ expenditures. If they wanted to support specific climate-adaptation spending in low-income countries, they could always do so through conditional fiscal transfers and grants. The suitability of conditional debt relief as a financing tool for low-income countries is not always obvious.

What is obvious is that rich countries are responsible for causing the climate crisis and therefore have a moral responsibility to assist poorer countries in dealing with the consequences. The international community is right to explore options for transferring resources for climate finance to low-income

countries. Given the non-alignment of risks and financing needs, a menu of instruments for middle- and lowincome countries will be needed.

Debt-for-climate swaps then can be one option among others.

They could be implemented using a Brady-type structure, which can solve the dual problem of scaling and leveraging flows from the private sector. Mobilizing both private and public funding will be essential, and will require the creation of liquid markets for climate bonds and probably some credit enhancements in a tripartite Brady arrangement.

To facilitate the process, the IMF and the multilateral development banks could structure conditional debt relief and provide various enhancements. For example, the IMF could use recycled special drawing rights to lend to low-income countries the resources they need to acquire collateral for green Brady bonds.

Private and public creditors would agree to swap their bonds at a heavy discount for these green bonds, thus providing the country with fiscal space for spending on climate projects. Management and monitoring of abatement and climate investments could be carried out using the model of the trust funds that were tried and tested in previous nature deals.

An ambitious “Green Brady Deal” could mobilize public and private flows for climate finance in countries suffering from both high debt and climate risk. It would not be a magic bullet, nor would it be the main dish on the menu of climate finance. But it could make a big difference for some of the most vulnerable countries.

B E N I B I O S P H E R E RESERVE IN BOLIVIA .

F LO O D D A M A G E I N H A I T I .

Beatrice Weder di Mauro, Professor of International Economics at the Graduate Institute, Geneva, is President of the Centre for Economic Policy Research.

Reckonings

97

Big

State

Inflation 98

Reckonings

ROBERT J. BARRO Professor of Economics at Harvard University

One almost had to feel sorry for US Federal Reserve Chair Jerome Powell when, in congressional testimony this September, he expressed frustration at the inflationary pressures affecting the American economy.

On the plus side, he finally acknowledged the existence of inflation that would last for more than a few months.

b u t t h e n h e w e n t o n t o a rg u e

that the Fed’s expansionary monetary policy was not to blame.

That policy includes near-zero short-term nominal interest rates, an enlargement of the Fed’s balance sheet to an astounding $8 trillion, and a continuation of asset purchases at a monthly rate of $120 billion.

If there was ever an aggressive monetary policy, this is certainly it.

Powell continues to insist that today’s high inflation is all about temporary bottlenecks and supplychain problems stemming from the pandemic-induced recession and the subsequent uneven recovery.

According to this view, the Fed is merely a passive agent, trying its best to provide enough liquidity so that the supply-side inflation does not disrupt financial markets and the overall economy.

Powell’s interpretation of current events reminds me of the German central bank’s view in 1923, when it was presiding over that country’s post-World War I hyperinflation.

According to the Reichsbank, the inflation derived from goods shortages was attributable to foreigners, whose unreasonable reparations payments

had caused a sharp depreciation of the German mark. In this scenario, the Reichsbank was a passive agent, trying as hard as possible to print currency to keep up with the rise in prices. As with Powell, the blame for inflation was put elsewhere – in this case on foreigners – rather than on the central bank’s own policies.

Of course, the Reichsbank’s account of the situation was not entirely wrong. Given that the German government and the central bank were relying on seigniorage revenue to pay for reparations, it is true that the reparations payments caused the monetary expansion and the ensuing inflation. But the Reichsbank’s willingness to print money was still a central part of the story.

If supply disruptions were the main story in 2020-21, they should also have seriously impeded real GDP.”

Similarly, Powell is not entirely wrong when he attributes inflation partly to supply disruptions. But the Fed’s willingness to accommodate this process via monetary expansion – rather than fighting inflation by raising interest rates and selling off assets – remains a crucial factor.

In any event, if supply disruptions were the main story in 2020-21, they should also have seriously impeded Reckonings

99

the recovery of real (inflationadjusted) GDP. Yet by the second and (estimated) third quarters of 2021, the sharp V-shaped recovery since the third quarter of 2020 had already restored US real GDP roughly to its trend-adjusted 2019 level.

