The west has lost; the west has won. After the fall of the Soviet Empire, over 25 years ago, grand proclamations were made about the ‘end of history’. I refer here not only to Francis Fukuyama’s eponymous book, but an entire body of Western triumphalist literature, which seemed to suggest that the infallibility of the neoliberal order – as typified by the American model – was self-evident. And that this model must, for evermore, be adapted by nations looking to rise to prosperity.
Today, as the Western world is trying to recover from a pandemic-induced recession, just over a decade after the last shock – the Global Financial Crisis (GFC) of 2007-08 – that triumphalism has waned. (Incidentally, in an apparent U-turn, Fukuyama is now espousing socialism.) Every now and then, Western commentators bemoan or celebrate the perceived shift in influence from the West to the East (particularly China), from the new to the old.
This perception is in no small measure due to expectations about the global distribution of future growth and dynamism, which now seem disproportionately skewed against the West, where, after a decade of central bank activism, economic vitality remained a mirage – even before COVID-19 struck.
In fact, even prior to the pandemic, the West seemed to be in the grip of what is called ‘secular stagnation’, a term first coined by the economist Alvin Hansen in 1938, during the Great Depression, to describe an era of very low or no growth in a market-based economy. Though the expression turned out to be premature at the time, it seems to describe the present state of Western economies rather well.
Even though the US economy expanded by 8 per cent in the decade that followed the GFC, this was achieved primarily on the back of extraordinary monetary easing to keep the economy from keeling over, with fiscal stimulus playing a more limited role. Be that as it may, monetary policy (of which the custodian is the central bank of a country) – one of the key themes of this book – was considered the main game in town and the 2010s were considered the ‘decade of the central bank’.
The pandemic-related lockdowns, however, forced the American treasury to step in with mega stimulus spending – a luxury not available to most other nations, as we shall see – in order to prevent large parts of the economy from being lost forever.
As such, the inevitable and rapid rise in the indebtedness of both the public and private sectors in the West will mean that an extended period of low inflation and low growth – supported by very low interest rates sometimes referred to as ‘lowflation’ – is the best that these nations can now hope for. Much worse would be a stagflationary course, although Western central banks still hope to avoid that since they expect the supply-side inflation related to pandemic-induced disruption will ultimately wane as economies reopen in full and supply chains normalise.
Of course, growth optimists also continue to wish that a new technological wave will boost productivity enough to lift growth rates yet again, as has happened more than once since the industrial age. That, however, remains to be seen. And even optimists would probably acknowledge that there is no guarantee that the incoming tide of new technologies, such as artificial intelligence and 3D printing, to name a few, will lift more boats than it sinks. On account of the disruptions due to COVID-19, automation may well accelerate, but to the detriment of the common worker.
Meanwhile, the ‘East’, or indeed the larger category of the global ‘economic South’ (which includes the East), has not managed to fashion an alternative system for global economic stability and growth either. The two main constituents of the emerging world, China and India, have not been able to decouple themselves from the fate of the West. Au contraire, they continue to be vulnerable to the systemic risks emanating from the ways in which Western central banks are ‘managing’ secular stagnation.
Now, it is not as if the East has not made attempts to craft an alternative paradigm. The BRICS (an association of Brazil, Russia, India, China and South Africa) initiative was arguably a major endeavour in this direction. However, owing to the rivalries and divergent interests among the members, especially China and India, it has failed to shine light on a truly different path, at least as of today.
China, the foremost economic power in BRICS, has rather chosen to pursue a parallel ‘Belt and Road’ of its own. But this Sino- centric play, far from being the lodestone for a future based on shared prosperity, is unfortunately in the same mould as the rent-seeking strategies that the incumbent West has adopted in the past, and then some. The world, we argue in this book, must not conflate grand strategies with grand narratives.
China’s basic idea is to create an enduring stake for itself, such that it can prop up a trading empire, even when its internal strength may be on the wane. As we shall see, the urgency to unfold Pax Sinica is not necessarily a natural outgrowth of strength, but rather an attempt to mitigate, the legacy of an unbalanced growth model while it is still possible.
However, China’s international belligerence in the wake of the pandemic – that originated on its soil and, by many accounts, was allowed to spread globally by its authorities, whether intentionally or otherwise – has likely dented its prospects irreparably. Especially since the country may have alienated India for good, on account of its border depredations against the latter in the summer of 2020.
Following this sentiment, we will examine the prospects and travails of the global ‘economic North’ and of China, which is considered the weightiest challenger to the incumbents. While giving a bird’s-eye view of these economies, we will also swoop down often to analyse specific trends and practices that warrant attention. After traversing both the macro and the micro, the narrative intends to set the stage for an appraisal of India’s place in this new world, and suggest what the country must do to sustain growth for its still rising and overwhelmingly young population.
The truth is that in the global North, depressed economic conditions are being mitigated through monetary activism and a kind of creativity on the part of the central banks, which have been assigning ever-greater policy roles to themselves. The roster of national economic objectives, supported by these central banks, has expanded in line with their balance sheets. However, the framing of national policy objectives is ultimately the preserve of governments, and it is not surprising that the issue of central bank independence in the face of rising expenditure by the treasury has once again become a much-debated topic in the West and elsewhere – especially in the post-pandemic scenario.
In China, while fairly intense debates on policy may take place behind closed doors, we find the overarching goal is the creation of alternative pathways for exporting overcapacity-linked deflation, as well as geopolitical influence in the hope of building a more financialised economy.And Beijing hopes that such an economy will exert enough gravity to engage in surplus accumulation, without necessarily remaining wedded to surplus production.
The pandemic has, however, created a serious impediment to this plan, with several Belt and Road Initiative (BRI) projects floundering. So much so that China has been quietly dialling back on its BRI outreach. Instead, it is now trying to make a virtue out of necessity by retiring large amounts of capacity in industries such as metallics by seemingly putting in the foreground environmental concerns. At home, the Chinese dictatorship is also playing to the socialist gallery by cutting down to size private tech majors which could be potential threats to the regime’s primacy, and promoting revanchism backed by military force as part of its foreign policy.
Overall, secular stagnation has brought with itself a secular rejection of a key pillar of the Western liberal order: the salience of the free market theory. Today, many pillars of neoliberalism – that great late twentieth-century ‘reimagining’ of nineteenth-century liberal capitalist ideas – have either already fallen or are threatening to do so. Governments no longer abide by austerity during a downturn (or even otherwise); rather, they seek to spend their way out of crises. ‘Small government’ is a misnomer.
And as for free trade, subsequent to the COVID-19 shock, the embrace of economic nationalism and protectionism under the broader rubric of populism are fast becoming the new stock ideologies in the West, and there is very little to suggest that the clock can be turned back. Globalisation as epitomised by the Washington Consensus framework is in retreat almost everywhere.
The surge of new data-driven technologies is also giving rise to new national regulatory frameworks that will in turn add new layers of protection for domestic businesses. The old order is crumbling and a new one is yet to succeed it. ‘A new normal’ of transactional, even predatory, behaviour has emerged. The West may have lost its liberal order but the militaristic and mercantilist credo that built that framework before it became ‘neoliberal’ is now back in vogue across the world.
The rest have not been able to create a humanist globalism of their own and in that sense the West has won. In fact, incumbent Western economic and military weight, though no longer enough to impose order, continue to afford it more degrees of freedom than the rest. The pre-eminence of the US dollar in particular is likely to remain intact in the near to medium term.
Excerpted with permission from Negotiating the New Normal: How India Must Grow in a Pandemic-Ridden World, Saurav Jha, Hachette India.