Geopolitical risks, China and the COVID crisis- Professor Stephen Kotkin

so now uh a very regular a very regular guest of ours for the last uh nine or ten years uh my friend uh professor stephen and welcome hello everyone steven um you're in boston and um where uh just before you make your prepared comments you've just heard from three of uh the world's largest asset owners from the uk from canada and from france uh some fairly bleak um comments from each of them in terms of where we're at in the world looking at the news again overnight your country uh seems to be um in more peril uh in lots of different ways and certainly um now the southern states are seeing some spikes with covert 19 texas florida uh and elsewhere how are you doing in boston and uh um how are you feeling i'm protected because i'm in my wife's attic and so i'm very insulated from all the trouble but yes there is big trouble and we're still early as you indicated i thought the panels this morning were excellent uh but overly on the optimistic side well we can rely on you for uh the uh the pessimistic and perhaps the realistic uh version of events your topic today is geopolitical risks uncertainty and the covert crisis and i know you have some prepared comments so over to you thanks for joining us yes i'd just like to say that i very much miss the in-person interaction that connexus is it excels at the chit chats at the breaks the lunches the dinners all of that is deeply missed but i'm very grateful that you've managed to still connect us and i thank your tech people for a really amazing job here all the time zones and participants i'm going to touch on two very big themes the first theme will be about whether the pandemic has actually changed geopolitical risk in any significant fashion my preliminary answer is no it has not changed geopolitical risk in any significant fashion of course the death toll has been horrific as you alluded to nearly half a million there have been significant political consequences already with more to come the the problem that troubles me the most hundreds of millions perhaps more than a billion children who are not in school and unclear how we can return them to school all of this is uh significant beyond words but for our purposes no fundamental change in the geopolitical risk outlook that we saw prior to the pandemic so let me go through five mega trends to try to illustrate this point this is a thirty thousand foot view as we say each trend has run its course the theme here is about hitting a brick wall or ending up in a cul-de-sac first the middle east we had a political islamism introduced by the iranian revolution into power in 1979 it was a response to real issues outside interventionism in the middle east a vacuum following the failures of arab nationalism etc but it has devolved into autocracy political repression foreign adventurism stagnation and despair islamism in power has hit a brick wall it muddles through it stays in power in iran we're not suggesting that it's toppling anytime soon but there is no forward movement and there's nothing on the horizon for forward movement so that trend of political islamism is a failure with no possibility of redemption that we can see on the horizon second mega trend is china dong xiao ping's market leninism was a very bold bet to retain and strengthen the communist party monopoly on power but to experiment with market mechanisms in the economy right market leninism this was a response to very real issues mostly internal mao zedong's misrule the cultural revolution chaos it was a tremendous innovation at the time and has produced incredible results breathtaking results but it too has hit a brick wall china is unable to move forward in with political liberalization because the communist party is an all-or-nothing proposition it's a monopoly rule when you liberalize a communist party you begin unwittingly to liquidate the communist party rule people don't want debate only within one party they want political debate and pluralism of multiple parts every time the communist party anywhere has tried to open up it has destroyed liquidated itself so they're stuck in china they need to do deeper marketization they need to do more accountability in the political system but they cannot they've hit a brick wall this is extremely important mega trend the third mega trend can you hear me i can hear you i can hear sorry stephen i just wanna drop for a second i can hear you i'm just asking have you got a before you go to your other mega trends have you got a solution for china is there a solution uh we'll get to that at the end of the mega trends i'll try to summarize but you're exactly on point okay what what does it mean for going forward a third is the united states and the united kingdom here we have the thatcher reagan synthesis of deregulation denationalization pro-market dynamism once again a response to real issues stagflation crippling strikes and various other trends watergate the loss of the war in vietnam the reagan thatcher synthesis was also highly dynamic extremely far-reaching in its consequences for example it moved the left to the center you had blair new labor you had clinton new democrat the thatcher reagan synthesis was colossal in the anglo-american sphere with global effects as big or bigger than dunk xiaoping in china however the reagan thatcher synthesis has also stagnated and has also hit a brick wall we're now in a cul-de-sac in the anglo-american sphere and phenomena like trump or like boris johnson are symptoms rather than causes of the coldest sock that we're in megatrend number four is going to jump forward in time the three that i've just mentioned political islamism being a failure not a solution china's market leninism hitting a wall because of its contradictions and the reagan thatcher synthesis running out of steam because the problems in addressed are gone and there are new problems now that it's not addressing all of those date effectively from 1979 forward there are also two other megatrends that date more from 1989 and the fall of communism but they too have hit a brick wall one is the european union which has was also a response to history and to gigantic problems that history had thrown up it was a solution in many ways to that historical record but of course the monetary union that was introduced in 1992 was not accompanied by fiscal union and that contradiction was supposed to resolve itself over time but despite all the