Subscribe and Listen on: Apple Podcasts | Spotify | Stitcher | Google Podcasts | YouTube
Transcript
Rob Johnson:
Welcome to economics and beyond. I’m Rob Johnson, president of the Institute for New Economic Thinking.
I’m here today with Adam Tooze, professor of history and the director of the European Institute at Columbia University. Today, we’re going to talk about his book, Shutdown: How COVID Shook the World or, The World’s Economy, I should say. It shook the world but a lot of times I find that historians look back and project forward, selective interpretation of the evidence-based on what they want. He has a much broader lens and so I really look forward to talking with you. Thanks for joining me today Adam.
Adam Tooze:
Pleasure to be here.
Rob Johnson:
So let’s start with, you mentioned the whole constellation of problems, but COVID shows up on stage and whether it’s climate, racial injustice, economic inequality, the globalization balance of power in the world or disease itself. Tell us your vision? First of all, what inspired you to write the book? What brought it to you?
Adam Tooze:
It was a book written almost out of necessity to be honest. It wasn’t my plan. Like everyone else, practically everyone else in the world, I imagine, that COVID totally derailed my life, it derailed my family’s life, my circumstances of living in New York. And I was embarked on a book about the political economy of climate, which will be the next book that I do after Shutdown. But found, as it were, a history catching up with me because I’d done this narrative of 2008, which was itself of course, the stilled out of the repertoire of journalists, economic economists, think tanks, bank economists and so on, and had become quite influential as a way of thinking about 2008. And all of a sudden, as you know, in the second week of March, 2020, we started seeing reactions in the financial markets, in treasury repo in particular that were frankly terrifying, were immediately legible in terms of the schema which people in critical macro finance had developed to understanding 2008/9.
My life was just taken over by commentary, chatting with journalist friends, economists about the urgency of this crisis. And at some point, the tension between living the 2008 crisis, sorry, living the 2020 crisis whilst attempting to research the energy policies of Carter, it was impossible. And I’d never experienced that before because, I’ll be honest, when 2008 was going on, I was writing about world war one and I wasn’t really paying attention. And what happened, as you know, the 2008 book is it got caught up in the backdraft of the Trump election and Brexit and that book just didn’t end on me. I couldn’t close it out. And Duncan Weldon, who writes for The Economist now teased me at the time, saying that, “You’re going to have to write an endless new edition, aren’t you?” And lo and behold, that’s exactly what I found myself doing.
So this book is really a response to that, like Crashed, but even more directly it grew out of almost daily commentary on events and those readers who are familiar with either the geopolitical debates about American relations with China or the eurozone who follow commentary on the emerging markets, Latin America in particular but those most particularly who were deep in the action and the treasury markets in the spring of last year who recognize I hope the urgency of the conversation, which is still ongoing. The G30 just brought out the recommendations for the reform of the treasury market a couple of weeks ago. And it’s hard to exaggerate the importance of that, right? This goes way beyond Lehman because the treasury market is the alpha and omega, the fundamental foundation. It’s the safe asset for the global economy. And it gives you an indication of quite how serious this was that that was shaking.
So 2020 for me, just one small… took the lid off. For me, the challenge of history writing and contemporary commentary is to grasp just the radicalism of the world that we’re in. As you say, I’m shy about predicting the future because I find the presence so overwhelming and 2020… By way of the COVID crisis, we as it were I think lifted the lid on the culture that we’re perched on top of, and the book tries to convey that sense of, well, I used this term poly-crisis. Jean-Claude Juncker coined it, it’s from Edgar Morin, who’s a theorist of complexity, and Juncker was trying to capture the mess of the eurozone and Europe was in 2015, where you had Ukraine and the refugee crisis in Greece and populism boiling up in Poland and Britain. And in a sense, this is an effort to understand a similar poly-crisis in 2020.
Rob Johnson:
Yeah. So let’s zoom in on some of the different pieces. What did you find startling? What did you find positive? What did you find most disconcerting about the reaction to the COVID crisis? The response I should say.
Adam Tooze:
Well, the surprise is the sheer scale of fiscal and monetary action. The disappointment is that we ended up needing it. So the disappointment is the total failure of public health in place after place around the world. If you look back, it’s not fair to say that economists— I didn’t make this point in the book as strongly as I wish I had in retrospect. But if you look at, say, economists studying pandemics before 2020, and there were plenty of people who were, there’s a paper actually co-authored by Larry Summers I think from 2018 that estimates the impact of a pandemic, the flu pandemic. One of the interesting things about those is they assume the mortality or the damage will be severe just in low-income countries and emerging market economists in terms of mortality. And so then they ratio up and they conclude that the economic damage will be modest.
Whereas what we were confronted with in 2020 is the total failure of public health in the core elements of the global economy, first in China, and we shouldn’t underestimate how serious that failure was, so they didn’t manage to establish a grip on it better than other places, then in Europe and then in the United States. So we took out what amounts to basically 60% plus of the global economy, even bigger share of trade. And that’s just the staggering shock. So then the reaction had to be big. And the least you can say about it was prompt and large. And though of course the protagonists will go to their graves denying that there was any real explicit coordination of monetary and fiscal policy. And so on, defacto, it actually formed a fairly functionally integrated whole, and not just within countries but globally and that’s as it were the surprise.
The positive news, the one big piece of positive news, and it’s integrally related to this, it’s just a different sector of the economy, is of course the vaccine story. So the fact that the pharma industrial complex, when product pushed, mobilized, adequately funded, was able to deliver not one, but a whole suite of vaccines suitable for different contexts at different price points is remarkable testimony to what we have there. If we want to mobilize it and we’re sufficiently intelligent and capable of collective action to mobilize it. We have an incredible toolbar. What we’ve seen since of course is the disappointing shambles of the failure to roll it out. So those would be the three; disappointment, surprise, really deeply impressive biotech, biomedical performance, and then new disappointment out the end in the sense.