This V-shaped pattern was predictable, given that the recession in the first half of 2020 was essentially a voluntary choice to shut down much of the economy in response to the spread of COVID-19. Once this shutdown was substantially lifted, it was reasonable to expect that the economy would rapidly return to its previous level. Moreover, it is unclear that this speedy recovery owes much to the expansionary monetary policy or to the accompanying, aggressive fiscal policy.

With respect to fiscal policy, the addition of trillions of dollars of federal spending and public debt has been breathtaking. Parts of this policy may have helped the recovery, particularly the subsidies that helped to sustain links between workers and businesses.

But the excessive payments to the unemployed likely held back the rebound in employment.

100

Reckonings

I fear that the shift toward a permanently expanded public sector will impede US economic progress in the coming years.”

From the perspective of long-term economic growth, a well-designed package of infrastructure investment might make sense. However, pandemic-based excuses for spending more federal dollars are increasingly being used not to assist recovery or long-term growth but, rather, to support socialist dreams of a permanently expanded welfare state.

This vision reached its apotheosis with President Joe Biden’s Build Back Better agenda, which includes four new entitlement programs.

Frankly, I had not realized that the problem in US policy was a shortage of entitlement programs.

I still recall President Bill Clinton declaring in 1996 that “the era of big government is over.” Where is Clinton when we need him?

I fear that the shift toward a permanently expanded public sector will impede US economic progress in the coming years.

In some respects, we seem to be imitating the socialist agenda of Western Europe. But one important difference is that a substantial part of Europe’s tax revenue comes from value-added tax (VAT).

5.4% T H E 1 2 - M O N T H - AV E R A G E C O N S U M E R - P R I C E I N F L AT I O N R AT E I N S E P T E M B E R 2 0 2 1 .

6.9% T H E AV E R A G E A N N U A L I Z E D C P I I N F L AT I O N R AT E BET WEEN JANUARY 2021 AND SEPTEMBER 2021.

A U L V O LC K E R A N D P JEROME POWELL.

J O E B I D E N P R E S E N T S HIS “BUILD BACK BET TER” ECONOMIC PL AN.

Lacking this comparatively efficient consumption tax, the United States will likely rely increasingly on inefficient taxes on capital (levies on corporate profits, capital gains, estates, overall wealth, and so forth). There will also be more emphasis on steeper graduation of tax schedules for personal income, which, as understood by President Ronald Reagan in the 1980s, implies inefficiently high marginal rates at high individual incomes.

To return to the outlook for prices, in September 2021, the 12-monthaverage consumer-price inflation rate was 5.4% (based on the headline CPI). This gauge of inflation, similar to other standard measures, almost certainly will rise as the low figures recorded for October-December 2020 drop out of the average. Indeed, between January 2021 and September 2021, the average annualized CPI inflation rate was 6.9%.

In this context, one particularly worrisome sign is Biden’s move to blame greedy oil companies and other large corporations for rising prices. In a speech on September 16, he declared, “We’re … going after the bad actors and pandemic

profiteers in our economy. There’s a lot of evidence that gas prices should be going down, but they haven’t.

We’ll be taking a close look at that.”

President Richard Nixon trafficked in the same sort of rhetoric in the 1970s, just before he imposed price controls that went on to inflict even more economic damage than that caused by open inflation.

What worries me, to paraphrase Senator Lloyd Bentsen from the 1988 vice presidential debate, is that one could legitimately look at Powell and say: “You’re no Paul Volcker.”

The disgust with that earlier era of inflation eventually led President Jimmy Carter, in his finest hour, to appoint Paul Volcker as chair of the Fed in 1979. Volcker was not immediately viewed as a hero when he accepted that ending the high inflation of the early 1980s (then under Reagan) would entail a severe recession. But over time, his celebrity status grew as his contribution for taming inflation proved durable.

Powell is now in danger of earning the opposite reputation. So far, he has escaped much personal criticism. But if higher inflation becomes generally expected and therefore entrenched, he will increasingly be blamed for it. Before we get to that point, Powell should shift to a Volcker-like contractionary monetary policy that curbs inflation before it is too late.

Robert J. Barro, Professor of Economics at Harvard University, is a visiting scholar at the American Enterprise Institute, and a research associate of the National Bureau of Economic Research.

Reckonings

101

102

Reckonings

Reopening the World and Ourselves MAYA JASANOFF Professor of History at Harvard University

We are almost two years into an unwanted experiment in what happens when national borders clang shut in a globally interdependent world. Cargo sits unclaimed at ports while container ships float offshore for weeks. Migrant workers are stranded.

Rich countries hoard vaccines for future use when poorer ones need them immediately.

