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Transition and Triad

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Multi-Polar Capitalism

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Abstract

The aftermath of the pandemic promises to be a period of strong, albeit uneven growth in response to highly stimulative fiscal and monetary policies. It is also a period of major policy reforms in response to structural problems highlighted by the pandemic. Biden’s ambitious “Build Back Better” agenda compares in scope and scale to America’s great reform programs of the 1930s and 1960s. But its success hinges on the United States overcoming its ongoing crisis of democracy which Trump’s presidency has brought to a dangerous point of division and turmoil. In the meantime, China is rebalancing its engines of economic growth and social peace under the autocratic leadership of Xi Jinping and his government’s “dual circulation” strategy while also setting in motion steps to accelerate the country’s global reach, including an acceleration of its currency’s internationalization. The Europeans, too, have used the pandemic for far-reaching reforms bound to strengthen the international role of their single currency, the euro. Reforms in all three power centers move us toward a more regionally focused tri-polar (“triad”) international monetary system, while accelerating efforts toward a carbon–neutral economy provide a global context for the emerging new accumulation regime.

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Notes

  1. 1.

    Kogan and Reich (2021) discuss the history of the use of budget reconciliation to pass budget-related bills with a single majority in the Senate where the so-called filibuster rule can block other legislative proposals unless there are sixty votes in favor (rather than just fifty).

  2. 2.

    As well explained by Greenstein (2021), the ARPA’s child tax credit had such a powerful impact on reducing child poverty because of its full refundability irrespective of the family’s income and exposure to income tax payments. This feature allows the CTC to be fully accessed by 27 million families who previously could not benefit from that tax break or only partially.

  3. 3.

    See the statement of Powell (2020) explaining and justifying the new, more relaxed monetary policy framework of “flexible average inflation targeting” over the entire cycle.

  4. 4.

    As inflation has recently shown signs of revival amidst recovery and aggressive stimulation policies, influential economists such as former Treasury Secretary Summers (2021) have become worried about the Fed’s relaxation vis-à-vis inflation. See also Giles (2021) for more details on the emerging debate over inflation and monetary policy.

  5. 5.

    For details on the many path-breaking provisions contained in the $2 trillion American Jobs Plan and their respective justifications it is best to go to the original source itself, as put forth in The White House (2021a). Similarly, a good summary and explanation of the main provisions of the American Families Plan and their justifications can be found in The White House (2021b).

  6. 6.

    Thoughtful analyses of Bidenomics’ intellectual foundations, which have made precisely this point of having the government actively steer the post-pandemic economy onto a higher growth path, include Greene (2021), Krugman (2021), and Sandbu (2021a).

  7. 7.

    We can measure income inequality statistically by the Gini Coefficient, with values between 0 (perfect equality) and 1 (perfect inequality). Most advanced capitalist economies have had Gini coefficients within a fairly narrow range of 0.25–0.35 since World War II. America’s post-tax Gini index started rising consistently after 1970 from its postwar low of 0.35 to a comparatively high 0.48 in 2020. See Horowitz et al. (2020) for a discussion of Americans’ changing attitudes toward that trend, now favoring increasingly policies in favor of greater equality.

  8. 8.

    See in this context Guttmann (2018) where I discuss extensively the constituent institutional forms and sustainability-oriented mode of regulation of Eco-Capitalism as new accumulation regime.

  9. 9.

    Irrespective of his performance as president, Trump has certainly appealed to a very large segment of voters many of whom normally do not vote had it not been for him on the ticket. After all, he managed to get ten million more votes in 2020 than in 2016. His base, often elderly, predominantly white, culturally nativist and isolationist, distrustful of all elites, and angry at the direction they see the United States taking as a multi-ethnic democracy, comprises close to a third of the voting-age population and constitutes a large majority of Republican voters. As illustrated by the phenomenal spread of the QAnon sect and its bizarre conspiracies, one telling example among many others, Trump’s followers tend to downplay factual evidence over made-up stories confirming their biases. No surprise then that they nearly all believe in the “Big Lie.”

  10. 10.

