A perfect book for anyone suffering from a surfeit of Thomas Piketty
Here is a book for anyone suffering from a surfeit of Thomas Piketty. Four years ago we were told that the recession signalled the end not just of capitalism but of the US itself. Now that America is proving stubbornly resilient, new ways to ensure its demise have to be invented, and Piketty has stepped in to remind us that its reprieve is only temporary, and that disparities of wealth will finally see it off, and Western democracy with it.
Michael Mandelbaum, professor at the Johns Hopkins University School of Advanced International Studies, has a cheerier and more convincing view of our futures, arguing that the next phase of globalisation will be a time of increasing wealth and opportunity for all. The lessons of the last six years should by no means be forgotten, and no politician will ever again say, as Nixon did in 1971, “I don’t give a shit about the lira,” though nor should we assume that the days of growth are behind us.
Whereas Piketty is forever wagging his moralistic neo-Marxist finger, Mandelbaum prefers to deal with things as they are. His book, he says, does not seek to tell us how the global economy ought to work but how it is likely to work. His prudent optimism is rooted in the assumption that the international economy has displaced preoccupation with large-scale war. Given that his book appeared this spring, it may be objected that the argument that the conquest of territory and the defence of borders have ceased to be the main concern of governments has been overtaken by events in Ukraine, yet in a sense reactions to Russia’s neo-primitivist behaviour validate his point.
Putin’s hard-nosed antics have led even the Chinese to stand warily on the sidelines, and as the Russian economy shudders and stalls the cumulative costs of his adventure could ultimately bring him down, because like the Chinese Communists his economic backers understand that political legitimacy depends on economic growth. Putin, in a word, is getting himself on the wrong side of history, and while he plays his sordid games with his little green men and his Chechen thugs, technology and market forces are driving globalism forward.
Mandelbaum is too practised a hand to brush aside risks to stability, such as the backlash against cross-border flows of trade and investment, future financial crises, and how the Bric countries will manage the political obstacles to growth they each confront. Meanwhile terrorism remains the most imminent danger, and a single dirty nuclear bomb could bring widespread, market-subverting panic. But the growing legitimacy of market capitalism and the practice of globalisation itself are forces for stability, and on protests against them Mandelbaum is blunt: “No method of organising economic life on the planet other than internationally integrated free markets commands anything like political support necessary to displace the current system.”
As Britain and America acted as de facto protectors of international trade, investment and migration, historically “the world has enjoyed one of the benefits of government without actually having one”. Today it is still America that safeguards international trade routes, for Russia and China among others, though if the latter developed a large enough navy it could challenge that hegemony, with dangerous results: “Either the US controls the world’s sea-lanes or China does; sharing control is not feasible.”
For the moment the US is the world’s policeman because that is what the majority of countries want it to be. Many complain but they do not combine against it, not least because whatever they say they don’t feel threatened. But policing is expensive, and the retirement of 78 million American baby boomers, among other strains, will mean fewer patrols and could leave the world a more turbulent place.
Eventually American global leadership will be forced to cede ground to increased international cooperation. Those who look forward to this shift towards a multi-polar world (Mandelbaum implies but doesn’t say) should ask themselves how they would feel if decisions affecting their economic well-being or security were taken less by the US and Europe and more by the Bric countries, two of them harsh authoritarian regimes, the other two politically backward and grossly corrupt systems. Russia, whose energy wealth has helped sustain a kleptocracy in the Kremlin, and where the value of bribes rose from $33 billion when Putin came to power to $400 billion in 2008, is at risk of becoming a “giant, Slavic, Eurasian Saudi Arabia”. Brazil too is appallingly corrupt and likely to squander any oil revenues that come its way. In India rotten infrastructure, lousy politics, poor education (75 per cent literacy against China’s 92 per cent) and a too-small manufacturing sector seem likely to hold the country back, though the author sees scope for improvement, and under Modi we might get it. In China he sees a ruthless and efficient economic competitor.
Yet despite the financial meltdown the Brics have remained on the free market, globalist road they had previously chosen, and for all their problems each except Russia is likely to make a contribution to 21st-century global growth. And whereas international cooperation to protect the global economy will be erratic, prospects for the multilateral provision of economic services and other benefits, such as the decision by Germany, Japan and China to stimulate expansion, could be more promising. The greatest threat to jobs in the West of the open trading system he sees as coming not from Chinese toys or textiles but Indian offshore services. Migration too will continue to pose problems. Lifting all restrictions on immigration worldwide could yield $40 trillion, i.e. double the world’s economic output. Conversely, resistance to immigration into Europe could limit its ability to offset population decline and drag down economic performance. On the euro his advice is simple and salutary: “Be careful what you wish for, you might get it.” His conclusion is that a combination of the euro and manpower constraints could mean that Europe will grow slowly in coming years, if at all.
On America itself his judgments are succinct: “Moral hazard is present when the gains from economic activities are privatised but the losses are socialised,” and capitalism without bankruptcy is like Christianity without hell.
His final chapter maps out the fault lines ahead, but his conclusion is doggedly optimistic. The global economy, he writes, is to the Corn Laws version of 1848 what the modern automobile is to the late 19th century models. As is often the case with Mandelbaum’s writing, the combination of realism and hope is energising.