E' la fine del mondo (come lo abbiamo conosciuto)
Cantavano i R.E.M in uno dei loro primi brani: “It’s the end of the world as we know it (and I feel fine)”. Fu un grande successo.
Quel grande successo, in un certo senso, anticipava i tempi che noi stiamo vivendo. In questo Post, cercheremo di aiutare i nostri lettori a comprendere la portata (appunto epocale) dei fatti a cui stiamo assistendo, dal 2020 ad oggi, e soprattutto di quelli a cui assisteremo in futuro.
Se sfugge questo aspetto, se non si capisce l’ampiezza dello sconvolgimento, se sfugge la portata epocale del cambiamento, ogni strategia di investimento è destinata ad un disastro: tutti noi investitori oggi siamo chiamati ad investire su mercati finanziari che NON sono quelli del passato, anche recente; ed attraverso i mercati, ad investire su economie che NON sono quelle del passato, anche recente; e tutto questo in un contesto sociale e geopolitico che NON è quello del passato, anche recente.
Si tratta di argomenti di una tale ampiezza, che richiedono competenze di varia natura, alle quali Recce’d accede in modo privilegiato avendo per decenni costruito relazioni professionali con qualificati esperti (di tematiche sociali e politiche) in tutte le maggiori aree economiche del Pianeta.
Un network di altissimo livello, con il quale i contatti, in questo periodo, sono quotidiani, e da qui derivano poi i contenuti che mettiamo a disposizione dei nostri Clienti ogni mattina.
Ai lettori del Blog, noi offriamo in lettura due articoli, in questo Post, che sono utilissimi per comprendere che stiamo attraversando un momento della Storia di quelli nei quali cambiano tutti i punti di riferimento.
Come vedete, il primo dei due articolo porta un titolo che richiama, appunto, il brano dei R.E.M.
By
18 marzo 2022, 12:00 CET
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker. @liamdenning
Roughly half the U.S. population has little or no memory of the Cold War. Which is good; life ought to be lived without the existential dread of mushroom clouds.
Yet for many of us growing up in the West, the Cold War period was actually better than any time our ancestors experienced. We enjoyed economic growth, access to high-quality health care and education and jet-powered trade and travel. Plus peace, even if predicated on mutually assured destruction. In the post-Cold War years, when roughly half of today’s population was growing up, things turned positively fantastic. Economies boomed as trade barriers fell and Chinese manufacturing hit its stride. And there was the internet and on-demand everything. Plus peace, even if marked by occasional terrorist attacks and the odd faraway war. Nuclear weapons remained, of course, but came to seem like relics.
Russia’s attack on Ukraine marks the end of all that and the beginning of a new normal — or, rather, a shift back toward the old normality.
“What we think of as normal is actually the most distorted moment in human history,” writes Peter Zeihan, a geopolitical analyst, in his forthcoming book, “The End of the World Is Just the Beginning.” As the title suggests, this is not a happy read.
Zeihan’s central premise is that the globalized world now ending was founded on a bribe. In the aftermath of World War II, the U.S. offered access to the only functioning industrialized market of any scale — its own — with free trade policed by the only navy still capable of doing so — its own — and security guarantees for key allies in Europe and Asia. In return for this opportunity to recover, the other countries had to set aside their historical squabbles and imperial ambitions and support the Americans’ strategic priority: containing the USSR.
There had been an earlier era of globalization, in the decades leading up World War I. But that one stemmed from technological advances in shipping and communication rather than a true embrace of multilateralism. Back then, trade was dominated by the competing empires that ultimately clashed in 1914.
The decisive break from history at the end of World War II happened because its unequivocal victor, the U.S., declined to subjugate defeated enemies and broken allies. Instead, it used direct aid and economic access to rebuild them. And other countries, too. With free trade secured, otherwise economically marginal or previously insecure regions (except those aligned with Moscow) could develop, selling to and buying from a global marketplace. Without this peculiar order in place, it is hard to imagine a Singapore or even a Saudi Arabia — and definitely not a Ukraine — as sustained sovereign actors.
Weird as this was, its persistence after the USSR collapsed was even weirder. As the American bribe became harder to justify, the U.S. eventually ended up with a president who rejected free trade, openly denounced NATO allies as moochers and reveled in the old style of great-power politics.
