Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: The Twilight of Neoliberalism Page 3 of 13

Postliberalism, Liberal Apogee, Routine Elite Failure and Then?

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On October 23, 2024

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I was alerted to Nathan Pinkoski’s “Actually Existing Postliberalism,” by N.S. Lyons’ response “The Post-Cold War Apotheosis of Liberal Managerialism,” and enjoyed both tremendously.

Pinkosi’s piece is an excellent short history of the public-private partnership currently aiming for absolute global cultural control via the weaponization of finance that he calls postliberalism.

I thought it would be fun to excerpt all the times Antony Blinken’s name appears in the piece.

First mention:

When Bill Clinton took office, he continued the pursuit of openness. In 1993, he ratified NAFTA and relaxed the ban on homosexuals in the military. However, he made it clear that the old liberalism was not enough. Eager to extend the reach of democracy and confront foreign enemies who stood in its way, his administration developed new tools to advance America’s global power. In September, National Security Advisor Anthony Lake outlined a new paradigm. His speech, “From Containment to Enlargement,” bespeaks a political revolution. It provided the blueprint not only for the foreign policy agenda of nearly every U.S. president since then, but for the convictions of every right-thinking person. Lake’s speechwriter was Anthony (sic) Blinken.

Second mention:

After Biden was sworn in as president, his administration shelved a plan to overhaul sanctions policy. A consensus held that if the kinks of the past could be worked out, then the Americans and Europeans had all the weapons in place to launch a devastating financial first strike against their preferred targets. Planning began in the first year of the new administration, with Secretary Blinken’s State Department taking the lead. So by February 2022, just as the Russian invasion of Ukraine faltered, the arrangements were already in place. The strategic possibilities seemed limitless. Russia could be brought to its knees; Putin would follow in the ignominious footsteps of ­Milosevic and Gaddafi.

The execution of the strike was dazzling. The scale, especially the involvement of SWIFT and the targeting of Russia’s central bank, caught the Kremlin by surprise. It was ­Barbarossa for the twenty-­first century. Yet the first strike did not yield the promised results. Nor did the second, third, or fourth. Putin’s approval ratings soared, Russia’s industrial output increased, and its military continues to grind away at the Ukrainian army. Despite implementing nearly 6,000 sanctions in two-plus years, the euphoria of spring 2022 (let alone that of the holiday parties of 2011) is long gone. Although American policymakers have said again and again that they have mobilized a global coalition against Russia that has left the country isolated, that is not the case. The map of the countries that have imposed sanctions on Russia closely resembles the map of the countries that have legalized same-sex marriage. Economic warfare against Russia has exposed the limits of the global American empire.

Lyons applauds Pinkoski’s essay but rejects the notion that this is a revolution against liberalism — instead, it is its apogee.

Sadly, he doesn’t mention Blinken, but he does elaborate on the frightening ambition of this movement:

The managerial ideal is the perfect frictionless mass of totally liberated (that is, totally deracinated and atomized) individuals, totally contained within the loving arms of the singular unity of the managerial state. To achieve its utopia of perfect liberty and equality, liberalism requires perfect control.

This ideal is, of course, the very essence of totalitarianism. Yet if we wonder why the distinction between public and private has everywhere collapsed into “the fusion of state and society, politics and economics,” this is the most fundamental reason why. Perhaps, for that matter, this is also why the U.S. and EU now habitually sponsor LGBT groups in Hungary or India, and finance human-trafficking “human rights” NGOs in Central America and the Mediterranean: because managerialism’s blind crusade to crush any competing spheres of social power has gone global.

In response, a comforting tonic from The Archdruid, John Michael Greer at Ecosophia, whose reader “Dave” asks him:

I’ve noticed a growing and extremely worrying trend of the “elites” of politics and entertainment pursuing reckless and (to me) clearly wrong courses of actions that blow up in their faces, and then instead of honestly looking at the situation they’ve had a large hand in creating and doing a mea culpa, either doubling down and getting mad at regular people when they’re less keen to do what the elites tell them, or trying something else without ever really honestly accounting for their mistakes. The actions remind me of signs of elite collapse that this blog has talked about for years now and it’s very surreal and worrying to see happening in real time. What is going on and why can’t the “elites”, the people with access to more data and resources and advisers than anyone else, seem to realize what’s going wrong? Do they not care or are their actions part of a larger plan, not to sound conspiratorial?