What have we learned about nationalism and globalization that we can carry into a postpandemic (if not post-COVID) future?

Reckonings

103

i ponder ed this question w hen i

decided to drive around the United States in lieu of traveling abroad (owing to pandemic restrictions).

The rural expanse of the American heartland is itself a somewhat foreign country to people like me – a nonwhite, college-educated city-dweller from the northeast. I drove past homemade billboards in cornfields denouncing abortion and protesting wind farms. I saw giant floodlit crucifixes looming over highways, and more Trump flags than I could count. Returning home 10,000 miles later, I recognized this particular America, at least superficially, swaggering through the Capitol on January 6, streaked in red, white, and blue face paint, waving Confederate flags, and chanting, “USA! USA!” In a “normal” year, I would have spent some of January in India as a visiting professor at a university in Ahmedabad. In January 2020, I had watched aghast as Hindunationalist thugs stormed the campus of Jawaharlal Nehru University, menacing student opponents of the ruling Bharatiya Janata Party (BJP). Prime Minister Narendra Modi has made himself the face of an explicitly Hindu chauvinism, gazing smugly from billboards and sporting a new lockdown look as a long-haired ascetic.

At the same time, his government’s systematic persecution of minorities includes a legislative effort to denaturalize millions of Muslims and the eviction of hundreds of thousands of indigenous people from their land; it has also passed land reforms opposed by Sikh farmers.

Just before the massive spring surge of COVID-19, the government abruptly rewrote the rules for the closest thing to dual citizenship that India offers. “Overseas Citizens of India” are now required to secure special permission for activities such as scholarly research, journalism, and travel to sensitive regions – in short, to see or report on anything the government doesn’t want publicized.

Ordinarily, I also would have visited Britain, the focus of my historical research. There, right-wing nationalism wears the podgy face of Prime Minister Boris Johnson, doing his best to channel his cartoonish vision of Winston Churchill. It seems crazy to say it, but COVID-19 has been something of a blessing for the blustering Brexiteer, both by allowing 104

Reckonings

Britain to set its own vaccination timetable and by distracting attention – for a while, at least – from Brexit-related trade disruptions.

But Johnson’s government has lurched from one scandal to another, each wrought by incompetence, cruelty, and outright corruption – most recently in the awarding of COVID-19 testing contracts.

When in trouble, Johnson turns to Churchill. In October, he duly invoked Britain’s World War II-era leader in the peroration to his Tory Party conference speech – a flaccid celebration of the British “spirit.”

N A R E N D R A M O D I .

The Folly of Nationalism The parties of Trump, Modi, and Johnson reprise old nationalist scripts, mobilizing racism, xenophobia, and Islamophobia to generate a heady brew of grievance and entitlement. (All three also happen to be fighting culture wars over how to write and memorialize national history.) Of course, the same governing elites seem to have no problem with foreign connections that serve their own interests. The US state of South Dakota – governed by a Trump loyalist and boasting one of the highest COVID-19 infection rates in the US – has been exposed by the Pandora Papers as a premier global haven for money launderers and tax evaders. The Tory Party feeds off donations from Russian oligarchs, who take advantage of Britain’s permissive defamation laws to sue the journalists investigating them. The BJP government has relaxed various restrictions on foreign investment in India even as it hamstrings foreigners from donating to charitable organizations. It is globalization for the rich, nationalism for the poor.

But not all right-wing nationalists are moved – or moved equally, at least – by the politics of hate. I was struck by this observation in August, when the US and the United Kingdom withdrew from Afghanistan. The foreign-policy establishment and left-leaning media outlets lambasted US President Joe Biden’s administration for giving in to a Trumpian “America First” mentality. Where, they cried, was America’s commitment to spreading democracy and women’s rights? These were excellent questions to pose… to the Texas state legislature, which has radically restricted voting access and effectively banned abortion.

If one path to January 6 led through a history of racism and hostility toward the federal government, another ran through 20 years of a losing war waged disproportionately by the working class (veterans make up approximately one in five of the Capitol rioters who are facing charges). It ran through years of jobs being outsourced and of access to higher education being priced out of reach. It ran right through the rural heartland those on the coasts disdain as “flyover country.”

And yet, as the pandemic has shown, this sort of nationalism, regardless of why people espouse it, will ruthlessly devour its own. On January 6 alone, 3,964 people in the US died of COVID-19. Trump supporters have been rallied by cynical politicians to reject even those government services that might help them, notably the provision of affordable universal health care. Resistance to the role of “experts” now fuels a suicidal – even homicidal – anti-vaccine movement, with some Trump supporters booing the demagogue himself when he tepidly endorsed the shots.

