Published: Yale University Press (2017)
I was looking forward to reading this book, Stephen D King has an excellent reputation and he has a key role at HSBC, while also advising the House of Commons Treasury Committee. The advance notices were also excellent and the author is writing about an aspect of current economics that is of vital importance.
Firstly, his four-part structure for the book is logical and I largely agree with his conclusions and completely agree with his comments on the Eurozone and the poisonous nature of trade imbalances, particularly within the Eurozone. Having said that, the second half of the book is better than the introductory chapters, the author understands banking and finance and you sense that he is writing from personal experience. Although even there I am not sure that he takes the logic of his ideas far enough. One of the interesting “what ifs”, is what if we don’t have a multi-polar international system with a hand-full of key players, but one in which all national states are weakened. The problems of the United States and the European Union are obvious, as the author makes clear, but he does not question the internal weaknesses of the Chinese state and the fact that Russia is a state in decline; with a diminishing population, over-dependency on oil and gas, which will eventually be assets left in the ground, under any climate change policies, with its profound corruption and lack of an effective group of entrepreneurs, that is people who create wealth, rather than take it.
King is correct in his analysis that the term “globalization” has become a political liability, because it is now seen in the United States, in particular, as a process which has moved jobs overseas to low-cost producers, and is identified with the growth of income and wealth inequalities, which have now reached unsustainable levels. He also analyses the phenomena of Populism, which has given us President Trump and Brexit. His chapter on elites is also interesting and relevant, because arguably the greatest problem has been the disconnect between the actions and policies supported by elites, and the concerns of the mass of the population. If this is the case, then globalization is not the cause of the problem, rather it is failure of elites to enact policies which adequately protect the working and middle classes and limit the growth of inequality. This process of alienation of the population has gone furthest in the United States, and the recent performance of the British electorate (the May 2017 UK General Election came too late for this book, which is a pity) shows that any British Government will, in future, have to take more care to ensure the welfare of the population as a whole, and not be seen as being too generous to bankers and metropolitan elites.
The author’s main concern is that insularity and protectionism may prevail, because if that happens he says, “it really will be a Grave New World.”
I think that he could take a more positive view, understanding that while the post-1945 settlement is coming to the end of its life, that the United States is a power in decline, that the new international arrangements are still emergent. We could see a strengthening of the influence of the United Nations, and even bodies like the Commonwealth, which are respected in Africa and the emerging world. The Internet also acts as an extra-territorial system, for trade, finance, and the exchange of technology, our old models of trade exchanges between nations are becoming obsolete.
As far as the United States is concerned, the US General Accounting Office Report on the US military published in June 2017 paints a picture of a weakened military capability, a symbol of America’s weakening power in the world:
“The military services are generally smaller and less combat ready today than they have been in many years, and each military service has been forced to cut critical needs in areas such as training, maintenance, and modernization due to budget constraints, according to DOD.17 Officials said that the result of the current state of readiness is that military forces are not strong enough to protect vital U.S. national security interests from worldwide threats.”
The decline of the United States, is now a fact, and the current administration, by its rejection of the Paris Agreement and lack of engagement with international partners, serves to highlight to the rest of the world the fact that American policies are becoming of less and less importance in the global arena. In the same way that Britain’s influence in the world declined in the aftermath of the First World War.
I do, however, have some critical comments about this book. Firstly, the author is obviously a very busy man and this book sometimes has the feel of something written quickly. There are a few asides which don’t seem to quite fit, rather too much on Hobbes and I didn’t see the point of quoting Thomas Mann on Davos, interesting though it is. Students of history would also question some of the links and causation King provides; for example, on the emergence of the Russian state, “a bunch of Viking bounty hunters – alongside their Slavs.” The comment that the Red Army, “was ultimately able to make amends thanks to the 1939 Molotov-Ribbentrop Pact”, is actually wrong, although that Pact was the immediate cause of the Second World War, allowing Hitler to safely invade Poland in September 1939. As General Douglas Macgregor made clear in Margin of Victory, following the First World War, “Soviet thinking created the intellectual and industrial foundations for a massive military machine designed for offensive warfare and manned by troops trained, equipped, and ideologically hardened for sweeping manoeuvre over vast distances.” The Russian Army was larger than the Wehrmacht in 1941 and Soviet tanks production exceeded German tank production in every year from 1940-45. Linking the beginnings of the Safavid Dynasty (Persian) in 1501 to the Battle of Karbala 800 years previously, is equally tenuous.
But these are really minor niggles, about what is a timely and useful summary of the current economic and political landscape. King writes with authority on financial developments and identifies a number of issues, for example the booming African birth rate, which will have an important influence on policy over the next few years. I do also recommend that anyone interested in this subject also reads Mervyn Kings’ excellent “The End of Alchemy” which covers much of the same ground from a Central Banker’s prospective. In this case two Kings are better than one.