Greer’s response was just what I needed to hear:

Dave, I don’t think that it’s any kind of plan. Quite the contrary, this is normal elite failure, the thing that comes right before an elite replacement crisis. Just as the capitalist elite of the 1920s crashed and burned, and was replaced by a managerial elite in the 1930s and 1940s, the managerial elite of the 2010s is crashing and burning, and will be replaced by an entrepreneurial elite in the 2020s and 2030s. The entitled cluelessness of a class that has remained in power too long is a familiar thing; comparisons to French aristocrats just before the French Revolution also come to mind.

Although, honestly if this means that Elon Musk and company are going to win what Chris Hedges calls “The Choice Between Corporate and Oligarchic Power”…eek!

Kamala Harris, anointed by the richest Democratic Party donors without receiving a single primary vote, is the face of corporate power. Donald Trump is the buffoonish mascot for the oligarchs. This is the split within the ruling class. It is a civil war within capitalism played out on the political stage. The public is little more than a prop in an election where neither party will advance their interests or protect their rights.

And what do the oligarchs want?

Warlord capitalism seeks the total eradication of all impediments to the accumulation of profits including regulations, laws and taxes. It makes its money by charging rent, by erecting toll booths to every service we need to survive and collecting exorbitant fees.

Trump’s cohort of Silicon Valley backers, led by Elon Musk, were what The New York Times writes, “finished with Democrats, regulators, stability, all of it. They were opting instead for the freewheeling, fortune-generating chaos that they knew from the startup world.” They planned to “plant devices in people’s brains, replace national currencies with unregulated digital tokens, [and] replace generals with artificial intelligence systems.”

As much as I eagerly anticipate the long-overdue fall of our current elite, I truly dread what’s coming up in their wake.

The End of Austerity & Reindustrialization

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On October 23, 2024

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Austerity Is Mostly Stupid… Mostly.

This blog is for understanding the present, making educated guesses at the future, and telling truths, usually unpleasant ones. There aren’t a lot of places like this left on the Web. Every year I fundraise to keep it going. If you’d like to help, and can afford to, please Subscribe or Donate.

But there is some logic to it, especially in places like Britain. The fundamental problem is de-industrialization. You can print as much money as you want, sure, but if almost everything you need is made or grown or dug somewhere else well, you have a problem. The US avoids this thru having dollar hegemony, for now, but the UK doesn’t have that and the Euro ain’t what it used to be either. The solution is simple in concept: you need to re-industrialize with than printed money.

(This is a theme and topic we’ve covered before, but forgive me running thru it again from another angle.)

Industrializing or reindustrializing is hard, especially with open markets. You need very careful use of tariffs and subsidies, and you need to cut deals with the current hegemonic industrial power: aka. China. You need real industrial policy, in other words. And neoliberalism doesn’t believe in that.

Instead neoliberalism believes in this weird idea that markets are self-correcting and that whatever markets do is right. Nor does it believe in increasing wages for domestic demand, because it came to power during the oil shocks/stagflation period.

Raising wages and thus general domestic demand when you don’t produce enough domestically means money flooding out of the country. This isn’t necessarily bad. A lower pound or Euro is an export subsidy and helps reindustrialize, but it’s still a hard sell and it has to managed.

You can’t let the trade and balance of payments deficit grow too large. And you have to manage domestic demand: pushing people to buy what is produced locally and making imports for consumer goods expenisve, while funneling import buys towards capital equipment.

This playbook has been run many times. Japan, South Korea, Taiwan, the US in the 19th century, China most recently. We know how to do it. But it does require discipline and an ideological change from neoliberalism, plus a willingness to cooperate with the main industrial power

It’s damn near impossible to industrialize or re-industrialize without aid from the current industrial hegemon. That means getting into a trade war with China is counter-productive. You need to import capital goods from them, and sell them what you produce at competitive prices.

Japan and the USA had Britain. Japan (2nd time), South Korea, China and Taiwan had the United States. You need the markets, knowledge and capital goods.

This mean, in effect, that you need to cut a deal with the current industrial power. They don’t precisely have to be good deals (China offered to make American rich people richer), but the deal has to be something they want.

For US/China one obvious deal is to let them get goods like EVs into the US without tariffs if they build branch plants and help create a supply network in the US. Another obvious deal is to stop supporting Taiwan so much & another is to let them have the South China sea. The EU and Britain can make the same deals.