Russian President Vladimir Putin’s attack on Ukraine, combined with a changed White House, has reinvigorated the U.S.-led alliance. Now, rather than wither, NATO may actually gain new members. Economic sanctions on Russia have been swift, harsh and surprisingly cohesive. And with the invasion clearly not going according to plan, it may seem as if the lifespan of our “distorted moment” could lengthen.
Not so fast. There’s no ceasefire in Ukraine yet and, even if a settlement is reached soon, the world has changed.
For one thing, Russia, which spans 11 time zones and exports all types of vital commodities, is no longer part of the international system in the way it was just a few weeks ago. Sovereign debt default appears imminent. Putin’s pattern of behavior, his age and his apparent obsession with Ukraine make him more likely to double down than to back down. The oil majors that have withdrawn and the aircraft leasing firms that have had their planes, er, nationalized won’t be coming back — even assuming they get an invitation. And however unrealistic it might seem for Western Europe to sever its energy umbilicus with Russia, keeping it intact is at least as unrealistic.
The dislocation and cost involved in isolating Russia means it’s too soon to declare that the U.S.-led order is completely revived. This war is barely three weeks old, and we have yet to see how unity will hold up over an extended period of potential energy shortages.
One effect of postwar globalization was that it reduced the importance of location — which, in geopolitical terms, is about as distorted as things get. Dizzyingly complex, extended supply chains make it possible to lay your hands on gasoline or a smartphone or anything else pretty much anywhere. And security guarantees mean there’s little need to worry about that giant, revanchist power across your border.
Now location matters again. Germany, with its capital about 750 miles from Kyiv and its reliance on Russia for half of its gas, is in a different place in several senses from neighboring France, whose capital lies almost 1,300 miles from the war zone and gets only a quarter of its gas from Siberia. Poland and the Baltic states, despite also being members of the EU and NATO, are in an entirely different space from both. The border with Russia is now like a geopolitical event horizon, and proximity to it will shape how countries respond — raising the potential for divisions, as seen already in continental Europe’s reluctance to follow the U.S. and U.K. in sanctioning Russian energy.
Even assuming this current crisis revives the U.S.-led order, it wouldn’t look like the one we grew up with. Washington’s commitment has faded, as every U.S. ally is already aware. President Joe Biden is poles apart from his predecessor. But his recent State of the Union speech, while calling for the world to stand with Ukraine, also doubled down on protectionism and reshoring. “There has to be a recognition among America’s allies that their physical security depends on the Americans — and that comes at a cost,” says Zeihan.
Germany is the most striking example of a major ally suddenly recognizing this, though well past time. The idea that a $4 trillion economy built on international trade and surrounded by former adversaries would have barely a navy to speak of and a military smaller than Morocco’s is, in historical terms, ludicrous. This explains why, with Ukraine under attack, Berlin has decided to rearm with gusto — another apparition from the old normal.
Predicting the implications of this shift in the foundation is impossible; one can’t be sure which parts of the structure will collapse and which will hold up (apart from Russia’s capital markets, which are clearly ruined already). China’s unfolding reaction is crucial. There is a world of difference between Beijing doubling down on siding with Moscow and its accommodating the international order from which it has benefited enormously.
Yet the obvious potential change is accelerating fragmentation, something glimpsed already in rising protectionism and in the vaccine diplomacy (or lack of it) during the pandemic. In economic terms, “decoupling and deglobalization is bullish in the first order but bearish in the second,” says Kevin Book of ClearView Energy Partners, a Washington-based research firm. The alternative to outsourcing and division of labor is duplication of industries, which means doing and investing more in the near term but incurring the cost of inefficiencies over the longer term. And you thought inflation was bad already.
Surging gasoline prices and long lead times for sofa-buyers are not, however, the worst potential outcomes here.
Book, for example, has assessed the effects from Russia’s oil and gas exports (4.5% of global consumption) being cut off. He estimates that they range from 100% of the world managing with 4.5% less energy to 4.5% of the world going without altogether. The first endpoint mostly entails higher prices, assuming a world that still coordinates relatively uninhibited energy flows. If the world reverts to the older normal of great-power competition, the outcome would tend more toward some states being cut off completely.
Zeihan, in the section of his book that’s focused on agriculture, raises a similar, but more troubling, dimension:
The industrialized Order hasn’t simply enabled us to increase the total calories grown by a factor of seven since 1945, it has enabled vast swathes of the planet to have large populations when geography alone wouldn’t previously support them. Populations in North Africa and the Middle East in particular have expanded by a factor of seven since 1945. Bulk food shipments originating a continent (or more) away are now a commonality.