Rob Johnson:
Yeah, they rose to the challenge, but they didn’t get it injected to the system of the people all over the world, it’s now creating mutant variants that are floating back and, how would I say it? By saving a few billion dollars or protecting intellectual property rights, we’re going to cost macro economies trillions more.
Adam Tooze:
I’m not sure whether I buy the Peyton story. I’m by no means an expert here but my sense is that the smart money says that Peyton’s a huge symbolic issue and the fact that they’ve dug in their heels only trying to protect them it’s just terrible politics. But the real bottleneck here is productive capacity which is a lot of embodied knowledge. It’s very difficult to do. And the mistake for the fancy mRNA vaccines was not from the very beginning to go really big and say, “Look, we’re going to have to mass produce these all over the world.” So they did that with AstraZeneca and it had the checkered history that it’s had, but they incorporated Serum Institute, which is the world’s biggest production capacity.
And what we really need clearly around the world are several more Serum Institutes, low cost, high quality emerging market, production hubs that can take expertise from around the world at world-class level, rapidly incorporated into production and then go. Serum isn’t a groundbreaking research institute in its own right but it’s totally groundbreaking in that it can do a billion doses in India so what we need is six of those.
Rob Johnson:
It’s R&D, what’s the D part of R&D.
Adam Tooze:
It’s in the D and the P because this is all about production, right? You have to take it all the way down. And then of course what we need out the other end of that is logistic supply and that’s where it gets really complicated is you got to put boots on the ground and you’ve actually got to have systems that will deliver this. And emerging market, low income countries are perfectly capable of this like Rwanda’s done a much better job than many other places at much higher levels of income, but you do need to build the in chain all the way.
Rob Johnson:
Yeah. And then coming back to the macro stimulus was huge like you said, the trillions of dollars. I know some people are concerned about the packages say of the Biden administration in the United States on the grounds of inflation. Others are more concerned about what you might call the opportunity costs of the use of fiscal capacity so that, how do I say, would be structured in such a way that it enhanced productivity and took care of climate change rather than, which you might call alleviated distress among the workforce. And so in essence, what they’re saying is, that was nice but tomorrow when we really need it to head off climate change or when we need to pay for it, had we expanded the productive capacity and so forth, we’re not going to be there. There’s a dead weight loss, this is just a loss. It doesn’t generate future benefits. We’re head off that climate crisis that was on the way.
Adam Tooze:
I think you’re ventriloquizing some sophisticated version of Blanchard or Larry Summers. And I’m not out of sympathy with some elements of that critique, but I wouldn’t put it quite that way. So I think the inflation thing’s overdone. I don’t understand why they’re flogging that horse. Say we did get some inflation. The only reason I would worry about it is if it bit into low incomes and wages were not adjusting quickly enough. That’s a very real concern, but we have after all learned pretty simple lessons about how to alleviate poverty in societies like America or indeed Europe, which is A, in the European case, provide people with job security which is what they did in the short time, or in the American case, just print some checks and send people money.
So that’s the bite. The bigger concern I take really is more about prioritization, and it is stunning that America did the largest set of stimulus packages ever in ever, and they basically contained no green element whatsoever. If you add up the 2020 package, the rescue plan. And of course the idea is that that will be deferred. Down the line there is the big green investment package. To my mind, the problem there is not actual as it were budget capacity constraint, debt sustainability. I think that’s an arithmetic which we just don’t need to be concerned with at this point. It’s clear however that the political obstacles are real, particularly in the United States, if that’s what we’re mainly talking about here. There’s only so much that you can get through the ridiculously constrained pipeline of American congressional legislation.
So that first Biden package, the rescue plan, which is very remarkable for being relatively pork free, right? In terms of delivering benefits to low income and middle end of Americans, it’s remarkably streamlined. There’s not a lot of tax benefits for corporations and very rich people. The concession they had to make to get it through was on the minimum wage, which bought off the chamber of commerce and then they were okay with it. But I think there is a sense that that was a moment politically where they had momentum, where it was a shame not to do infrastructure. And the idea that you could then roll out the jobs plan and the family’s plan and do those next, well we’ll see. Everything is still to be played for but the momentum isn’t what it was in the spring.
And so that element of the [Larry] Summers critique, which I think has been underplayed relative to the scare mongering about inflation, I’m actually more sympathetic to. It may be a rationalist fallacy to imagine that you get to pick and choose this, right? The first stimulus of the Biden administration was driven by Congress. The impetus isn’t really coming from the administration. It’s Schumer and Pelosi that already had lined this up the previous year, wanted to do something really big very quickly and I think Yellen and the administration just waved it through. I don’t think the initiative really had come from… The fact that they were willing to waive it through is remarkable because that’s very different in 2009, and I wrote about this at the time. I do think there is a break there, and I understand the political logic which I think people like Paul Krugman had been articulating for some time, which is it’s all about politics. And it’s all really about the midterms. And then I think that gets us through the midterms with a democratic majority in Congress still intact, however thin it may be is a win.
Rob Johnson:
So as you looked at the, how you say the snapshot of now, what do you see, how do I say it, boiling in the cauldron, you see climate on the horizon. And it might very well be that it’s already boiling, meaning that the time horizon to meet two degrees is ticking away. We may be overdue as the UN’s recent report.
Adam Tooze:
Yeah. Currently we’re nowhere near what will be necessary for 1.5.
Rob Johnson:
Yeah. But in the realm of inequality, in the realm of trust in government, in the realm of, which we haven’t talked about the world system in US, China relations, what do you see right now? What causes, gives you heartburn?
Adam Tooze:
Oh, a number of different things. The book concludes as you say, open-endedly with a tour of, as it were the vectors of tension, as I think I call them, that exploded in 2020, and none of them are calming. None of those sources of tension or really being relieved. Inequality was increased. The dysfunction in the American political system is unabated. The tensions in Europe remain the fundamental issues around the Italian debt unresolved. The climate and environmental envelope is being stressed ever more and we are not done with this virus after all. And absolutely the tensions with China reached a scale and a ferocity and an ideological intensity in 2020 that as a historian took me totally by surprise in part because history was being invoked. You had people like Attorney General Barr lecturing American business about the fact that “we would all be speaking German” but for the fact that their predecessors had aligned themselves with the American state and its mission to win world war two.