achievements of the european union from some people's point of view we are stuck the european union is stuck this is not about brexit this is about the fact that there's an inherent contradiction that can't be fixed we cannot move forward to fiscal union but most people do not want to relinquish the monetary union so the eu is also in a stagnant can't move forward position the fifth and final mega trend that i'd like to point out here is globalization itself which was present before 1989 of course but became accelerated or even hyper globalization after 1989 1991. what we see here however is that there is no global governance there is integration there is deep profound global integration without effective mechanisms of global governance we have global management of issues for example the who manages health the icc the court manages crime unhcr helps manage refugees the wto for trade many of these global institutions have been effective in their spheres others have been less effective but they are management of single issues and by the way there is no global management of climate change they have yet to introduce a wto or a who equivalent in any case this is not global governance the only global governance we actually have is a national bank the federal reserve bank of the united states which does most of the heavy lifting like it or not in terms of global governance so we have a globally integrated world and a national currency and a national bank this is like the eu problem but on a much larger scale and so all of these five megatrends pre-date the pandemic and none of them have been solved by the pandemic and there is no resolution on the horizon pandemic or no pandemic so if you're thinking about geopolitical risk in your portfolio you have these five mega trends they're not the only ones but they're the biggest and they interact with each other and without a resolution of the mega trends we're not going to see positive progress on all of the issues we'd like to see positive progress on in fact that the proliferation of debt in so many forms right now it's more government debt but it's also corporate debt it's also private debt right this is a tremendous symptom of the depth of the crisis that we're in which takes the form predominantly of stagnation right the eu is not falling apart it's muddling through iran is not falling apart the regime is muddling through china is not falling apart it's muddling through but the muddling through is something we could be seeing for a long time or it could get worse let me just say that greg jensen of bridgewater pointed out that the current recourse to modern monotherapy tiering is absolutely necessary but it's also dangerous so what does that tell you that a policy that's necessary is dangerous tells you that something is amiss you cannot fix a problem with more debt and the inflation which is the only solution to the debt problem brings with it perverse and unintended consequences in other spheres and so here we are we want to retain the benefits of globalization we want to retain the benefits of the eu we want a u.s china relationship that's functional rather than dysfunctional however you cannot do this without domestic solidarity the problems that we face globalization don't work because domestic solidarity is frayed you cannot be globally integrated when you're domestically fragmented and so that's where the solutions must come they're not going to come from global governance they're only going to come from domestic solidarity and trust which of course is free the number one variable is good governance or its absence we see this time and again the same way when investors do their due diligence and look over an investment opportunity a company or an enterprise they always look at the governance practices and they're always hesitant with when there's no good governance or when there are questions of governance to put their money down so that's where we are let's go to point number two the second point that i wanted to make also a large 30 000 foot view the decisive and unpriceable geopolitical risk as i've been saying like a broken record for many years now is the confrontation between china and the us this confrontation predates the pandemic and it will postdate the pandemic if we're lucky enough to get on the other side of the pandemic and it is a deeply alarming trend that affects all other trends we're going to have two specialist panels coming up on china after i speak so i'm not going to go into depth here i'm just going to make a few points the u.s china clash is not a misunderstanding it is not because we don't listen to each other because we don't like each other it is a fundamental clash of state interests and even deeper than state interests of values the clash is real the clash is permanent and so the issue is not can we get around the clash it's can we manage the differences can we manage the differences in state interests and and values people arguing about they're afraid we're going to enter into a new cold war i have to tell you the new cold war started quite some time ago and it's permanent for the time being and moreover a cold war is better than a hot war a cold war is actually a better solution and can be managed the the differences can be managed the chinese communist regime is a nasty regime it is a deadly combination of supreme arrogance and profound insecurity we've seen it now we've seen it now in action but we're not our problem is not the chinese regime the challenge here is china itself if the chinese communist regime were to implode or be overthrown china would still be there china would still be the colossal geopolitical fact that it is and that we would have to manage because there are differences of state interests and values that have nothing to do with the nature of the regime i should say two more points china's own behavior has been self-defeating it has galvanized a response against itself accelerating divisions of the world accelerating divisions of the world into spheres of influence into allegiances based on technology standards australia japan india eu are all galvanized by china's behavior however the us does not know what to do the u.s is fumbling the us's behavior is also self-defeating we have a debate if you can call it that in the u.s where one side wants to risk going to war and the other side issues ridiculous platitudes about a win-win situation neither one of those is a realistic policy we need instead to