If the last two bother you, well, look at it this way: they’re going to get Taiwan and the South China Sea anyway, you’re just making it easier for them. You’re giving up things you’re going to have to give up anyway.

This requires a psychological change among Western elites. They need to be willing to admit that they are no longer the top dogs, at least economically and that they can no longer just impose the terms they want.

The longer you leave cutting deals with China to help you reindustrialize, the worse deals you’re going to get. Leave it too long, and reindustrialization may be essentially impossible.

Of course there’s much more to it than this. A complete rejiggering of internal markets is necessary. You have to gut finance and put it at the service of industry. Private equity has to be destroyed wholesale. People can only get rich by exporting or making goods for the domestic market which replace imported goods. Anyone doing significant import of anything but capital machinery (with an eye to building your own) can only be allowed to survive, not prosper.

Generally speaking, to use econo-speak, incentives have to be aligned for re-industrialization, and dis-aligned for anything predatory. Betraying elites must be crushed.

There is no solution to declining standards of living in the Anglosphere and the EU without re-industrialization (maybe Canada and Australia could find another way.) You’ve got to either produce what you need, or produce what others want to buy from you. It’s that simple.

 

The Rise & Fall Of Higher Education & The Medieval Universities Crisis

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On September 20, 2024

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This is based mainly on “Crises and Decline in Credential Systems”, found in Sociology Since Midcentury, Randall Collins, 1981.

We’re currently in the late-middle stage of a higher education crisis in the West. This isn’t a worldwide crisis: the Chinese system is still in its expansion phase, but it’s very real here. Recently I was talking to a friend in Norway, who noted that most young people want a trades education and to avoid university.

I’ve noticed when discussing this that most people are resistant to the idea that this isn’t the first time it’s happened. We have this weird idea that before the modern era, there weren’t large post-secondary education sectors: that degrees and credentials from schooling are something new. This isn’t even slightly true: heck, if we had the data I’m sure we could find something similar in Ancient Egypt, and for sure the massive university systems of Buddhist India went thru more than one cycle. This before we even get to China, a civilization which was based on a credential system for something like two millennia.

But neither is it new in the West.

Schools produced standard culture (and standardized people, as far as that goes.) Culture allows the creation of longstanding institutions: not just the universities themselves, but bureaucracies of various forms, including corporate bureaucracies. It’s not an accident that companies demand degrees, especially for managers.

This culture creation is used in political competition. Think the medieval church vs. various kings, or the kings v.s their feudal lords, or Confucian scholar officials v.s hereditary nobility. In the modern world consider what happened when university trained, mostly Ivy league, degree holders took over the media, or the effect of MBAs taking over from engineers in companies. Boeing is a good example of the consequences, but so is the entire shipping of industry out of the US, and the enablement of China.

Education is one of the sinews of political conflict.

Universities (or credential systems in general) go thru four phases. All four don’t always happen, sometimes the cycle is stopped before it reaches its end.

Expansion. Lots of new students pour in. More institutions are created. Formal requirements for professions are credentialized thru the institutions. In the Medieval era this was civil law, canon law, medicine and theology. In the modern era it includes much more, but of particular note are engineers. During this period having a degree means an almost complete certainty of getting a job. Think of the 50s: a BA was all you needed to vault into management.

Cultural Production Outstrips Positions. An end to the easy early period. You have to compete for positions, there aren’t enough. Credential inflation starts: what once required a B.A. now requires an M.A. The amount of time for higher degrees gets longer and so on. (Back in the early 90s a friend taking a PhD in psychology told me that a PhD alone was no longer enough. Ten years earlier, it had been.) The price of getting an education increases, and in this and the third stage, it tends to skew more and more to the wealthy.

This, I note, has obviously happened in our society. Back in the sixties, education was practically free, now it requires a loan students may not pay off for decades, or ever.

All the positions are filled. (We are here.) There isn’t just a lot of competition, the degrees are increasingly worthless unless you also have clout from something other than education because the positions are filled. The number of people who live off the productive system but don’t contribute to it goes up.

This goes in phases: right now BAs get you nothing but a chance to apply and be rejected, and BA enlistment is falling, but STEM still offers a decent chance. (This won’t remain true in the West for much longer.) During this period alternate culture production really gets fired up: intellectuals who can’t get positions produce books, pamphlets, blogs, podcasts and so on. They attack academia and seek forms of legitimacy other than credentials.