    Biden’s “Foreign Policy for the Middle Class” is analyzed well by Traub (2021). Biden’s “worker-centric trade policy” has been laid out recently by US Trade Representative Katherine Tai (see Office of the United States Trade Representative, 2021). On the bipartisan US Innovation and Competition Act see Nuttall (2021). Finally, The White House (2021c) summarizes the main features of the G-7 initiative “Build Back Better for the World” (B3W) agreed to at their Cornwall Summit in June 2021.

  11. 11.

    The CCP’s “dual circulation” strategy is well discussed in China Finance 40 Forum (2020), Crabtree (2020), and Sandbu (2021b).

  12. 12.

    A good analysis of various factors driving up China’s savings rate to exceptionally high levels is provided by Zhang et al. (2018).

  13. 13.

    Yu (2020) offers useful information on the lagging houkou reform.

  14. 14.

    China used to regulate foreign direct investment inflows heavily in terms of closed sectors, joint-venture requirements, mandatory technology transfers, and profit repatriation. Its new FIL 2020 deregulated this activity considerably (see US-China Business Council, 2019), one of the reasons for a huge 40 percent spike in FDI inflows during 2020 when China managed to pass the United States as the largest recipient of such activity.

  15. 15.

    For relevant references on China’s surveillance state and recently changed antitrust approach to its internet giants see Footnote 15 of Chapter 5. See also McMorrow and Riordan (2020) on reasons behind this rather remarkable change in the Chinese leadership’s approach to the country’s leading high-tech firms and what that may mean for government-industry relations going forward.

  16. 16.

    Telling examples of this concerted push by China to gain global dominance in setting technical standards for various cutting-edge technologies can be found in Rühlig (2020) and Pop et al. (2021).

  17. 17.

    J. Kynge (2018) reports that in 2018 the BRI countries averaged 5.2 in 2018 on the OECD’s Country Risk Classification scale (where a rating of 7 represents highest country risk), compared to a 3.5 average for emerging-market economies, and had a median credit rating of Ba2 on Moody’s scale which represents a “junk” level of default risk.

  18. 18.

    Good analyses of the BRI’s scope and problems it encountered can be found in Dollar (2020) or in Chatzky and McBride (2020). China’s rethinking of its BRI project is discussed by Kynge and Wheatley (2020). Boston University’s Global Development Policy Center has a “Global China Initiative” (see https://www.bu.edu/gdp/research/gci/) which keeps excellent track of China’s overseas engagements of which the BRI forms a very large part.

  19. 19.

    A study organized by the Financial Times, cited in Kynge (2018), reports that the top Chinese SOEs involved in building, operating and investing in BRI projects have an average total debt to EBIDTA (i.e. earnings before interest, tax, depreciation, and amortization) ratio of 9.2, indicating extreme levels of indebtedness. This compares with a much lower multiple of 2.4 time for the top ten non-Chinese contractors.

  20. 20.

    See Chen et al. (2020) for recent developments in China’s system of local government finance toward greater reliance on shadow-bank funding and bond issues. Good summaries of shadow-banking trends in China and elsewhere are provided by the FSB’s annual “Global Monitoring Report on Non-Bank Financial Intermediation” (see Financial Stability Board, 2020). Various institutional shortcomings of China’s vast, yet relatively less developed bond market are discussed succinctly by Flood (2020). For regular updates on overall debt trends and composition see the “China Banking News” site of the National Institution for Finance and Development (https://www.chinabankingnews.com/tag/national-institution-for-finance-and-development/).

  21. 21.

    Among the many informative sources discussing the internationalization of the Renminbi I want to mention in particular Eichengreen and Kawai (2014), Brummer (2015), Prasad (2017) and the reports listed in the “China Economic Watch” site of the Petersen Institute for International Economics (piie.com) such as Miner (2016).

  22. 22.

    For data on the reversal of the CNY’s internationalization process following its botched devaluation in August 2015 and subsequent re-imposition of capital controls see Johnson (2019) and McDowell (2019).

  23. 23.