Given the news and images from Ukraine, it may seem petty to sound the alarm on access to stuff. Except that access to sometimes vital stuff, at broadly affordable prices and without fear of interdiction, has been the making of not merely Western prosperity but, in other parts of the world, sheer viability. Book characterizes the world’s apparent slip back toward its longstanding historical condition of disconnection and friction as “reversion to the mean.” “Mean” being the operative word, one might add.
L’articolo che avete appena letto è ricchissimo di spunti, che vi invitiamo ad approfondire. Uno in particolare a noi è sembrato molto significativo: l’accenno ai decenni che portarono il Mondo verso la Prima Guerra Mondiale. Anche in quegli anni il Mondo aveva inseguito una “globalizzazione” che allora era basata sugli Imperi europei, e che allora come oggi prometteva “infinita prosperità per tutto il Mondo”.
Non andò a finire bene. E come abbiamo già scritto più sopra, oggi nessuna razionale politica di investimento può essere sviluppata e messa in pratica a prescindere da questo tipo di considerazioni, ovvero a prescindere dal fatto che stiamo attraversando un cambiamento di epoca.
Ma c’è in particolare un aspetto della attuale situazione che noi suggeriamo ai lettori di approfondire. ed è quello di cui si scrive nel secondo articolo di questo Post.
Si tratta di un articolo di livello eccellente, nel quale viene ripreso lo spunto del periodo che precedette la Prima Guerra Mondiale, ma questo spunto qui viene sviluppato ed associato a quella che qui viene definita “La Grande Illusione del Capitalismo”, che noi vi suggeriamo di approfondire.
Trovate inoltre una serie di spunti di attualità, inclusi alcuni utili grafici, tra i quali vi segnaliamo quello relativa alle spese militari di NATO e Russia. Quest’ultimo è un dato che aiuta tutti a comprendere meglio quelle che, a prima vista, sono state definite “mosse irrazionali”.
By
24 marzo 2022, 05:01 CET
A book published in 1919 on “The Economic Consequences of the Peace” isn’t the obvious starting place for understanding the economic consequences of the current war in Ukraine. But it’s worth taking a little time to read John Maynard Keynes’s famous description of the leisurely life of an upper-middle-class Londoner in 1913 — just before the Great War changed everything:
The inhabitant of London [in 1913] could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages.
Keynes then describes how this Londoner could speculate on the markets and travel wherever he wanted without a passport or the bother of changing currency (the gold standard meant that his money was good everywhere). And then the famous economist delivers his coup de grace by going inside the privileged Londoner’s head:
[The Londoner] regarded this state of affairs as normal, certain and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.
Keynes’s cosmopolitan Briton, completely unaware that the first great age of globalization was about to be shot to pieces at the Somme, is the urban equivalent of the cavorting toffs in “Gosford Park,” Robert Altman’s movie about a weekend in a grand country house just before the outbreak of war. One of us possesses a photograph of the Bullingdon, Oxford’s poshest dining club, in 1913: The future rulers of the world stare out at us with frozen arrogance. Within a year most of them were in the trenches.
Foppish aristocrats weren’t the only ones who were complacent. Intellectuals agreed. Norman Angell’s “The Great Illusion,” the Edwardian bestseller published in 1909, argued that war was impossible given the interconnectedness of the world. The great businesses of Europe and the U.S. operated on the same assumption. The first great age of globalization, which started in the 1860s and was underpinned by British power and coordinated by British statecraft, had left the commercial classes free to make money — businesspeople then faced far fewer barriers than their modern equivalents when it came to moving money, goods or people around the world.
It’s easy to mock the shortsightedness of the West’s ruling class in 1913 — for not seeing how the rise of Germany and the complex web of alliances between the Great Powers could turn an assassination in Sarajevo into a global conflict. Clio, the muse of history, is always wise after the event, but future generations could well ask the same question about us: How could they not know?
Keynes’s Londoner, lounging in his bed, had at least this excuse: The end of his age of globalization came with little warning. In our case, globalization has been under sustained attack for two decades, with serious assaults in 2001 (when two planes, hitherto symbols of modernity, slammed into the World Trade Center); 2008 (when Lehman Brothers collapsed and the global financial system went into cardiac arrest); and 2016 (when the British voted to leave the world’s largest free-trade zone and Americans elected a nativist TV personality as president). The “decoupling” of the global economy into Chinese and Western portions has been gathering pace for some time. And the biggest drama before Ukraine was a virus that froze supply chains and forced the world into hibernation.