Finally, collapse. The state stops enforcing monopolies, university enrollment drops and many institutions fail entirely. Other forms of cultural production become dominant.

The Medieval University Cycle

The rise really gets going in the 1100s, though some institutions are created earlier. By the 1200s they are accredited by the Church of the Holy Roman Emperor. This makes the credentials valid throughout Christendom, which no other higher credentials are. At this time both the papacy and various kings and principalities are expanding their administration, and there are tons of positions. As with the Confucian scholars in the early days, these administrators are used to expand central authority: feudalism begins its decline. In addition the monopoly of law, medicine and theology works against feudal nobles.

Every major pope from 1159 to 1303 held a degree in law from a university. One of the signs of the end of the reign of the medieval scholastics is when other ways of training come to the fore. In England in the 1400s, for example, lawyers no longer learn and OxBridge, but in London in what amounts to an apprenticeship system. By the 1500s OxBridge no longer teaches physicians, this moves to the Royal College of physicians and soon after the monopoly of clergy on medicine is ended.

The height of the system is significant: two thousand to four thousand students were enrolled at Oxford and Cambridge, for example. This is 4x as many, proportionally, as were enrolled in Elizabethan England and as a proportion of the population the medieval height wasn’t surpassed until after 1900. At this height at least five percent of the male population attended university and it could have been as high as 10%.

The medieval system, note, goes into decline fifty years before the black death: so it wasn’t caused by declining population.

As the medieval system goes into decline, the humanists rise. They work outside of universities often as publishers or authors and rely on noble patronage. They mock the old academics as rigid, fusty and out of date.

But the decline isn’t good for ordinary people: as mentioned in our own case, education becomes less and less available unless you have money and stops being a major way for people to rise. This was very much true in the medieval university decline: at the beginning many poor individuals could attend, but as time went on this became much less true.

Signposts of Decline

  • smaller institutions folding. (The closure of many of the small liberal arts colleges in our time, for example.)
  • a fall in the number of students.
  • decline in number of institutions.
  • loss of monopolies over credentials.
  • widespread attacks on what is taught and how it is taught. (We see a great deal of this now, and it has progressed to politicians passing laws.)
  • Increase in the cost of education, with poorer students being cut out.
  • Cheap degrees which are mere formalities: degree mils and so on.

Note that phases three and four also can feed into political instability. In recent years Peter Turchin has popularized this, and many think he created the idea but it’s long been discussed as important in revolutions such as the French and Russian ones. People who are highly educated but didn’t get the positions they wanted are vastly destabilizing: they feel betrayed and they have the tools to fight ideologically and often the understanding of how to administer movements and other organizations.

Raise someone’s expectations, train them, then let them rot in poverty and you’ve made yourself a potential enemy.

These cycles are dead common. Collins identifies a number, just in the West:

  • The Medieval cycle – starts in the 1100s, peaks in the 1200s, over in most places by the 1400s.
  • English cycle from 1500-1860
  • Spain from 1500-1850
  • France 1500-1850
  • Germany 1500-1850
  • US 1700-1880

The various national ones, though they start at about the same time, other than in America, are separate and have different patterns of rise and decline. Not all of them go all the way: the American universities never go thru phase four, for example.

Education Systems Rise and Fall like all else in human society. What is happening now in our system is very similar to what has happened before and if we want to understand what will happen to our system, the best way to know is to see what happened before. It will never be a one-to-one match: the details will differ, but the pattern will hold.

The obvious thing to do for those who want to slow the fall and end it before collapse is to figure out what sort of training they can produce which isn’t in oversupply. For individuals the question is where the new form of cultural production is and how to legitimize it and reap the benefits of that legitimization. One might wonder if the rise of podcasting intellectuals who use their celebrity to sell their books is a fad, or a sign of something greater, for example. I may return to that in the future.

In the meantime: it’s all happened before.

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Dollar Hegemony Decline Watch

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On September 17, 2024

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So, nice little chart here:

Seems… bad. At least for America and Europe.

Let’s lay this out:

  1. Most of what you want to buy you can buy from China, you don’t need to get it from the West, so why use dollars?
  2. China almost never uses sanctions or seizes foreign currency. The US often does. US dollars are risky, the right to use them can and is often taken away, and so often are the dollars themselves.