No amount of tub-thumping nationalism will end the global scourge of the pandemic or arrest the ravages of climate change.”

Britain, meanwhile, has gone from having the highest number of COVID-19 infections per capita in Western Europe to facing Brexit-amplified supply shortages and inflation. Particularly in the second half of 2021, energy costs soared, and gas stations frequently ran dry, owing to a lack of truck drivers available to restock them.

In India, Modi held super-spreader election rallies and allowed a major religious festival to proceed while the virus was beginning to surge.

Critics of the government’s response have been censored and arrested.

A New Internationalism The world of the 2020s is burning, drowning, infected, and dying. No amount of tub-thumping nationalism will end the global scourge of the pandemic or arrest the ravages of climate change. What we really need is a new internationalism – one that does not involve invading other countries or catering to the needs of oligarchs and billionaires.

We need an internationalism that urgently responds to climate change via multilateral agreements with robust enforcement; that addresses the yawning global inequalities of wealth and security that lead migrants on harrowing journeys toward the frontiers of wealthy countries; and that can orchestrate an effective program of vaccine production and distribution to contain the pandemic and slow further mutations. A US-UK-India partnership, as it happens, would be singularly well-placed to lead this initiative, given the strengths of all three countries in pharmaceutical research and manufacturing. ( TO P ) I N D I A’ S S E R U M I N S T I T U T E I N P U N E .

T R U M P S U P P O R T E R S I N W E S T E R N I O W A .

But to achieve any of this, we will need new versions of nationalism.

How about a nationalism that makes countries compete with one another to be world leaders in cutting greenhouse-gas emissions, rather than pointing the finger at China or blaming consumers in the Global South for wanting cars, air conditioning, and other technologies that Americans and Europeans have long taken for granted?

How about a nationalism that combats poverty and immiseration without fomenting identitarian division? How about a nationalism that shores up the machinery of democracy and shows it to be an ideal form of governance, rather than dismantling it via cronyism, corruption, and disenfranchisement?

This is the nationalism to which we should aspire. To achieve it, the reopening of borders must coincide with an opening of minds.

Maya Jasanoff, Professor of History at Harvard University, is the author, most recently, of The Dawn Watch: Joseph Conrad in a Global World.

Reckonings

105

The World’s Opinion Page Project Syndicate was established in the early 1990s as an initiative to assist newly independent media in post-communist Central and Eastern Europe. Expansion to Western Europe, Africa, Asia, and the Americas quickly followed, as publishers worldwide sought access to the views of leading thinkers and policymakers on the day’s most important global issues.

1,514 W E D I S T R I B U T E D 1 , 514 C O LU M N S I N 2 0 2 0 .

156 IN 156 COUNTRIES.

672 B Y 6 7 2 C O N T R I B U TO R S .

1

P R O J E C T S Y N D I C AT E ’ S N E T W O R K O F M E M B E R P U B L I C AT I O N S

o u r r a p i d g row t h h a s b e e n g u i d e d b y r i g o ro u s

editorial independence and a simple credo: all people – wherever they live, whatever their income, and whatever language they use – deserve equal access to the highest-quality analysis, from a broad range of perspectives, of the events, trends, and forces shaping their lives.

Project Syndicate thus provides an invaluable global public good: ensuring that news media in all countries, regardless of their financial and journalistic resources – and often in challenging political environments – can offer readers original, engaging, and thought-provoking commentary by the world’s leading innovators in economics, politics, health, technology, and culture.

106

Reckonings

Without Project Syndicate, most of the publications we serve would be unable to secure comparable content. Project Syndicate’s unparalleled range and caliber of opinion, our ability to provide analysis of breaking news, and our commitment to focusing minds on complex topics driving the news – development, Asia, Africa, and sustainability, among many others – now benefits some 300 million readers of more than 500 media outlets in 156 countries.

13

19,860 I N 2 0 2 0 , P S C O M M E N TA R I E S WERE PUBLISHED 19,860 TIMES IN OUR MEMBER P U B L I C AT I O N S .

Anheier / Anwar / Banerjee / Barro / Bradford / Case / Cohen / Deaton / Indrawati / Jasanoff / Jin / Knudsen / Menon / Muasher / Okonjo-Iweala / Olivier / Patten / Pei / Renaud-Basso / Rudd / Sachs / Shafak / Stiglitz / Tubiana / Villard Duran / Weder di Mauro

USD $25.00