And so the lesson from that was that they needed to get on board with a confrontation with China and a quite explicit attack on America’s corporate elite as essentially complicit with, appeasing the authoritarianism of China which was then coupled with an attack on woke America, political correctness in the United States. A really comprehensive culture from a culture war. Of McCarthy type. It’s not unfair I think to draw comparisons to the 50s but directed against American business, whereas it might’ve been once upon a time, it might’ve been liberal pinkos in the State department, all of a sudden the targets here were the heights of American business. That’s very novel. At the same time, counterflow completely uninhibited. This inhibited moves by Ray Dalio, Bridgewater, all the big players in Wall Street as well move to China.
So talk about incoherence. Some of the tensions of which we’ve seen unloading this summer with the moves by regulators on both sides to sabotage or to undercut IPO’s which I think have really scared people. But it is a profoundly unresolved situation at what, let’s face it, was the driver of globalization will be taught euphemistically in general terms without globalization since the 1990s. What we really mean is the network of trading relations and manufacturing relations built around China. So to have that destabilized it’s historically radical.
Rob Johnson:
Well, I think I remember years ago reading a book by a woman named Nancy Fraser, The Old is Dying and the New cannot be Born.
Adam Tooze:
That’s a paraphrase of Gramsci.
Rob Johnson:
Yes. And what she was saying in essence was that there was distributional fights regarding gender and race and that the Democratic Party, which used to represent “the working class” and going back to Lyndon Johnson, Franklin Roosevelt, were now frightened by the success of Ronald Reagan, then they formed something called the Democratic Leadership Council and then they went forward where they’re what you might call big donors became things like Wall Street or Silicon Valley. And to avoid being pushed out of office by what you might call the Reagan Democrats is what they used to call it as we migrate across, they had to adopt identity politics.
So a lot of the gender and race issues associated with the constructive and I think overdue agenda within the Democratic Party. And what she predicted in the book, this is when Donald Trump was president, is that he had come in and said, “The system is rigged.” Reagan Democrats haven’t been able to dance to that kind of music in a long time through the Obama and the Clinton years and what have you. So they migrated across and Hillary lost to Trump, as we all know. But at that juncture, she predicted that Donald Trump would now abandon the people he convinced into voting for him as he would take up the identity politics agenda vis-a-vis the beneficiaries of gender and racial policy change to keep those people, despite the fact that he wasn’t helping them, to keep them on his side. And I just thought it was a brilliant vision at the time of something that didn’t have a lot of the economic issues. It just shifted which my call to a different dimension of our politics.
And what worries me right now is that I see and I applaud the progress that the Biden administration is experiencing or deservedly experiencing from the women and people of color, changing composition of appointments of cabinet. First female treasury secretary, Janet Yellen. All of these things I think are great and necessary. But a lot of my friends say, the reason we’re going to be tough on China is because that Reagan Democrat white working class crowd is going to go back to the Trumpians unless we stay hawkish on that front too because they are resentful of the other one in the outcomes of Donald Trump’s presidency. So I think I know Martin Wolf at the FT is working on a book about the tensions in democracy of what I call plutocracy and identity, inequality, all the dimensions that you bring up. And it’s very hard to see this with the micro strain or this stress being ameliorated and creating a broad based consensus in America. And without that, it’s very hard for American to be an example leading the world.
Adam Tooze:
Yeah. We might come back to that final point which I do think is quite a stretch. But to focus on this issue of class and identity, I think the obvious, insofar as there is a solution, is clearly the proposition from the left, which is to say, “Look, insofar as the appeal is as it were from plutocratic donors and upper middle class, highly educated, college educated, identity politics warriors. This is profoundly off-putting to most working Americans, in fact many working Americans of color who as we discovered in the most recent election don’t in fact warm to appeals to defund the police as we’ve seen that in the New York city elections as well.
But the rational way to counter this is to say, who is the working class in the United States right now. And the working class in the United States today of course does include some burly white men of Irish or Polish or Anglo extraction wearing hard hats, but it also includes large numbers of people of color. In fact, predominantly the race and class in the United States are to a large extent the same problem. African-Americans are as disenfranchised and as far down as they are in the pyramid of wealth because they’re working class.
Rob Johnson:
That’s right.
Adam Tooze:
One is an indicator of the other. It’s go to bad schools, they have less chances of making progress and they are disadvantaged in a whole variety of other ways on top of the stigma of blackness projected onto them and the criminalization they’re subject to, and the same is true for women obviously. A huge part of the working class workforce today is female. And so a genuinely progressive strategy of mobilization would seek to abolish this divide between a strategy of identity and a strategy of equality. That’s absurd. And so you need to work on that.
The question I think is, and to do that, you need constructive policies like the ones the Biden administration has tried to roll out. That’s used by, I think they prioritize that first round of welfare spending because they knew that constituencies of people, working class people, precarious workers, whether they were white, black, Latino, men and women but above all of course single parent women were in deep trouble and needed all the help they could get. They were facing a genuine social crisis. And then the jobs plan and the family’s plan are targeted specifically at those groups. And the most radical and innovative of them is arguably the family plan which focuses on the care economy, which is both crucial for working families and working mothers in particular, but also a sector which employs disproportionately women.
So that is the strategy and I think that’s an entirely positive strategy and it’s clearly the way in which you need to answer this invidious… And in the end, I don’t have a lot of time for identity politics detached from hierarchies or class, but you might not say that is surprising. I am who I am. I’m an extremely privileged upper middle class, white man from Europe. But I don’t even think it’s a terribly good read of the United States. The second question that follows on from that is how much of a price do you have to pay in terms of foreign policy antagonism to really cement that? And I’m not sure that antagonism with China necessarily plays well with a broad segment of the American working class.