So why use the dollar, except that it’s still easier in some cases?

What happens when it’s no longer easier? The BRICS are spending a lot of time on an international banking system which bypasses the West and it’s allies (Japan and South Korea, basically). As that system becomes easier to use, why use the Western system or the dollar? It only exposes you to risk.

This is similar to what happened after the Huawei sanctions. Chinese firms saw the damage that was done to Huawei (they’ve roared back, but it was touch and go for a couple years.) The cry in Chinese business was “delete America.” If you bought anything important from the US you needed to find another source outside of the West, which for manufactured goods usually meant domestically, and for resources meant Africa, South America and Russia.

For a long time the way the banking system was set up you had to use the dollar, but more and more you don’t. And for a long time some key providers, like oil producers, would only take dollars, but now they’ll take Yuan.

So, again, why use the dollar when there is a safer alternative which can be used to buy or sell almost anything you want?

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Big Picture Financial Collapse

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On August 5, 2024

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Though newer readers will be forgiven for disbelieving it, during my early online career I was primarily considered a finance and economics blogger, though I’d write about almost anything. Among other things, I predicted the financial collapse, including the DOW bottom and the month it would happen in. A correspondent once went thru the Wayback machine and found that there were less than forty people who made the prediction in advance.

I lost interest somewhere around 2010 and moved my primary focus to other topics: at the time mostly ideology and how it interacted with the political economy. There was no reason in continuing: my goal had always been change, and the Fed, Congress and Obama had all confirmed that the only change was to be the end of any real spar of capitalism.

So I’m not going to write about the proximate cause of the current financial collapse, but instead look at the bigger picture that lead here.

First we have the offshoring of real industry, primarily to China. There is a real economy, and financial skyscrapers, no matter how high, are based on them. The bottom line is that the West no longer has the industry to hold up the skyscraper.

Second is that the 80-now long bull market was entirely a creation of government policy: mostly thru the Federal Reserve, but with serious assists from Congress and the President. There was a time when stock buyback were illegal, for example. There was a time when the Fed didn’t run a “the markets must always go up” policy: in fact, during the 50s and 60s the stock market traded sideways, even though real economic growth was, by every measure, higher than in the post 80 period.

Third is the response to the 2008 financial collapse. Not the collapse itself, but the response, which was to bail out the people and institutions which had caused the crash, to immunize thru fines and agreements those who had engaged in massive and widespread fraud, to force the burden onto homeowners by allowing banks to steal houses; and in general terms to ensure that the same people who had caused the crisis were in charge afterwards, but more powerful and controlling larger institutions.

Then they patted themselves on the back and said they’d saved the world. Capitalism isn’t a system I like, but one of its virtues is that if you fuck up you go out of business: if you’ve made a lot of bad decisions you aren’t allowed to keep making bad decisions. Bernanke, the Fed, Congress and the Presidency put an end to that dynamic and essentially ended even the shadow of real capitalism in America, and indeed, in the West.

This meant that resources were terribly misallocated, and that further economic decline was inevitable, since there was no possibility of a new economic elite rising based on actually producing good products and solving real problems. It also mean that further financial crises were inevitable, and that in the end those crises would not be able to be papered over, because, Virginia, there may be no Santa Clause but there is a real economy where things have to actually be made and built and grown and dug up and refined.

The fourth factor is the decline of US dollar hegemony. It isn’t obvious in the numbers yet, but it’s real and those who are making long term bets against it will regret doing so. I won’t go on about this, since I’ve written a dozen articles or so on the topic in the last two years.

We’re at the end of somewhere between two and five centuries of European/Western world superiority and dominance. It’s going to suck for Europe, the Anglosphere and most of our allies. There’s just no way around that, and the decision points are past. A recovery is theoretically possible, and I could even write an article giving the outlines of what’s necessary, but there’s no political possibility of doing it and our current elites are too incompetent to make it work anyway. A revolution which throws out our entire leadership class is a pre-condition and by the time we got that done, the day would have passed anyway.

All of which is, I suppose, just a long way of saying “economic decline sucks and isn’t going to stop,”

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UK’S Reform Party Is Poised To Destroy the Consersvatives, and Deserves To

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On June 24, 2024

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The latest polls show Reform, led by Nigel Farage neck and neck, or slightly ahead of the Tories.

