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The world economy is changing—the people know, but their leaders don’t

A third of total world output now comes from the BRICS countries

Economic CrisisGlobalization

Container vessels at the Yangshan Port, Shanghai, January 2, 2022. Photo courtesy Visual China Group.

The year 2020 marked parity between the total GDP of the Group of Seven (the US plus allies) and the total GDP of the BRICS group (China plus allies). Since then, the BRICS economies grew faster than the G7 economies. Now a third of total world output comes from the BRICS countries while the G7 accounts for below 30 percent.

Beyond the obvious symbolism, this difference entails real political, cultural, and economic consequences. Bringing Ukrainian President Volodymyr Zelensky to Hiroshima to address the G7 recently failed to distract the group’s attention from the huge global issue: what is growing in the world economy versus what is declining.

The evident failure of the economic sanctions war against Russia offers yet more evidence of the relative strength of the BRICS alliance. That alliance now can and does offer nations alternatives to accommodating the demands and pressures of the once-hegemonic G7.

The latter’s efforts to isolate Russia seem to have boomeranged and exposed instead the relative isolation of the G7. Even French President Emmanuel Macron wondered out loud whether Paris might be betting on the wrong horse in that G7-versus-BRICS economic race just under the surface of the Ukraine war.

Perhaps earlier, less-developed precursors of that race influenced failed US land wars in Asia, from Korea through Vietnam to Afghanistan and Iraq.

China increasingly competes openly with the United States and its international lending allies (the International Monetary Fund and the World Bank) in development loans to the Global South.

The G7 attack the Chinese, charging them with replicating the predatory lending for which G7 colonialism was and G7 neocolonialism is justly infamous. The attacks have had little effect given the needs for such borrowing that drive the welcome offered to China’s loan policies.

Time will tell whether shifting economic collaboration from the G7 to China leaves centuries of predatory lending behind. Meanwhile, the political and cultural changes accompanying China’s global economic activities are already evident: for example, African nations’ neutrality toward the Ukraine-Russia war despite G7 pressures.

Dollar at risk

De-dollarization represents yet another dimension of the now-rapid realignments in the world economy. Since 2000, the proportion of central banks’ currency reserves held in US dollars has fallen by half. That decline continues.

Every week brings news of countries cutting trade and investment payments in US dollars in favour of payments in their own currencies or other currencies than the dollar. Saudi Arabia is closing down the petrodollar system that crucially supported the US dollar as the pre-eminent global currency.

Reduced global reliance on the greenback also reduces dollars available to the US government to finance its borrowings. The long-term effects of that, especially as the US government runs immense budget deficits, will likely be significant.

Peace promotion

China recently brokered the rapprochement between enemies Iran and Saudi Arabia. Pretending that such peace-making is insignificant represents purely wishful thinking. China can and will likely continue to make peace, for two key reasons.

First, it has resources (loans, trade deals, investments) to commit to sweeten accommodations between adversaries. Second, China’s stunning growth over the last three decades was accomplished under and by means of a global regime mostly at peace. Wars then were mostly confined to specific, very poor Asian locations. Those wars minimally disrupted the world trade and capital flows that enriched China.

Neoliberal globalization benefited China disproportionally. So China and BRICS countries have replaced the United States as the champions of continuing a broadly defined global regime of free trade and capital movements.

Defusing conflicts, especially in the contentious Middle East, enables China to promote the peaceful world economy in which it prospered. In contrast, the economic nationalism (trade wars, tariff policies, targeted sanctions, etc) pursued by Donald Trump and Joe Biden has struck China as a threat and a danger. In reaction, China has been able to mobilize many other nations to resist and oppose US and G7 policies in various global forums.

Hybrid model

The source of China’s remarkable economic growth, and the key to BRICS countries’ now successful challenge to the G7’s global economic dominance, has been its hybrid economic model.

China broke from the Soviet model by not organizing industry as primarily state-owned-and-operated enterprises. It broke from the US model by not organizing industries as privately owned and operated enterprises. Instead, it organized a hybrid combining both state and private enterprises under the political supervision and ultimate control of the Communist Party of China.

This hybrid macroeconomic structure enabled China’s economic growth to outperform both the USSR and the United States. Both China’s private and state enterprises organize their workplaces—their production systems’ micro-level—into the employer-employee structures exemplified by both Soviet public and US private enterprises. China did not break from those microeconomic structures.

If we define capitalism precisely as that particular microeconomic structure (employer-employee, wage labor, etc.), we can differentiate it from the master-slave or lord-serf microeconomic structures of slave and feudal workplaces. Following that definition, what China constructed is a hybrid state-plus-private capitalism run by a communist party.

It is a rather original and particular class structure designated by the nation’s self-description as “socialism with Chinese characteristics.” That class structure proved its superiority to both the USSR and the G7 in terms of its achieved rates of economic growth and independent technological development. China has become the first systemic and global competitor that the United States has had to face in the last century.

Lenin once referred to the early USSR as a “state capitalism” challenged by the task of making a further transition to post-capitalist socialism. President Xi Jinping could refer to China today as a hybrid state-plus-private capitalism similarly challenged by the task of navigating its way forward to a genuinely post-capitalist socialism.

That would involve and require a transition from the employer-employee workplace structure to the democratic alternative microeconomic structure: a workplace cooperative community or a workers’ self-directed enterprise.

The USSR never made that transition. Two key questions follow for China: can it? And will it?

The United States also faces two key questions. First, how much longer will most US leaders persist in denying its economic and global declines, acting as if the US position had not changed since the 1970s and 1980s? Second, how can such leaders’ behavior be explained when large American majorities acknowledge those declines as ongoing long-term trends?

A Pew Research Center random poll taken among Americans between March 27 and April 2 asked what they expected the situation of the United States to be in 2050 compared with today.

Some 66 percent expect the US economy will be weaker. Seventy-one percent expect the United States will be less important in the world. Seventy-seven percent expect the United States will be more politically divided. Eighty-one percent expect the gap between rich and poor will grow.

The American people clearly sense what their leaders desperately deny. That difference haunts US politics.

Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Studley Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV. His three recent books with Democracy at Work are The Sickness Is the System: When Capitalism Fails to Save Us From Pandemics or Itself, Understanding Socialism, and Understanding Marxism, the latter of which is now available in a newly released 2021 hardcover edition with a new introduction by the author.

This article was produced by Economy for All, a project of the Independent Media Institute.


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