And yet, at the beginning of 2022, many of us shared the assumptions of Keynes’s Londoner. We ordered exotic goods in the confident expectation that Amazon would deliver them to our doors the next day. We invested in emerging-market stocks, purchased Bitcoin, and chatted with people on the other side of the world via Zoom. Many of us dismissed Covid-19 as a temporary suspension of our global lifestyle. Vladimir Putin’s “projects and politics of militarism” seemed like diversions in the loonier regions of the Twittersphere.
Now that we have been shaken awake, most of our attention is on the bloodshed in Ukraine, and rightly so. But just as World War I mattered for reasons beyond the slaughter of millions of human beings, this conflict could mark a lasting change in the way the world economy works — and the way we all live our lives, however far we are from the carnage in Eastern Europe. The “inevitable” integration of the world economy has slowed, and the various serpents in our paradise — from ethnic rivalries to angry autocracies to a generalized fury with the rich — are slithering where they will.
That doesn’t mean that globalization is an unalloyed good. By its nature, economic liberalism exaggerates the downsides of capitalism as well as the upsides: Inequality increases, companies sever their local roots, losers fall further behind, and — without global regulations — environmental problems multiply. Yet liberalism has also dragged more than a billion people out of poverty in the past three decades and, in many cases, promoted political freedom along with economic freedom. The alternatives, historically speaking, have been wretched. Right now, the outcome that we have been sliding toward seems one in which an autocratic East gradually divides from — and then potentially accelerates past — a democratic but divided West.
From this perspective, the answer to globalization’s woes isn’t to abandon economic liberalism, but to redesign it. And the coming weeks offer a golden opportunity to redesign the global economic order.
By any economic measure the West is significantly more powerful than the East, using the terms “West” and “East” to mean political alliances rather than just geographical regions. The U.S. and its allies account for 60% of global gross domestic product at current exchange rates; China, Russia and the autocracies amount to barely a third of that. And for the first time in years, the West is coming together rather than falling apart. This week, Joe Biden is traveling to Europe as the leader of the newly united and reinvigorated free world.
Free World
Share of global GDP by country and level of freedom based on political rights and civil liberties
Sources: IMF; Freedom House
Note: GDP figures are the latest available.
So far, for all his talk of uniting democracies, Biden has done little to highlight, let alone advance, the economic dimension of freedom. The question for Biden and the European leaders he will meet this week is simple: What sort of world do they want to build in the future? Ukraine could well mark the end of one great episode in human history. It could also be the time that the free world comes together and creates another, more united, more interconnected and more sustainable one than ever before. Seizing that opportunity will require an understanding of both economics and history.
The Way We Were
The end of the last global age was particularly brutal. Even once the slaughter had begun in Flanders, British shopkeepers, with stoic good humor, displayed signs as the war started that read “Business as usual during alterations to the map of Europe.” But it was not to be. The conflagration quickly halted trade, capital flows and migration. Governments interfered in the economy more deeply than ever before. When the guns finally fell silent in 1918 and peace was forced on Germany at Versailles (in the Carthaginian terms that Keynes decried so eloquently), the Bidens, Johnsons and Macrons of the time tried to restore the old world order of free trade and liberal harmony — and comprehensively failed.
The new superpower, America, refused to become the defender of the faith that Great Britain had protected with such skill until 1913. A beggar-thy-neighbor policy of tariffs slowed the world economy and eventually produced the Great Depression, with global trade shrinking by more than half in 1928-1933. The serpents continued to slither: Lenin, Mussolini and Hitler exploited defeat and poverty to create aggressively anti-liberal regimes, the Soviet version of which lasted for seven decades. The situation for liberal economics was so dismal that, by the mid-1930s, Keynes himself had abandoned free-market liberalism as a lost cause and was campaigning for national self-sufficiency.
Only after the Second World War did economic integration resume its advance — and then only on the Western half of the map. What most of us today think of as globalization only began in the 1980s, with the arrival of Thatcherism and Reaganism, the fall of the Berlin Wall, the reintegration of China into the world economy, and, in 1992, the creation of the European single market.