I took some time to read their manifesto and it’s pretty bloody awful.

BUT, and it’s a big but, there’s some stuff Reform is promising that no one else is offering. For example:

  • lower rents through reduced migration
  • free tuition for STEM degrees
  • lifting income tax allowance to £20,000

Farage talks about the housing crisis all the time, and these specific policies are laser-targeted at younger people.

Farage wants to stop all non-essential immigration. Britain is like Canada, there’s vastly more immigration than there is housing being created and rents and house prices have sky-rocketed. (A detailed post on that soon.) Tuition averages about $6,000 pounds a year and young adults tend to be poor and have little income.

He also wants to reduce estate taxes, go all-in on anti-trans policies, get rid of clean energy and so on. He’s still a conservative loon.

But he’s offering what neither Labour nor the Conservatives are, or can.

He has the best chance of breaking the Labour/Conservative duopoly that Britain has seen in generations for the same reason LaPen is surging, Brexit happened & Trump is viable: the status quo sucks for most people and they want radical change. Since radical change to the left was stopped with Corbyn’s defeat and the Starmer’s purge of the left from Labout, it’s now the right’s turn.

Like an animal in a leg-trap who chews its own leg off to escape, people in pain who see their lives getting worse and no hope of improvement will take a chance on something radical. Sometimes, as with Javier in Argentina, that something radical is extremely stupid, but at a certain point people will try anything.

For a lot of people in Britain, as in France and Argentina and America, the risk is worth it.

As with Corbyn, the press is now turning hard against Reform. Any change from the neoliberal status quo will be opposed with their full weight. It worked against Corbyn, but at some point it will stop working.

Reform won’t win the election, but they don’t need to. They need to replace the Tories as the second party, either in this election or the next. Once they are part of the duopoly, power is only a matter of time.

Let us hope the left learns from this and raises its own challenge to Labour, replacing it, because Reform’s policies, overall, are horrid.

Neoliberalism is dying in country after country, who and what replaces it matters.

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Using Comparative & Absolute Advantage To Explain China’s Rise

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On May 14, 2024

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Economists spend a lot of time talking about comparative advantage: France has just the right climate and land to make great wine, for example. In the Industrial Revolution England had good quality coal in just the right place. Germany has a lot of good industrial workers and craftsmen.

Most comparative advantage, however, is cost advantage. If it’s cheaper and you can produce it for less, it’s hard to compete against you.

Absolute advantage is different. Absolute advantage is when you are the only one who sells something other people want or need. For most of the 20th century if you wanted commercial airplanes you could only get them from the US or Europe or Canada (until Canada’s aviation industry was mostly destroyed in the 50s under threat from the President of the US.) Cars were available from the West and the USSR, then from Japan and Korea. Most advanced medicines were made only by the West, though India came on strong for a lot of generics towards the end of the century.

Absolute advantage is far superior to comparative advantage: you can charge much more.

This is the second article on the West’s situation via China. If you haven, read the first “You can’t run industrial policy or a war economy under neoliberalism.”

Absolute advantage can be created. The rise of England didn’t start with the Industrial Revolution, it started when England banned exports of wool to the Netherlands. Be clear, English weavers sucked in comparison, but it didn’t matter. England produced most of the wool, and if you wanted woolens, you had no choice but to buy them England, inferior thought they were at the start, or do without.

This sort of policy used to be fairly standard. When I was young Canada would not export raw logs or raw salmon, for example, but by the 80s we had begun to do so. African nations have recently started insisting on doing primary processing in country: refine the ore or hydrocarbons, tin the fish, and so on. It’s not the same as advanced manufacturing, but it captures more of the value. If you have a resource there is more demand than supply for, you can insist. Perhaps tinning or smoking fish in the US or Mexico saved ten cents a can, but so what, before fish farming there was never enough salmon.

The problem with absolute advantage, though, is it makes you lazy. When you’re competing on comparative advantage, you have to drive down costs or increase quality, or ideally both. People don’t have to buy your goods, so they have to be better or cheaper.

Now the problem is that for about two centuries the West has had absolute advantage. For most intents and purposes everything we made had absolute advantage outside the West. We had better weapons, machines, clothes, medicines, transport. Everything.

Japan was the first non-Western nation to catch up, but an island nation without significant resources, it couldn’t compete and was conquered and made into a satrapy. South Korea was given the same treatment, and allowed to industrialize, as was Taiwan.