understand that china is not going away and that the differences need to be managed first by laying down deterrence again that is to say when certain behavior occurs there's a price and at the same time by also engaging in robust diplomacy so that when there's good behavior or behavior that we prefer there's reward so this is nowhere in sight on the current landscape it's not part of the democratic party establishment i'm sorry to disappoint our friends globally but there is no superior china policy currently in democratic circles compared to the one that we see under the current presidency so to sum this up uh the geopolitical megatrends of stagnation or hitting a brick wall uh are troublesome they don't mean an outbreak of revolution or civil war in all places there's a muddling through however the u.s china relationship is what could blow up and that could blow up all of the megatrends as well as the world why do i say this i say this because the pandemic has taken half a million lives and how depending on how we manage going forward that number could grow exponentially which would be catastrophic world war ii a hot war not a cold war claimed 55 million lives globally several hundred million more were maimed or severely wounded more than a hundred million were homeless and refugees that is not a world we want to live in that's not an event we want to see that is unfortunately the path that we are on right now in the confrontation between the u.s and china and so i conclude now by saying i would like to see us avoid those kind of catastrophes and regain our mojo and dynamism and fix the stagnation with domestic solidarity thank you for your time thank you professor cockin i wish you'd put some thought into your uh presentation this time um that was outstanding uh look i before we uh we've got lots of questions here i'd like to go to one that's come in um earlier uh that relates slightly it's framed this way how do you foresee the crisis in hong kong will play out how will western countries respond do you expect significant financial market turbulence driven by the politics at this financial hub and uh given it's a very senior person um in the machinery politically of hong kong that's asked that question i'm not going to name who it is but i'll leave you with that question please hong kong is another fantastic achievement it's breathtaking what hong kong was able to do over a long period of time on because of itself it managed to be the intermediary between the outside world and china and doesn't get sufficient credit for china's incredible rise we give too much credit to the communist party in beijing and not enough credit to hong kong which of course managed most of the fdi that came from offshore into china moreover hong kong is a model it's a model of freedom and rule of law and so that's also very important but that's the problem for beijing hong kong is an alternative political and legal system just like taiwan and so the communist party strangulation of hong kong is not an idiosyncrasy it's not something personal one ruler or another ruler it is unfortunately a structural feature because the communist party is afraid of what hong kong represents as an alternative political model our goal on the outside should be not to punish hong kong but to punish the chinese communist party for its behavior vis-a-vis in other words we should not remove hong kong's status because that only plays into beijing's game of strangulation we should instead support hong kong and unfortunately so far the policy has not been agile enough visa v hong kong i'm worried for hong kong but it it's things are not over yet the people there have been very courageous and will continue to be so in my view so we want to avoid pushing them to the other side many questions for you here stephen and only 11 minutes to go uh the next question is arrogance and insecurity is how you describe china is the u.s really any different that's from a um they've given their name but i might keep it uh keep it uh confidential but uh chief investment officer of over 100 billion dollar asset owner thoughts no one is more critical of the trends in the united states than i am however the united states has corrective mechanisms we have a legal system we have a judiciary we have elections we have markets we have all sorts of corrective mechanisms and there will be a correction coming up shortly it won't be as deep a correction as outsiders are assuming because there is a powerful trend of nativism in the united states on the right and there is a powerful trend of anti-imperialism on the left which is constricting left and right the u.s behavior in the us ability to engage internationally but the u.s for all its problems for all its misbehavior for all the grief that it causes is not morally politically or legally equivalent with china and u.s can be fixed yeah but that wasn't the question really it wasn't uh questioning this the institutions was questioning whether the terminology insecure and arrogant isn't also applicable to the to the us let's leave that as a rhetoric i admitted that at the beginning of the answer i said that that's i i'm no one's more of a critic of u.s attitudes and behavior than i am so that's that's fundamentally a correct view of how the us has behaved but it's not the only way that the u.s can behave so let's go let's change direction for a moment and hopefully we'll uh come to some solutions uh if there are any at the end uh stephen you've been a big fan of our earlier speaker professor ian golden uh and in fact uh you i know that you like him and respect him and you've commented in the past that you recommend his book butterfly defect do you have some views on what he said this morning in regards to globalization or d globalization it was a great presentation there's no bigger expert so it was it was a fantastic to have him this morning when greg jensen said that modern monetary theory is necessary and dangerous ian golden said something very similar what he said was that he's worried about the politics and the geopolitics but globalization should still go forward because it's beneficial it was a comment very parallel to what greg was saying unfortunately the politics and the geopolitics don't support the policy prescriptions that professor golden was recommending right the lack of domestic solidarity and trust is too much of an impediment right now to deeper global integration and moreover asia is not going to work economically