It may work well for some sectors [crosstalk 00:26:45] vigorous competition and a strategy of rebalancing there is clearly necessary. In political terms, it’s a weak flank for the Democrats. The last thing the Biden administration needs is to be accused of being weak and soft on China. The campaign against China was already begun under Trump. Arguably it goes back. It has democratic DNA as well. I would trace its origins to 2009, first phase of the Obama administration, that first visit the President Obama to Beijing which went very badly. And the period of the Clinton era at the State department, Kurt Campbell and people like this who are calling the shots now are veterans of that period. So the third element is leadership. I just think that’s a thought and we’re gone. It’s a will of the wisp. It’s a Mirage on the horizon.
If America shows up and it’s a constructive player and that’s what people need on the complex issues. On the issue of financial governance, on the issues of central bank activism, of course the fed acts, we live in a dollar world. But in a sense that doesn’t really need much coordination because the entire system is dollar centric. So if the US acts, its domestic policy has complicated ramifications. When we’re talking about leadership, what were the really difficult issues, which require multilateral bargaining give and take, and those are extremely difficult to arbitrary. I don’t think America is in any kind of position because what bargaining power does it have?
It can’t deliver on trade. It’s not a credible champion of democracy in the current moment. And in terms of security policy, it’s evident that broadly speaking, except perhaps in the east Asia region, the tendency is to pull back pneumatically, right? There’s a powerful impetus to withdraw. And so what America really has to offer those is not very inspiring. That isn’t to say that the world isn’t in a mess and that we don’t need concerted responses. It’s just not obvious to me that those are going to come from a reassertion of American leadership.
Rob Johnson:
And I think the tensions that you described in the book in one segment related to voter suppression, and some of the structures in our constitution might mean that there was a large majority of people who affirm the vision and the leadership but that isn’t exactly what will translate into the electrical current, because of this refractory process that is allowed to continue to blossom.
Adam Tooze:
I’ve been preoccupied with this question in a sense, going back to this book I did, Deluge, about the rise of America to prominence in global affairs in the course of World War one. It’s not there in 1914 but America is the pivot by 1916 of everyone’s strategy. And in the treaty fight of 1919, when Woodrow Wilson has propagated the idea of the League of Nations. The world is watching the most difficult treaty ever bargained over the Versailles Treaty, incorporates the League of Nations with the United States at its core and he brings it back to the recalcitrant Republican dominated Senate, Republicans won the midterms in November, 1918, and they sink it. Forget Paris in 2015 and Trump exiting. This is the entire fabric of world order in the aftermath of the greatest conflict in the history of humanity to date hinges on America’s presence and America just, “Whoa, sorry, no can do!”
“Why?” Well, this constitution of ours, this issue of division of paths, and then the electoral politics of the United States. America is profoundly problematic as a global hegemon because of the structure of its constitution. It’s not in the simple sense, an elite-governed imperial structure like Britain was for a while in the 19th century. It’s something much more radical than that and very difficult to manage. And it is, I think, entirely conceivable, both in terms of its global leadership role and also in terms of the development of its own democracy, that we can see very bleak counter majoritarian. In fact, it’s quite obvious that the Republican Party is dedicated to securing its grip on power by all means necessary, including the subversion of the democratic process in the US. Then the question that follows on from that is, what is it that we gamble on here?
Do we gamble on some convulsive moment of re-foundation, civil rights moment, a New Deal moment, a civil war moment, heaven forbid, a Bruce Ackerman style shift in the gestalt, in the frame of the American constitution. Because old as it is, I think it’s probably the oldest operative, significant constitution in the world. Of course it’s constantly modified. But are we realistically imagining that scenario or from the point of view certainly of global stability might want and conceivably think that the continuation of an incoherent decentralized structure of part is in fact, the best we can hope for and some sense the safest because, remember the countervailing power that this exercised on the Trump administration. So there are checks and balances there and they cut both ways when the Democrats expect to have power. Of course, it’s all profoundly frustrating, but when they don’t, living in a city like New York, it was profoundly comforting to know the limits of federal power over city and our State.
And when you think about issues like climate change, again and again you’ll see people make this move where they’ll say, “Well, America’s going to do this.” And then people will say, “But what about the Senate?” And then they’ll say, “Well we can’t ratify anything but we’ll sign up anyway.” And then they’ll say, “But what about the next election when the Republican is elected and he’ll just pull us out.” And then they say, “Oh well, some national actors will continue.” And that is a polite way of saying that the American national apparatus of government is a busted flush as a vehicle for sustained progressive politics. It may simply not be functional. But the problems are urgent and we need to keep moving on them.
And we know if the coasts move on climate, it’s a very big piece of the global puzzle because their economies are as large as large European States. In fact, the east coast is larger than almost all of Europe. Same for California. So I do think we’re in a world though, and you say, “I don’t project forward.” But I think even in our present moment, we can see truly radical contingencies, truly radical ideas, possibilities for America’s political economy in particular.
Rob Johnson:
When you mentioned you also look at what you might call The Biden Group, is not really the left. You talked about Bernie and some of the climate issues or Elizabeth Warren and others, and how what you see in power is much more where I call a centrist working with the existing structure and trying to calm them down a little bit, albeit I take your point about 2009 where the look for a consensus then damaged with speed and the size of the response. Now when you put something out there. But I sense that, which might call the characterization for Democrats as the far left is not particularly accurate in terms of how it’s-
Adam Tooze:
No. The Democrats are a much more multivocal party. I think that’s the significant thing to say, right? Is that the party disciplined, as you say, in the wake of the Reagan shock, to create the Clinton coalition and then even more under Obama was a very streamlined centrist, for want of a better word, a protagonist of neoliberal, economic policy and social policy in the United States. People like The Hamilton Project down into the details of how they conceive social policy is working, public, private partnerships operating, incentive structures. This was the repertoire, because in a sense, the Republicans have defaulted on governance in the United States for so long. It’s the Democrats who’ve been doing the governing and it’s the economists that work with them and they come from places like MIT and Princeton. And that is the heart of governance in the United States.