I was a young adult when Japan roared in the 80s, but Japan was never a serious threat, simply because it didn’t have enough population. It was never going to unseat the US or Europe, only claim its place in the (still) Western system.

China is a different matter. The reason China is eating the West’s lunch is that it has overcome most of our absolute advantage and is now competing with us on comparative advantage: Chinese goods are cheaper and in some cases, like EVs, Chinese goods are better. This often isn’t a small difference: you can buy an EV in China for 14K, and it’s a decent car.

Further, China has a massive domestic market. Oh, incomes are still not as high in the West, but the population makes up for it, and Chinese industries mostly aren’t oligopolies or monopolies. In 2019 there were over 500 EV companies. As of 2023 there were still about a hundred. The competition was fierce. There is nothing like it in the west, where car companies are essentially an oligopoly, and don’t truly compete on either price or quality.

China moved up the technological chain. They actually practice competitive market capitalism much more than we do: their markets are closer to “free” than any western country’s. They have effective subsidies due to the exchange rate and direct government intervention, of course, but that’s not the key issue any more (though it was for a long time), it’s that they are genuinely better at manufacturing than we are, and more responsive to what buyers actually want.

Many nations in the West used to have competitive internal markets, with a myriad of companies competing, but under neoliberalism, and to be fair to a certain extent under Bretton Woods liberalism, they were replaced by oligopolies. The problem with real competition is that you might lose. Fake competition is far safer, and offers far better returns for the ownership and executive classes.

Until, of course, you run into companies which are used to real competition, and they eat your lunch and you scream to the government for tariffs and trade war.

Mind you tariffs aren’t a bad idea, but if they are to work, Western companies must actually become competitive again and they don’t want to do that, it’s too much like work. Nor, as I’ve noted before, is it easy for them to do. Internal rent in the West is very high, and thus so is the cost of living. If they’re involved in a trade war, they have to sell to their own citizens, but the only way they know to reduce prices is to crush wages and if they do that, well, the internal market isn’t what it needs to be. (This is what FDR and Keynes realized, which is why New Deal and post-war capitalism emphasized having wages rising faster than inflation. It created a robust market.)

Offshoring anything another country doesn’t already know how to make is stupid, because when you offshore the locals learn how to make what you offshore and eventually they make it themselves for themselves and compete with you. “Friendshoring” can’t work, it can only crate new competitors with lower costs.

The days of the West’s absolute advantage are over. We threw it away for a few decades of high profits funneled to elites, and now we must learn to compete on comparative advantage again, something we mostly don’t have and aren’t used to being necessary.

It’s the bed we made and we have to lie in.

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You Can’t Run Industrial Policy OR A War Economy Under Neoliberalism

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On May 13, 2024

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Washington spent 7.5 billion dollars on charging stations. The result?

Seven stations.

China has subsidized charging station as well. I can’t find reliable figures, though one source says around 10 billion dollars. How many charging stations does China have? Over seven million, 2.2 million of which are public units. The US has 186,200.

Bottom line Chinese EVs sell for about eleven to twelve thousand dollars, though when sent to the West the companies charge multiples of that and take the profits, so if you want a cheap EV you’ll have to figure out how to buy in China and import it yourself, which most Western countries make very difficult.

What’s amusing is that the US is planning on a 100% tariff on Chinese EVs—but even so, they’d still be cheaper and sell at a profit for Chinese EV makers. (As a practical matter, it’s very hard to get Chinese EVs in America.)

A western journalist specializing in EVs went to China recently and drove their cars. The article is long and worth reading, but the summary is that they’re better cars on top of being far cheaper. And this is an American journalist who went in expecting otherwise.

So, let’s fish and cut bait: as the title said, you can’t run industrial policy or a war economy under neoliberalism. It’s impossible. Russia easily and massively increased its production of weapons and ammunition during the Ukrainian war. The West? Hardly at all.

Washington spends 7.5 billion for 7 charging stations. This isn’t just incompetence, this is corruption. Yes, China and Russia have corruption. Lots of it. It is nothing compared to American and European corruption, not even on the same scale. In China, especially, most corruption is “honest corruption” — you can take a slice, but you have to actually deliver. If X number of homes or charging stations are to be produced, you’ve got to produce them.