Yet once politicians got out of the way, globalization sped up, driven by technology and commerce. Young technology companies such as Microsoft Corp. and Apple Inc. took off while old technology companies such as Nokia Oyj, a Finnish rubber-boot and electronics maker that by 2010 was the world’s largest manufacturer of mobile phones, got a new lease on life. McDonald’s Corp. opened restaurants in Moscow’s Pushkin Square in January 1990 and just off Beijing’s Tiananmen Square in April 1992. As the new century dawned and an unknown “pro-Western” bureaucrat called Vladimir Putin came to power in Russia, the daily volume of foreign-exchange transactions reached $15 trillion.
More recently, as the attacks on globalization have mounted, economic integration has slowed and in some cases gone into reverse.
Shrinking Share
Trade’s share of global GDP peaked in 2008
Source: World Bank
But Russia’s invasion of Ukraine marks a bigger and more definitive assault than the previous ones.
That’s partly because the immediate rupture is so savage. The supply of basic commodities, from wheat to nickel to titanium to oil, has been disrupted. The West is doing everything it can to “cancel” Russia from the global economic system — sanctioning oligarchs, expelling Russian banks from the global financial plumbing, and preventing Russia’s central bank from accessing its reserves. There’s talk of throwing Russia out of the World Trade Organization.
Even when they haven’t been forced to do so by law, Western companies are boycotting Russia and closing down their Russian operations. Russian consumers can no longer use Visa, MasterCard and American Express. The McDonald’s in Pushkin Square is closed — along with 850 other branches. Photos have appeared on social media of Russians standing in interminable queues for sugar and other basic foods or else fighting over remaining scraps, just as they did in the Soviet days. For its part, the Kremlin has hit back by blocking access to Facebook and threatening to imprison or fine anyone suspected of spreading “fake” news, thereby essentially closing down Western news organizations inside the country.
We Didn’t Mean It
The Western policymakers meeting this week will say they have no intention of closing down the global order. All this economic savagery is to punish Putin’s aggression precisely in order to restore the rules-based system that he is bent on destroying — and with it, the free flow of commerce and finance. In an ideal world, Putin would be toppled — the victim of his own delusions and paranoia — and the Russian people would sweep away the kleptocracy in the Kremlin.
In this optimistic scenario, Putin’s humiliation would do more than bring Russia back to its senses. It would bring the West back as well. The U.S. would abandon its Trumpian isolationism while Europe would start taking its own defense seriously. The culture warriors on both sides of the Atlantic would simmer down, and the woke and unwoke alike would celebrate their collective belief in freedom and democracy. McDonald’s would be open again in Pushkin Square — and Keynes’s various serpents would slither out of the garden.
There’s a chance this could happen. Putin wouldn’t be the first czar to fall because of a misjudged and mishandled war. Many of Russia’s most powerful people are seeing their mansions, yachts and private planes confiscated, all for an invasion they weren’t consulted about. Younger Russians, particularly in the big cities, are more liberal than their parents. Russian shoppers don’t want to return to the Soviet era.
Meanwhile in the West, Ukraine has already prompted a great rethink. As German Chancellor Olaf Scholz has proclaimed, we are at a Zeitenwende — a turning point. Under his leadership, pacifist Germany has already proposed a defense budget that’s larger than Russia’s. Meanwhile, Ukrainian immigrants are being welcomed by nations that only a few months ago were shunning foreigners, and, after a decade of slumber in Brussels, the momentum for integration is increasing.
The Power of Alliances
Military expenditure in 2019 U.S. dollars
Source: SIPRI
Note: Figures for China and Russia (1992-2012) are SIPRI estimates.
But this turning point can still lead in several directions. The chances of a regime change in the Kremlin remain slim, given Putin’s popularity and terror machine. Western Europe has heard pious words about integration and immigration before. And look at the West’s leaders! Joe Biden hardly conveys an image of world-changing dynamism; after his initial heroics, Olaf Scholz greeted Volodymyr Zelenskiy’s speech to the German parliament with pudding-like inertia; Emmanuel Macron is bent on winning an election while trying to look like Zelenskiy, in hoodie and stubble; while Boris Johnson has dared to compare the Ukrainian resistance to Brexit.
As we wait for these giants to act, the facts on the ground are changing in economics as well as politics. In particular, the invasion of Ukraine is accelerating changes in both geopolitics and the capitalist mindset that are deeply inimical to globalization.
The changes in geopolitics come down to one word: China, whose rapid and seemingly inexorable rise is the central geopolitical fact of our time.
