War in Ukraine Has Russia's Putin, Xi Jinping Changing the World Order - Bloomberg - 0 views
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shared by Javier E on 26 Mar 22
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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.
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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.
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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
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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.
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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.
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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
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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.
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Only after the Second World War did economic integration resume its advance — and then only on the Western half of the map
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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.
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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.
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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.
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More recently, as the attacks on globalization have mounted, economic integration has slowed and in some cases gone into reverse.
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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.
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the invasion of Ukraine is accelerating changes in both geopolitics and the capitalist mindset that are deeply inimical to globalization.
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The changes in geopolitics come down to one word: China, whose rapid and seemingly inexorable rise is the central geopolitical fact of our time.
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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.
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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.
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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.
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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)
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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.
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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.
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Every Western company is now wondering how exposed it is to political risk. Capitalists are all Huntingtonians now.
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Greed is also acquiring an anti-global tint. CEOs are rationally asking how they can profit from what Keynes called “monopolies, restrictions and exclusions.
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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.
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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.
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we still have time to shape a very different future: one in which global wealth is increased and the Western alliance bolstered.
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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
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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?
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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.
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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.
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There’s a chance this could happen. Putin wouldn’t be the first czar to fall because of a misjudged and mishandled war.
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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.
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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,
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Some Americans are equally keen on decoupling, a sentiment that bridged Republicans and Democrats before Putin’s invasion of Ukraine.
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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.
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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
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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.
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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.