if it doesn't work politically and geopolitically and so that is what he said but the full implications of that i would pull out more potentially his his view is that it should work and my view is that it's not working and i don't see it working on the horizon now going to go to a polling question of our investors now audience globally stephen and change direction slightly again uh slightly mischievous but a very important polling question the question is who do you think not who do you want to win the election in the united states this november we did think of putting in a third option um and multiple choice but we decided to keep it simple as option a donald trump and option b joe biden of course it could be a third uh for all sorts of reasons but let's just go with those two who do you think not who do you want to win the election in the united states and we'll keep that open for a few minutes and see what comes up what's your answer to the question stephen uh we're still four and a half months away and so a lot can happen between now and election day just as a lot has happened in the past few months so i would just caution not to jump to conclusions yet trump campaign has not unloaded the full negative destruction of biden's reputation that's coming we saw what happened to john kerry for example when that happened we saw what happened to hillary clinton when that was unloaded so biden will have to withstand the intense negative barrage fueled by big money if he can withstand that and there are no other big changes that unseat him uh he could potentially win the election but it's too early and there's a pathway to re-election for trump as improbable as that seems so stephen in the last week according to president trump covert 19 actually no longer exists in the united states uh i'm sure that we'll see many different narratives being pushed some real some fake this is a very important election outcome um what do you think will be on the other side of a burden or a trump win and or does it matter not matter the key in the us normally is not solely the white house but it's also the senate the united states political system is organized in such a way that the senate either facilitates or blocks everything that happens appointments to the executive branch appointments to the judiciary legislation from the house it all runs through the senate so for people who are watching uh globally you need to watch not just the trump biden not just the bright shiny object of trump and his outrages every day but of course the races in the senate the democrats have a chance to retake the senate which would give them potentially the control of all three levers of power and therefore could produce an avenue for legislation if the republicans hold the senate there will be gridlock and stasis in many ways not in all policy areas but in some the thing you have to remember about joe biden who's a fundamentally decent person and that's why he's leading in the polls he's what we would call an antidote he is the vaccine for many people he's also disorganized indecisive and no one alive in the u.s has lost the presidency more times than joe biden has and so we need to temper our expectations of what a potential defeat of trump might look like in addition the the galvanizing of the left that trump has achieved trump has achieved a tremendous political mobilization of the opposite effect that will be something biden will have to manage and we'll see during the campaign and if he were to win how he would manage that so i would say that it's very early to be making conclusions certainly positive conclusions although we do see the political vaccine so the uh the polling result by the way from our audience is something around that just dropped out of my screen but it was 47 thought trump will win about uh the balance 53 thought that uh the winner will be biden a couple of quick questions for you stephen uh you are an expert on russia stalin and stalinism uh in your discussion of megatrends you didn't mention putin stalin's successor can you comment on putin's effect on the world particularly his continuing intervention in western elections military interventions in syria ukraine and others and i've got three more questions you've got two and a half minutes well the putin regime has also hit a brick wall it's also flailing it has tremendous domestic problems and troubles his own power is eroding once again this is not about him being overthrown in the near term trends continue until there's an alternative you can't replace something with nothing and so putin could go on for some time but his menace is eroding in terms of his capabilities not in terms of his behavior necessarily but the menace that putin represents does not compare to the challenges that are presented by a u.s china mismanaged relationship we're now going to a china session uh what is the way out for china do you see an endgame here every communist regime that has fallen has given way to a right-wing nativist authoritarian regime that's true for example in russia you just mentioned putin that's true in all the other soviet successor states except for the baltic states you see it in hungary you see version of it in poland you see it in serbia and so china is moving already in that direction inside the communist party monopoly the problem for the chinese communist party is between where it is now and the authoritarian nationalist nativist right-wing regime in the middle is something called gorbachev and that's what they don't want to see they would be maybe happy to go from communist monopoly to remaining in power as a right-wing authoritarian regime but they don't want to go through the gorbachev collapse and dislocation so that's where they hold on i would like to see an evolution inside the communist party regime so that there's a divide between social democrats on the one side and center right or right wing authoritarians on the other so that when we do get beyond the regime at some point there is a political spectrum of pluralism not a right-wing authoritarian nativism only well stephen the dynamism of the society will continue chinese society is breathtaking in its dynamism and entrepreneurialism and there's no stopping that in the long term and so all credit to the chinese for their rise and let us find a way to manage that

Channel: Nathan Watson

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Length: 33min 23sec (2003 seconds)

Published: Fri Jul 17 2020