The immediate question with China is how far it will support Putin in Ukraine. On the sidelines of the Winter Olympics in February, Xi and Putin signed a statement rejecting NATO expansion in Europe and American alliance-building in Asia and agreed that the promotion of democracy was a Western plot. China has still notably failed to participate in Western sanctions. But now that Putin’s triumph looks less assured, China’s support for him looks more conditional. A week ago, the mere rumor that Russia had asked for military assistance — a rumor that Beijing immediately denied — sparked the biggest drop in China’s stock market since 2008. On the same day, a Chinese think tanker, Hu Wei, posted a fascinating memorandum warning his country that the invasion of Ukraine is revitalizing the West, and that China needs to dump the burden that is Russia.
Regardless of whether China’s leader decides to ditch Putin, the invasion has surely sped up Xi’s medium-term imperative of “decoupling” — insulating his country from dependence on the West. Xi has spent much of his rule building a Sinocentric economic order through the Belt and Road Initiative. China has joined the 15-member Regional Comprehensive Economic Partnership (RCEP) and applied to join the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free-trade bloc that the U.S. first invented, then foolishly abandoned.
For the “wolf pack” of young Chinese nationalists around Xi, the reaction to Ukraine is another powerful argument for self-sufficiency. China’s vast holdings of dollar assets now look like a liability given America’s willingness to confiscate Russia’s assets, especially if the regime were to think about invading Taiwan (where its claim that the island is culturally and legally part of China is frighteningly like Russia’s claims about the Ukraine).
Some Americans are equally keen on decoupling, a sentiment that bridged Republicans and Democrats before Putin’s invasion of Ukraine. Biden may have dropped Trump’s Sinophobic rhetoric — there’s no more talk of “the China virus” — but he has kept in place most of the tariffs, export controls and investment regulations that he inherited, and added a few of his own. For many Americans, too, Ukraine has been a pre-Taiwan test case: They don’t want to end up relying on Taiwanese components that might suddenly disappear in a puff of smoke.
So, absent any decisive action by the West, geopolitics is definitively moving against globalization — toward a world dominated by two or three great trading blocs: an Asian one with China at its heart and perhaps Russia as its energy supplier; an American-led bloc; and perhaps a third centered on the European Union, with the Europeans broadly sympathetic to the U.S. but nervous about the possible return of an America-First isolationist to the White House and irked by America’s approach to digital and media regulation. Other powers will vacillate between these two (or three) great blocs, much as they did during the Cold War. India may do what it has done so well over Ukraine and play both sides. Pakistan will lean toward China but not fully commit while India is in play. Saudi Arabia will exploit uncertainty over energy supplies to pursue brutality at home and Islamist policies abroad. And so on.
The Bonfire of the Certainties
Just as important as this geopolitical shift is the change in the capitalist mindset. If the current age of globalization was facilitated by politicians, it has been driven by businesspeople. Ronald Reagan and Margaret Thatcher didn’t decide that the components of an iPhone should come from 40 countries. Facebook wasn’t created by senior politicians — not even by Al Gore. Uber wasn’t an arm of the Department of Transportation.
From a CEO’s viewpoint, Putin’s invasion of Ukraine has done more than unleash Western embargoes and boost inflation. It is burying most of the basic assumptions that have underlain business thinking about the world for the past 40 years.
In the great intellectual battle of the 1990s between Francis Fukuyama, who wrote “The End of History and the Last Man” (1992), and his Harvard teacher Samuel Huntington, who wrote “The Clash of Civilizations” (1996), CEOs have generally sided with Fukuyama. The view from the boardroom has been straightforward: Democracy won’t always win (China taught capitalists that quickly), but sensible economics usually will. Businesses could rely on a world in which countries would specialize in their comparative advantage. Commerce and free trade would bring people closer, as Fukuyama argued, rather than divide them, as Huntington warned — and businesses that ran themselves globally and wove the most cost-effective supply chains would prosper.
Commercially speaking, this bet paid off spectacularly. Over the past 50 years multinationals have turned themselves from federations of national companies into truly integrated organizations that could take full advantage of global economies of scale and scope (and, of course, global loopholes in taxes and regulations). World trade in manufactured goods doubled in the 1990s and doubled again in the 2000s. Inflationary pressures have been kept low despite loose monetary policies. Even with a barrage of political disruptions — Trump’s tariffs, Brexit and so on — profits have remained high, as the cost of inputs (such as energy and labor) have been kept low.