This is a feature of neoliberalism. Neoliberalism is about unearned profits. This is seen most clearly in the stock market and in real estate. During the post-war period the stock market traded sideways. The indices basically didn’t go up at all. Under neoliberalism they went up inexorably. What is odd about this is that during the post-war period GDP growth was higher, so stock prices haven’t been rising since 1980 because of better economic performance, but rather because it’s government policy run mostly thru the Federal Reserve.

But this isn’t just true of housing and stock prices, it’s true of almost everything. Profit margins have soared during the neoliberal era. Our companies don’t compete on price or quality, they try to create oligpolies or monopolies so that they can charge more without having to provide significantly more value. The way they took advantage of Covid to raise prices far faster than their costs were rising is instructive.

Simply put, neoliberalism is about unearned money: about capital gains; PE plays where you buy a company with debt, load it with the debt and then dump it; monopolies and oligopolies and getting government to juice asset prices or pay you far more than you deserve for shoddy goods (see mil-industrial complex.)

There are, of course, partial exceptions, but even in those tend to be partial. Apple produced some real new products, but they also seek to receive monopoly prices for them. Almost all of the internet, built as a commons, has been turned into walled gardens and the small producers marginalized even as their product was stolen. AI is little more than an IP theft machine against small producers—writers and artists.

But let’s move back to “can’t run industrial policy.” Neoliberalism was very explicitly against tariffs and for free capital flows. Money flowed to the highest returns, no matter from which country. Capital goods and expertise were exported. China until very recently was a low-cost producer, so the West engaged in labor arbitrage and sent the manufacturing floor there. Take Apple, for example. They designed the iPhones and iPads and so on, but they were almost entirely produced in China, because it was cheaper.

Problems is that the best way for engineers to learn is on the manufacturing floor. So as the West sent most of its manufacturing to China, the Chinese learned. After all, they were the ones actually making the goods.

And now Huawei’s phones are out-competing Apple and Samsung. They’ve created their own OS. Their chips aren’t quite as good yet, but they’re moving fast.

As I’ve said repeatedly, wherever the world’s manufacturing floor is, is where innovation will inevitably move. There is a delay. It was about forty years when America overtook the UK. In the China/US case it seems to have been about twenty years. Which is to say, it’s already happened.

Now it’s important to note that this is no longer just about the manufacturing floor. The West’s costs are genuinely higher than China’s even now that China is no longer a low-cost labor market.  This is a feature of neoliberalism: we deliberately produced high housing and rent costs. In America, high health care costs are a deliberate matter of government policy. High living and real-estate costs mean American firms couldn’t compete with Chinese even if they wanted to and still had the capability, not even with subsidies, of which there are far more than people believe.

For about six years, I’ve heard constant complaints from Chinese that it was no longer possible to buy a home. Their housing market, like ours, was being bought up by investors, pricing out young people.

What was the Chinese response? They crashed their housing market and the government has stepped in. (From the Economist. Since it’s behind a paywall, I’m using a tweet with a screenshot):

We can’t compete with this. It’s impossible. Not because it’s impossible in theory, but because we don’t believe in doing such things and to pursue such policies we would have to hurt rich people, a lot, and they own Congress and the Presidency and our politicians in other countries.

China has repeatedly shown that if a policy is good for the majority, but hurts the rich, they’ll do it anyway. We’ve repeatedly shown the opposite.

And you can’t run industrial policy or a war economy if you want fake profits based on not actually producing good new goods at cheap prices. It can’t be done. If an entire society is based around “give me money for the least possible effort”, you’re cooked

China’s government, while not without serious flaws, works, and ours doesn’t, and that’s because China has refused to let private interests take over the government.

China is a capitalist country, there is no question about it. But the sort of capitalism they practice is the type we practiced in the 50s and 60s. You can get rich, but you have to actually produce and incomes are expected to rise faster than the cost of goods. Ordinary people’s lives are expected to get better. So much so that one Chinese I know said that many of the problems of China were essentially those of a paperclip optimizer which was intended to reduce poverty.

The West is toast. We can’t compete. It’s that simple. To compete we will have to change significantly, and while putting up tariffs isn’t actually a bad idea, it’s not enough alone. Without changing our fundamental governing and economic policies and ideology so that to get rich and stay rich you have to actually make good cheap new products in a way that improves the majority’s lives, we will never be able to compete.

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