And what’s happened in the wake of the bitter disappointment on the left with, especially the second term of the Obama administration on the one hand. And then the loss to Trump, is an opening to the left and the formation of a substantial… It’s not. It doesn’t have the same heft as the extreme right wing of the Republican Party has had at times, but it has some leverage. And so you now I think the minimum level of complexity you’d need to model the Democratic Party would be a threefold typology, right? With a left wing which is potent and strong and unsmart and full of ideas and generating ideas all the time. It’s where all the ideas come from. The right wing, the [Sen.] Manchins of this world, and we’re grateful that he’s there because West Virginia would otherwise return Republican, but nevertheless, he’s our conservative within the Democratic Party camp.
And then you have the people in the middle who are the Bidens, the Yellens of this world, who I think are maneuvering. Smart enough to see where the wind is blowing from, easily smart enough to recognize some of the deficits of the centrist policies of the Obama period and also smart enough to recognize the force of many of the ideas coming from the left, which are to be concrete. Things like antitrust — Lina Kahn, being appointed to such prominent role. And Tim Wu or Gensler in the banking regulation, some really powerful stuff could come out of there. He’s a tough guy when it comes to these kind of issues. But more broadly, on climate, the green new deal advocates lost and this is one of the historic frames of this book, the green new deal lost on both sides of the Atlantic, both in the UK and the US, but it’s quite clear that its strategic diagnosis was spot on.
It said the Anthropocene poses fundamental problems. It impacts the society which is profoundly unequal and shot through with massive instability thanks to the nature of the capitalist system at this moment. And in responding to this, we cannot be hamstrung by a set of outdated economic ideas which were already empirically voided in 2008 and institutions like INET have done a profound, powerful counter hegemonic job over the decades now in shifting that conversation, and they were right on all three counts. They didn’t quite understand any more than any of the rest of us that the most urgent problem from the Anthropocene wouldn’t be climate, it was going to be a virus and it was going to move at the speed of a [inaudible 00:38:21], not trench warfare, but nevertheless, they understood that is the strategic challenge going forward is somehow trying to find a way of rebalancing the humanities and the economic systems relationship with nature.
And that therefore we would need to do big things. And if other big things were going to happen one way or the other, and it was a question of whether we got to control what the big things were and what direction they went in, and that ideology, old fashioned austerian ideology could not stand in the way. And the centrist on both sides of the Atlantic, you got to give the Europeans credit this time too. I’ve got it. They’re not going to… You know, [EU President] Ursula Van Der Leyen came as close as she possibly could as a… She’s a conservative, she’s a Christian Democrat. She’s calling her thing a green deal. Everyone knows, and occasionally you’ll hear slips of the tongue and they’ll accidentally say new deal. It’s clear that that is the diagnosis of now a broad stretch, not just of the far left, but of green modernization, green capitalism.
And it extends quite easily then, and this is where the new battle starts, not just the naked political battle to survive, make democracy survive but the battle about policy is what is the relationship between that agenda and, say Larry Fink, who hopefully comes along and says, “Look, we want to use a re-engineer, the Bretton Woods Institutions to absorb all of the risk whilst we go and do adventurous stuff, realizing the sustainable development goals. Surely this is an offer you can’t resist. I’ve got trillions of dollars. You’ve got problems which are that kind of size. You don’t have it on your budgets long term. All you need to do, let’s do a little bit of engineering here. You backstop all of the first risk, all of the really bad stuff, and we ourselves a bargain, right?” And that’s where the real fight starts, because we may have to use that kind of a structure, but you and I both know that you then need to get the devil’s in the detail. The devil is in the engineering of that and that’s popping all the [crosstalk 00:40:26]. There’s an equitable bargain here between stakeholders.
Rob Johnson:
I’ve been involved in some conversations recently that are related to development and climate change in Africa.
Adam Tooze:
Yeah.
Rob Johnson:
And the argument that is being made is that, I’m being kind of facetious, but in Norway about a third of the year, it’s dark all day and night. So you put up solar panels in Norway and you pay 100 basis points more than the rate of inflation, maybe. When you go up to the African continent, the solar panels are much more productive all year round and you’re asked to pay 800 basis points over the rate of inflation but they might call a political risk premium. So the question, is how can the multilateral institutions bear some of that risk, because it’s not just being a do-gooder and benefiting the African people, well that’s important too. What it’s doing, because it’s saying we’re all going to survive if we can get that financed and it’s worth our bearing that risk premium collectively. And like you said, the details, the enforcement, the mechanisms, people don’t know how to do them.
Adam Tooze:
Yeah. I discuss in the book, I talk about the United Nations Economic Commission for Africa. They’ve got this very dynamic group. There is Songwe who’s been very proactive and they’re fascinating people to talk to. I actually organized a meeting with her and her team and people like Daniel [inaudible 00:42:12] and we had a very frank exchange. Because their position, the African position, is radical. I hear it’s got that backdrop. In other words, look, “Sustainable development goals. You know what the demographic challenges of Africa are. We will be the largest slice of the working age labor force in the foreseeable future. This is the dynamic leading edge of the world. We have these pressing problems. We need capital. We don’t want to talk to you about sovereign default and how you restructure debt. There will be some countries that will have to do that. You don’t understand. What we need are trillions of dollars and we need them fast and then you say you can’t do that and we say, Italy.”
I’d like to talk to you about Italy. Italy has a debt to GDP ratio in excess of 150% of GDP and it’s medium term bonds are now trading at negative yields. Now we all know that Italy has got virtually no nominal GDP growth prospects, despite the magic that Mario Draghi will work in the next gen EU. Everyone in their right mind knows that that is probably not going to work out and there’s going to have to be some solution of some kind.
