US and China Must Find Ways to Control Their Elites by Rana Foroohar

Excellent from the UK Financial Times: This is why I think the Democrats need to deeply understand economics and from that base built a new economics and a new economy: more equitable, more sustainable but grounded in the how value is created: houses, cars, food, health care is not the result of Cargo Cult magic but human labor and its management. The elite have come to be addicted to extracting value not creating it and screwing working people for decades now. It has to end, but revolution or as I prefer extreme reform needs a detailed vision and strategy for the new end state. The Leninist: we can’t envision the future while in the status quo is and always has been a monstrous lie that ends in Gulags.
Success rests on heading off popular unrest, rather than winning trade fights.
Tension between the US and China is driving much of what is happening in the markets today. The analysis has focused on tariffs, currency manipulation, strategic technologies and which country has the most to win or lose in a trade war.

But there is a more important question to be asked when thinking about the future success and stability of each nation: which country will be better able to control its moneyed elites?

In his 1982 work The Rise and Decline of Nations, the economist Mancur Olson argues that civilisations tend to decline when the moneyed interests take over politics. That has clearly happened in both countries, where the levels of wealth inequality are not dissimilar; the top 1 per cent in China own about 30 per cent of the economy; in the US, the figure is 42 per cent.

For better or worse, China is tackling this head on via President Xi Jinping’s clampdown on the country’s princelings. Thoughtful people can disagree about whether a party that jails hundreds of thousands of people and executes some in the name of a corruption purge can maintain any sense of moral superiority or legitimacy. But Communist party elites would argue that this is all in service of the higher goal of economic development.

People who have had recent conversations with Chinese leaders have told me they believe the anti-corruption probes led by Wang Qishan are essential to breaking up vested interests that want to maintain a status quo based on cheap labour and cheap capital.

Chinese leaders also believe that America’s inability to curb its own elites will be the country’s downfall.

They have a point. Last week, several important Supreme Court decisions were made that favoured the few above the many. They included the American Express ruling, which weakened antitrust enforcement; the upholding of Donald Trump’s travel ban on immigrants mainly from Muslim nations; and the Janus decision that strips
funding from much of the US union movement.

This all stems from the fact that moderate Republicans, including many in the business community, supported Mr Trump despite misgivings because they knew he would appoint a friendly Supreme Court justice.

But Mr Trump was in some ways a reaction to the Democratic party’s decision over the past few decades to ally with elite interests — Wall Street under Bill Clinton, and Silicon Valley under Barack Obama.

Many of the party’s top donors and power brokers in the party blend a “greed is good” 1980s ethos with a sense of liberal entitlement that is anathema to large numbers of Democratic voters. Witness last week’s congressional primary in New York City. A veteran representative — number four in the House leadership — was defeated by a 28-year-old who favours guaranteed jobs and universal healthcare.

America’s elite business class has, for decades now, sought to distract from rising oligopoly with hypocrisy. US companies complain vociferously about unfair Chinese trade practices and intellectual property theft.

But faced with challenges in the Chinese market they usually caved in to maintain their access rather than seeking public help from the US administration to mount official challenges. (Corning backed down on a lawsuit over theft of trade secrets, and Qualcomm paid a $975m antitrust fine to China in two public examples.)

“The thought of accessing 1.3bn consumers is simply too tempting,” says Michael Wessel, a trade expert and former Democratic staffer. “They are trading America’s long-term economic future for the prospects of returns that simply aren’t as robust as promised.”

It amazes me that any western multinational thought they could win this bet. China has made it clear it intends to give more, not less, support and preferential access to its own companies both at home and in areas where China has significant geographical influence.

Yet neoliberal hope springs eternal. Markets have breathed a sigh of relief in the past few days because they believe pro-free trade advisers like Treasury Secretary Steven Mnuchin have dissuaded Mr Trump from imposing tougher bans on Chinese investment.

The respite is temporary. It remains unclear whether China’s anti-corruption campaign will restore faith in the Communist party, or ultimately undermine it.

But the US is not doing any better at curbing elite power. It is arguably doing worse, as reflected in the fact that lobbying dollars into Washington have more than doubled in the past 20 years.

The left has a choice to make between capital gains and moral certainty. The right must decide whether it still has a soul. The centre will not hold — and there will be big economic and political impact as it crumbles. The US may well be heading towards a choice between fascism driven by rural whites or socialism driven by urban millennials.

Investors know neither will be good for business. A key bond market indicator, the yield curve, is flattening and may invert. If that happens, a recession is likely

About creativeconflictwisdom

I spent 32 years in a Fortune Five company working on conflict: organizational, labor relations and senior management. I have consulted in a dozen different business sectors and the US Military. I work with a local environmental non profit. I have written a book on the neuroscience of conflict, and its implications for conflict handling called Creative Conflict Wisdom (forthcoming).
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