Booming Trade
Merchandise exports doubled in the 1990s and again in the 2000s
Source: World Bank
Note: Indexed data. 1990 = 100
Now what might be called the Capitalist Grand Illusion is under assault in Kyiv — just as Norman Angell’s version was machine-gunned on the Western Front. All the dangers that used to appear at the bottom of a CEO’s morning briefing are slithering to the top. Militarism and cultural rivalries keep trumping economic logic. Putin invading Ukraine is merely one in a long list of economically self-harming decisions that vary from dynastic thuggishness (Saudi Arabia bombing Yemen and murdering journalists) to knee-jerk isolationism (Brexit). And these stupidities reinforce each other: Thus, the French are responding to Britain’s act of self-harm in leaving the EU by cutting their companies off from the continent’s main source of cheap capital in the City of London.
Against such persistent irrationalism, CEOs who used to build empires based on just-in-time production are now looking at just-in-case: adding inefficient production closer to home in case their foreign plants are cut off. The head of one of the world’s most powerful investment firms, with shares in almost every significant Western company, talked privately about “a tsunami of recalculations” on the weekend after Putin invaded Ukraine. The CEO of one of America’s most iconic multinationals admits that he is reexamining production across China. Every Western company is now wondering how exposed it is to political risk. Capitalists are all Huntingtonians now.
Nor is just fear changing the capitalist mindset. Greed is also acquiring an anti-global tint. CEOs are rationally asking how they can profit from what Keynes called “monopolies, restrictions and exclusions.” Now that governments are using national security as an excuse for national champions, businesspeople can choose from a plateau de fruits de mer of opportunities for rent-seeking and competition-crushing in industries like energy, pharmaceuticals and semiconductors. That erstwhile Thatcherite Narendra Modi now echoes Mahatma Gandhi’s calls for self-sufficiency and imposes tariffs for local industries. Japan’s new prime minister, Fumio Kishida, has created the job of economic-security minister with a mandate to intervene in cybersecurity, chipmaking and much else besides. Macron has declared that “The state will need to take in hand several aspects of the energy sector.” Biden used his State of the Union speech on March 1 to promise that “Everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end. All of it.” Both sides of Congress applauded.
So the second age of globalization is fading fast. Unless something is done quickly and decisively, the world will divide into hostile camps, regardless of what happens in Ukraine. And this divided world will not suit the West. Look at the resolution passed by the United Nations General Assembly to condemn Russia’s invasion of Ukraine. The most trumpeted figure is that only 40 countries did not vote for this (35 abstained, and five voted against it), compared with 141 countries who voted in favor. But those 40 countries, which include India and China, account for the majority of the world’s population.
These deeper changes in capitalism and geopolitics increase the stakes this week. Joe Biden and his European interlocutors have a lot on their plate with Putin’s escalating terror and nuclear-tinged threats, but they also need to address the wider economic ramifications of the war sooner rather than later. Do nothing and the drift toward protectionism will inevitably accelerate. The Chinese, for one, seem pretty sure that the West lacks the collective character to keep up its current stance as energy prices soar and compassion fatigue sets in. But we still have time to shape a very different future: one in which global wealth is increased and the Western alliance bolstered.
Despite his less-than-stellar presidency thus far, Biden comes to Europe with several big advantages. The first is that the West is more united and determined than it has been for decades. The sense of unity behind liberal values is no longer confined to the metropolitan elite. One of the great problems with modern liberalism for the past few decades has been its lack of a gripping narrative and a compelling cast of heroes and villains. Globalists have talked a bloodless language of “comparative advantage” and “non-tariff barriers,” while populists have talked about sneering elites and hidden conspiracies. Now Putin has inadvertently reversed all that. Freedom is the creed of heroes such as Zelenskiy; anti-liberalism is the creed of monsters who drop bombs on children.
The second is Biden’s long experience. George H. W. Bush, another long-serving vice president who stumbled into the big job, was much mocked for his lack of “the vision thing.” Yet his handling of the last days of the Soviet Empire in 1989 was exemplary: He provided Mikhail Gorbachev with gentle encouragement, resisted premature triumphalism, and worked with allies to lay the foundations of a new global order. So far, Biden’s handling of the Ukraine invasion has been similarly nuanced. He has drawn a line between supplying the resistance and becoming involved in the war (or giving others an excuse to claim the U.S. is involved). And he has put firm pressure on China to stay out of the conflict.