If you can engineer that for Italy, why on earth can’t you engineer that for Ghana? Look at Ghana’s growth prospects by contrast, catch up growth, dynamic, youthful population, relatively good governance, much better macroeconomic fundamentals than Italy in terms debt to GDP. The difference is you will engineer the risk out of Italy’s sovereign debt and you say you can’t do it when it comes to Ghana. We’re calling your bluff. If you are serious about this, engineer the risk out of this. And to my mind, I understand because the left purists will come in and say, “Oh, we shouldn’t do this. We’re incorporating vulnerable, low income countries into a fragile structure that we know can blow up.” Why would you want to a repo market for African sovereign debt? We know what repo markets do. They’re pro cyclical, they’re a nightmare when crises break out, surely we need to go down a healthier structure.
We should have either, proper sovereign default mechanisms like Brad Setser and people like that we’re working on the G30, or Daniel [inaudible 00:44:28] and folks will argue for a big green government like proper public sector engagement. But you say this to the Africans and they go, “Who are you kidding? We know you are not coming. A, we don’t want to talk about debt default. We need to move forward not backwards and we do not believe you’ll ever arrive with trillions of dollars or properly multilaterally back government funding, but that’s not, the Chinese have done a certain amount of this. And you try and repress them as much as you possibly can and try and outcompete them when the G7 got together in Cornwall and did this B3W, bill, better world thing, it’s quite clear they were talking public private partnership leverage deals, exactly the same one that the Africans are talking about.
So the future I think is there. It’s terrifying because we know. Daniel [inaudible 00:45:17] and folks like that are absolutely right. We know how fragile these structures, but given the obstacles to large public budget expansions, everywhere in the world, this may be our best bet. And I think that to me adds to the fragility of this, right? The way in which we engineer our way out of these massive structural problems that you and I started by talking about is by further complexity, further elaboration. I don’t see there’s any way out that goes back to basics. I’m profoundly skeptical of this vision that somehow, this isn’t to say that we don’t need better sovereign debt restructuring mechanisms, of course we do, but they need to be harnessed and they would presumably be an integral part of mechanisms with generating huge quantities of new leverage because we need to direct it properly and put it in the right direction. But as you say, there are growth opportunities there ought to be gigantic.
Rob Johnson:
Yes. I’m laughing as I was listening to you because one of my friends actually in the UK who works on climate issues brought up the idea of Italy versus Africa. And he said, “You know why?” And I said no. Why would they do Italy but not Africa? He said, “Oh that’s simple. Because the fashion district in Paris has to compete with the Italian fashion district and the German manufacturing, the middle stock competes with the manufacturing in Northern Italy. So if Italy breaks out of the system, all of these places get crushed. And he said, that is part of why they all put Europe together. They’re not going to let it fall apart, but they don’t fear Africa right now. And I said, “What if they turn off all the oxygen on planet earth? Shouldn’t you be afraid not of the Africans, but of structurally that prospect.” And he said, “No, they’re not afraid of that.”
Adam Tooze:
This has been played out too. This is a historian. What fascinates me is, as you say, I’m not about predicting really.
Rob Johnson:
Yeah.
Adam Tooze:
What I’m really interested in is we’re saying reality to just see what we can see and it is truth so much stranger than fiction. Germany’s development minister went to Africa in 2016/17. Germany had the presidency of G20 just as Donald Trump was coming in. And Germany in the wake of the refugee crisis of 2015 had done the math and connected up the dots. And it said, you know what? We can think of one incredibly important reason to be worried about Africa, it’s migration. And the German Marshall Plan with Africa. It’s not the Marshall plan for or in, it’s the Marshall plan with Africa in 2017 was explicitly motivated.
I think he was a CSU, like a German conservative went to Africa. He just blurted it all out. And he said, “Look, there are two reasons I’m here.” He was like, “The Turks, the Russians and the Chinese will be here otherwise.” And B, if I’m not here, you are going to come to us at some point in the future. So that’s why I’m here. I’d like to do a master plan.”
That is the logic, right? He spells it out in a crude racist fashion, but the reason why, especially Europe and in the United States, this is true clearly for central America and Latin America, given the climate shocks which are coming our way, the rich countries of the world have an absolutely overriding interest in this. It’s not only that the business opportunities were great. It’s such a negative way of thinking about your relationship with Italy. Why don’t they just expand aggregate demand in the eurozone and then they don’t need to worry about Italian competition.
That’s a typical bad mercantilist logic. I hear there is a huge growth opportunity here for people that will buy increasingly sophisticated products and the Chinese understand this and for some reason we are slower. But the second reason is, and it’s also I think a question of identity. Who do we want to be in the west 20 years from now? Do we want to be the people who saw this problem and assisted constructively, imaginatively and at some risk, at some financial risk to ourselves in addressing this issue? Or do we want to be North America fortress Europe? Do we want to see, not tens of thousands but hundreds of thousands of people dying in the Mediterranean or in the deserts of North Africa, which are going to become more and more uninhabitable as the planet warms. We should consider this. There’s no safe place here.
And so the options are, do we embrace this in a constructive, positive way, also collaboratively, or are we essentially opting for the bunker strategy because that’s what I think, if we do not grasp this development problem, that’s essentially what we’re opting for. And that’s in a sense, the most grim prospect, right? Because we are there and essentially going to sign up to an ever greater extent of the continuous chronic abuse of human rights that goes on the borders of all of the rich countries around the world right now.
Rob Johnson:
For sure. Let me, how do I say it, put the triangle back in place because we’ve been in-depth in the United States. We’ve been exploring Europe a little bit. We’ve talked about US, China. But you talk in your book about the CAI agreement between Europe and China. We’re now looking at a place where I’ve done conferences in INET, which is China’s relationship to African development, the competition with the United States or Europe. In this three, I’ll call it three player game and related to Africa, but US, EU and China. Do you see the potential for collaboration? Do you see any coherence that creates potentially a multi-lateral system?
You’ve talked about essentially, how do I say it, isolating China, trying to overcome the middle income trap inside. They have faith in economies of scale because their population’s so large. They’re working towards more of a knowledge and intensive education system and all. So they may shut the doors and go inward if this system continues to sputter or be acrimonious. Europe, United States could each go in different directions and could have three or more little spheres that are not really interacting in a, how do I say it, mutually nourishing way.