    The Standard Chartered Renminbi Globalization Index reflects monthly volume changes concerning CNH deposits and certificates of deposit in key offshore centers (Hong Kong, Singapore, London), CNY-denominated trade settlement and other international payments, as well as dim sum bonds. For more on the SCRGI and its recent upward trend indicating the resumption of the yuan’s internationalization see Szalay and Lockett (2020).

  24. 24.

    On China’s “de-dollarization” steps, especially those in conjunction with Russia, see Simes (2020). Its efforts to pay for its massive oil imports in yuan are discussed in Ferreira Marques (2020). Adrian and Mancini-Griffoli (2019) study the wider implications of the rise of digital money, including central bank digital currencies. Based on their study for the IMF, Ahmed (2021) views the PBoC’s pilot project for a digital yuan (denoted e-CNY) as a potentially ground-breaking step in the CNY’s ongoing internationalization process.

  25. 25.

    Among the empirical studies of the emerging yuan bloc and its different geographic reach as well as various size estimates I want to mention in particular Kawai and Pontines (2016), Tovar and Mohd Nor (2018) as well as Cheung et al. (2019).

  26. 26.

    A summary of relevant details pertaining to EFSI and its EU Infrastructure Investment Plan can be found in European Council (2020). The EIB’s eib.org website provides a list of EFSI projects financed by the plan.

  27. 27.

    The OMT replaced the Securities Market Programme (SMP), launched at the peak of the crisis in May 2010 by the ECB giving itself the power for discretionary purchases of sovereign bonds so as to help bring down unsustainably high yields. Between May 2010 and September 2012 the ECB had used the SMP to buy up to €212.1 billion in mostly Spanish and Italian bonds.

  28. 28.

    Besides implementing Basel III in the Capital Requirements Directive (CRD) IV, other key EU directives implementing the G-20’s London Declaration on Strengthening the Financial System (see Financial Stability Board, 2009 for details) included Solvency II for insurers, the European Market Infrastructure Regulation (EMIR) for stabilization of over-the-counter markets, the Alternative Investment Fund Managers Directive (AIFMD) for hedge funds and other alternative investment vehicles, the Markets in Financial Instruments Directive II (MiFID II) regulating financial markets, and the Undertakings for the Collective Investment in Transferable Securities (UCITS) Directives IV and V for mutual funds.

  29. 29.

    See Valero (2020) and De Guindos (2021) on the current state of debate over the “hybrid model” possibly unblocking the long-standing deadlock over EDIS negotiations.

  30. 30.

    See European Commission (2015) for a discussion of the original CMU action plan.

  31. 31.

    See European Commission (2020a) for more details on the new, trimmed-down CMU action plan.

  32. 32.

    For more information on those short-term work schemes see Eurofound (2020) and Dias de Silva et al. (2020).

  33. 33.

    For more details on the EU’s three safety nets in response to the Covid crisis, see KPMG (2020). The EU’s Emergency Support Instrument is discussed in European Commission (2020b).

  34. 34.

    For details on the NGEU recovery fund I have drawn from European Commission (2021) and European Council (2021).

  35. 35.

    The NGEU framework also allocated €10 billion for a Just Transition Fund to help coal-dependent EU members (especially Poland) deal with the zero-carbon transition, €7.5 billion for rural development, €5.6 billion to InvestEU succeeding EFSI, €5 billion for the EU’s research and innovation support fund Horizon Europe, and €1.9 billion to RescEU in support of disaster risk management.

  36. 36.

    Initially pushed above all by France’s Emmanuel Macron as a necessary reset in EU-US relations following Trump’s turn to aggression, the idea of Europe’s “strategic autonomy” as a new vector of policy guidance soon became object of intense public debate fueled by think tanks for which European Parliament (2021) lists the most important links.

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Authors and Affiliations

  1. Economics Department, Hofstra University, Hempstead, NY, USA

    Robert Guttmann

  2. Centre d’Économie Paris Nord (CEPN), Université Sorbonne Paris Nord, Paris, France

    Robert Guttmann

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Guttmann, R. (2022). Transition and Triad. In: Multi-Polar Capitalism. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-88247-1_6

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  • DOI: https://doi.org/10.1007/978-3-030-88247-1_6

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