Biden needs to go further in the coming weeks. He needs to reinforce the Western alliance so that it can withstand the potential storms to come. The American president has spent his first year in office talking about reengaging America with the world after Trump’s isolationism, and forming an alliance of democracies, but so far he has failed to give his allies the economic cement to bind together these alliances — especially free-trade pacts. His commerce secretary, Gina Raimondo, was dispatched to Asia last year to talk about inviting countries like Singapore and Malaysia into vague things like “frameworks,” when all America’s Asian allies really want is a solid trade deal — in fact, one like the CPTPP deal that Trump jettisoned.
Biden needs to recognize that expanding economic interdependence among his allies is a geostrategic imperative. He should offer Europe a comprehensive free-trade deal to bind the West together; it could be a slightly remolded version of the rejected Transatlantic Trade and Investment Partnership, based on regulatory convergence (under which a product safe to sell in the EU is safe to sell in the U.S., and vice versa). He should also join CPTPP.
It is not difficult to imagine Europe or democratic Asia signing up for these sorts of pacts, given the shock of Putin’s aggression and their fear of China. Biden’s problem is at home. Why should the Democratic left accept this? Because, Biden should say, Ukraine, China and America’s security matter more than union votes. The U.S. president’s first job is to protect his country. Biden is old enough to remember that the United States won the last Cold War peacefully because it united the free world behind it. This is the way to win the next one peacefully as well. Put together the free world’s economic potential — the EU, North America, Latin America’s biggest economies and the democracies of Asia — and it can do more than see off the autocracies; it can pull them toward freedom.
Biden should pursue a two-stage strategy: First, deepen economic integration among like-minded nations; but leave the door open to autocracies if they become more flexible. China could be wooed toward freedom. But nothing will improve unless Biden first glues together the free world. That means freer trade — and the sooner he tells his party that, the better.
Biden can soften that message at home by adding a political dimension to his trade agenda. “Build back better” applies to globalization, too. A global new deal should certainly include a focus on making multinational companies pay their taxes, and the environment should be to the fore. But Biden should also talk about the true cost of protectionism in terms of higher prices, worse products and less innovation. Spreading economic freedom remains the best guarantor of both global and American prosperity: global prosperity because, for all its travails, the last 50 years of globalization have enriched most of the world; and American prosperity because his country’s prosperity depends on his country’s security.
Constructing such a “new world order” will be laborious work. But the alternative is a division of the world into hostile economic and political blocs that comes straight out of the 1930s. Biden, Johnson, Scholz and Macron should think hard about how history will judge them. Do they want to be compared to the policymakers in the aftermath of World War I, who stood by impassively as the world fragmented and monsters seized the reins of power? Or would they rather be compared to their peers after World War II, policymakers who built a much more stable and interconnected world?
Nobody would understand the significance of that choice better than Keynes. He first came to prominence as a decrier of the Treaty of Versailles — and the know-nothing statesmen of the time. But at the end of World War II he participated in something that was much more constructive.
In 1944, with the defeat of Hitler seemingly inevitable, President Franklin Roosevelt invited the Allied powers to a conference to design the postwar order — under the aegis of Keynes and, on the American side, the economist Harry Dexter White.
The elderly Keynes had heart problems and a strong dislike for American summers — “one sweats all day and the dirt sticks to one’s face” — so he was delighted that the conference was held in New Hampshire rather than the infernal federal capital. The Mount Washington Hotel in the White Mountains was selected partly for the climate, but also because it had all the amenities of civilized life — its own power plant, post office, golf course, church, beauty parlor, barber shop, bowling alley and cinema.
This was the setting for the most consequential conference since the disastrous Paris Peace Conference in 1919. Keynes, no longer a protectionist, played a leading role in designing the International Monetary Fund, the World Bank, and the infrastructure of the postwar Western order of stable exchange rates. He helped persuade the U.S. to lead the world rather than retreating into itself. He helped create the America of the Marshall Plan. This Bretton Woods settlement created the regime that eventually won the Cold War and laid the foundations for the second age of globalization.
At the closing banquet on July 22, the great man was greeted with a standing ovation. Within two years he was dead — but the world that he did so much to create lived on.
That world does not need to die in the streets of Kyiv. But it is on course to do so, unless the leaders meeting this week seize the moment to create something better.
— With assistance by Lara Williams