Adam Tooze:
Yeah.
Rob Johnson:
So where do you see what I’ll call this three-player game? And again, driving through Africa where the Chinese have been playing a very active role in ports and transportation and roads and so forth, what’s it look like to you given your historical understanding?
Adam Tooze:
I think I’m continuously amazed I must admit by the way in which this continues to be discussed in the United States as we speak. The sense is that with Trump gone and the looney tone removed from American policy that we were in a sense in a stable space and if we don’t talk, well then we don’t talk but in due course we will talk. But Huawei just launched a new phone, and it’s a 4G [5G] phone and I don’t understand why that’s not headline news because what that is, is the first sign that the war, I describe it in the book as an economic war and I don’t think that’s a misnomer. The open declaration by the United States that it’s not willing to tolerate the use of Western technology in Chinese tech development even at its current level let alone beyond its current level is a historic break.
And the Biden administration, by continuing the status quo, and in fact in certain technical respects tightening it is underwriting that break. I think Beijing was waiting to see whether they would, and what I don’t even seem to see, at least in the public debate in Washington is a recognition of the gravity of that situation. If you’ve got the global leader in 5G technology reduced as a direct result of targeted American sanctions on frankly weak evidential basis, circumstantial, potential risk that Huawei technology poses, to an also-ran in the race, in the smartphone technological race at this moment, in a matter of a year from a leader last year to also around this year. There isn’t going to be a whole hell of a lot of room for debate about other stuff with regard to mutual collaboration with the United States. We just targeted and took out the leading edge of one trunk of technology development.
And I would expect Beijing’s relationship to any offers to be utterly tactical, totally cynical, all bets are off, you people cannot be trusted as far as we can throw you. We are at war. We’re not going to declare it. We’re just going to play for keeps now. Because you can’t do that. It’s astonishing. And the Americans will come up with lots and lots of reasons, spying, everything else. But GCHQ in Britain monitors Huawei religiously and they never found the smoking gun. There is no smoking gun. What everyone knows about Huawei is it’s terribly, terribly vulnerable technology. It’s very poorly engineered software and so anyone can break into bit, and there is a long track record of Western intelligence agencies breaking into those phones as much as Chinese using them the other way round. And it’s a big difference between blocking the sale of that technology in the west and surgically striking the chip supply that allows its manufacture and sale to other people, notably in Africa.
And so just for me, it’s why are we even, there’s a sense in which it is as though we absentmindedly declared war on China and then we are saying, “Well, where can we move forward on things like well cooperation and development.” Dutch firms, which were supposed to supply these ultra-sophisticated chip manufacturing equipment to China now no longer will as a direct result of American pressure. If I was Beijing, I wouldn’t be seriously negotiating about anything from here on in. Genuinely. Why would you? You’d be utterly naïve. As soon as China reaches the level of technology that America regards is at any way compromising, it’s entirely selfishly defined, America must be number one on my watch position. America avoids all normal commercial relations.
Sure. I think it may be possible to do deals with China where they think it’s in their best interest. China I think has a powerful interest in addressing the climate issue because they are going to be massively impacted on it much more than we are. We should stop worrying about whether they’re serious. We should wonder whether we are. We should then ask what it is they might be willing to do with regard to development in other parts of world, because where we could maybe get some alignment is that the Chinese and us can presumably agree that we don’t want Nigeria to migrate to a carbon heavy technology, which is where Nigeria would go if it could develop. So those would be the sorts of deals that I think might be open, the choices that China’s going to make round the edges in relation to say Pakistan’s energy infrastructure. That’s where you would be looking for bargains.
I find it, the more you think about it and spell it out, the harder it is to imagine any bigger bargains, the really big piece of the puzzle is of course Russia but it’s so astonishingly remote as a possibility because what you would need to do is coral Russia by way of a sign on European-American three-way. Pigs will fly before that happens. So it’s difficult to see a good way forward for grand worldwide de-carbonization without cooperation with China. But I just think given the framing of Western, but specifically American policy towards China at this current moment, I’m not surprised that Chinese basically don’t want to meet with Americans.
Rob Johnson:
You’re right. I spent a lot of time over the years in China and I hear from their leaders, very high level people in their country that I’ve been meeting with. They say, “First of all, the hostility that’s being directed at us by someone like Donald Trump is really related to the fact that we’re a large country with capita income one 40th of American in the 1970s. When you engage in globalization, the punchline as an economist is everybody can be better off or nobody worse off provided you make the transfers, provided you make the adjustment assistance and transformation. And the American people should be mad are the people who made a lot of money and then lobbied in order to get their taxes cut and keep their money offshore and gut our education system and so it exacerbated the inequality and the introduction of China in globalization played a role in that but the people responsible for ameliorating it were the Americans.”
Then I go to the second page, which is the China 2025 report came out a few years ago. And you could see whether it’s reports at the council on foreign relations, Blackwell, Campbell and others all before Donald Trump, 2014, 2015. And they’re saying, “Whoa, these guys aren’t going to fall in line according to traditional comparative advantage. They’re going to compete in cybersecurity, in finance. They’re not going to let Wall Street into the market so that in essence, our comparative advantage is there. They are going to ask for technology transfer and then they’re going to replicate the firms from our foreign direct investment and push us out.” And there was a, I won’t call it a panic, but there was a great sense of an awakening that the Chinese had a strategy that the Americans couldn’t accept.
And it feels to me, Dean Baker, the Washington employee, was in Washington at CEPR. He’s often said to me and others written that, you got into a situation between the United States and China where the Trump people were negotiating on behalf of the people with intellectual property rights or Wall Street but inflaming the white working class that lost in yesteryear. But what they’re negotiating for is entertainment, pharmaceuticals, finance, all these high margin services. And even if you win on those things, you are not going to ameliorate, which you might call the woundedness of the distant past which takes you back to where the Chinese say, that was the responsibility of the American elites.
And then friends of mine that worked in issues like, should China be called a currency manipulator? They said the chief lobbyists on behalf of that were people like Walmart and Nike saying, “No, we don’t want them to have to make their currency rise because they made money.” So it’s a very, very difficult place. I’m talking about economic policy, not human rights policy. Very difficult place for anybody to stand on a moral high ground. But I really do agree with you that this is, what you want to call, it’s hard to see a way forward, given the woundedness and the aggression that’s in play present.
Adam Tooze:
Yeah. I go back and forth of the whole China shock discourse of the United States. Because it’s clear that, and David [inaudible 01:02:12] in the end extremely persuasive but there are bits of the American economy and American society which had massively impacted. But he’s a very careful analyst. He’s a very careful sociologist and economist and a brilliant analyst and he’ll go on immediately to say, “But one of the reasons why they was impacted as they were is that they were already weak. These were already fragile communities that were destabilized by the previous waves of globalization from Japan and then from NAFTA.” And evidently as soon as you make the comparison between the China shock which hit bits of the United States and say Europe, you’ll see how differently societies can react to these sorts of globalization shocks.
And in aggregate, it’s quite evident that the China shock is nowhere near large enough to explain the Southern surge in equality in the United States or dis-empowerment of the American Labor Movement. And so there is then to my mind, extremely significant question about, as it were, the political responsibility of expertise and critical unorthodox heterodox expertise in particular in how it feeds into a conversation like this. Because it can obviously be used to say the Chinese did this. They destabilized the American working class and therefore X, Y, Z policy ought to follow. But you could also say, there is this shock, what are we going to do about it? How large does the adjustment have to be internally? And how could we make our working class, ordinary working Americans, better equipped to cope with this kind of shock.
And that was the mantra for are so long of crude men in the 1990s and The Hamilton Project in the 2000s, and they just simply failed to deliver at scale. They don’t actually deliver the scale of support that will be necessary to offset. So then you find yourself in a third best, fourth best world in which substantial and politically important working class constituencies in the United States are objectively suffering very badly and it is as a result of Chinese imports. And then you have to do something about it. And then it becomes almost irresistible to make this move to say, “Well in that case, progressive politics is harnessed to a protectionism.”
And it’s exactly as you, a progressive disablement and a narrowing of options which if the entire problem would’ve been addressed in a more intelligent way earlier on, in a way which would not be foreclosed. But of course this is multiply overdetermined because the reason why the response was as weak as it was and as effectual as it was is to deal with the class politics of the United States at that moment, and the story that we were telling earlier on about the shift and about the power within the leadership of the Democratic Party, towards much more corporate, much more elite level.
Tom Ferguson is part of your organization, has written about this as forcefully as anyone has. So it’s a real impasse that we find ourself in at this moment. But I find it’s not, again, we need to factor in another element here, right? The truly, as it were non-negotiable element of this relationship isn’t to do with working class jobs. The non-negotiation element of this is also absolutely nothing to do with soybeans and the sorts of things that Trump was doing his deals about. The non-negotiable element is to do with hard power in the military domain and it’s tech and AI and everything that spills out from that. And that is not principally a matter of sociopolitical bargaining and plus politics, it’s a matter of the apparatus of the American State and its willingness to accommodate a multipolar world in which it is not the absolutely dominant unchallenged go anywhere, do anything, monetary superpower that it has come to expect that it is.
And a series of defeats in the middle east have taught one set of lessons and we are in the middle of witnessing the shambolic end of the experiment in Afghanistan and they’re moving on to a new field of endeavor where they’re going to try and confront China as a peer competitor as they call it, facing a challenge. And I think we shouldn’t conflate the different vectors. In some sense it would be good news if we were back in the debate of agricultural tariffs and jobs because that will be… There was an extraordinary moment, I comment on it in the book in 2020 where Mnuchin and Lighthizer, who were previously the battering rams of Trump regression against China, Lighthizer in particular, less Mnuchin, were the last conduit, a reasonable conversation between DC and Beijing because the burden of the conversation was being carried by Pompeo and Barr and O’Brien.
These full on ideological hawkish warriors, and what’s really striking is the Biden administration has taken no step back from that. So you’d expect them to double down on jobs. You’d expect them to double down on the blue collar issues but that isn’t the striking thing. Where they’ve held position is in fact on the tech war stuff.
Rob Johnson:
I think you’re characterizing this very well. And I would, how would I say, I think we’re going to have to wrap up here, but I would say I was inspired to become an economist. I thought I was going to be a ship designer by Charles Kindleberger. And I took his course in European economic history and another one that I wrote a junior paper on how maritime technology affect the pattern of trade between the Dutch and the British empires. But he inspired me to become an economist and every time am I listening to an economic historian, I just wish that we could integrate more history into the curriculum along with the history of thought, along with all the analytics. I think it’s a shame. I took economic history from Mr. Chandler, I took history of thought from [inaudible 01:08:34]. In graduate school, Charlie Kindleberger brought me to it. So I’ve enjoyed listening to you today in this cobweb of not knowing, I always think of about musical thoughts and lyrics that come to my mind.
And as I was listening to you, it reminded me of a song by YouTuber, called city of blinding life. And the first verse goes, “The more you see, the less you know, the less you find out as you go. I knew much more then, than I know now.” And your humility in saying in essence past isn’t always prolong, I want to contradict slightly because I think the patterns and the interactions that a historian sees in integrating, being micro-organic and multidisciplinary is very helpful to economists. We may admit that we knew more then than we know now. Well, we may know more about the history because the history’s over than we know now about the president and the futures because it’s still in play. That humility’s important, but the depth and sensitivity with which you approach analysis is a really great example for young people to emulate.
Adam Tooze:
Thank you very much.
Rob Johnson:
Thank you for being with me and thank you for the work that you do and I look forward to the next time we can talk.
Adam Tooze:
Me too. Thank you.
Rob Johnson:
And check out more from the Institute for New Economic Thinking at ineteconomics.org.
