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Moneycontrol Pro Weekender | The time of monsters 

The world is in a state of great churn. As big powers retreat, new leaders step in to make their presence felt

November 19, 2022 / 11:07 AM IST
Representative image

Representative image

Dear Reader,

Hopes of another pivot, this time a geopolitical one, were fanned this week by a friendlier-than-expected Xi-Biden meet. Xi’s subsequent parleys with several US allies at Bali led to talk of the Chinese president pivoting to the West, apparently after realising the folly of supporting Putin. China’s easing of some COVID curbs, a renewed effort to prop up the tottering real estate sector and hints of monetary easing led to a burst of optimism in the Hong Kong market for a while.

But as we pointed out, both Biden and Xi’s stepping back from the brink is purely a tactical move. China’s long-term challenge to US hegemony remains while the US is equally determined to nip that challenge in the bud. Its crippling export controls on semiconductors are proof enough. The days of a flat world of free markets are over. Geopolitics now dominates economics -- that was the clear message from the G20 meet.

Such periods when there are challenges to the global hegemon are fraught with danger. As the philosopher Antonio Gramsci said, “The old world is dying and the new world struggles to be born. Now is the time of monsters.”

This is not the first time that a global power is in decline and being challenged by a new one. Giovanni Arrighi, who was a professor of sociology at Johns Hopkins University, said that since the birth of capitalism in the Italian city-states in the 15th century, there have been four such hegemonic powers. He identified these centres of capitalism as the city-state of Genoa, Holland, Britain and the US. It’s all there in his book, ‘The Long Twentieth Century: Money, Power and the Origins of Our Times’.

Genoa won the wars among the Italian city-states and made a deal with Spain, whereby the former managed the trade and the latter handled the territorial conquests. Genoa was not a territorial power, but Arrighi defines hegemony as the domination of global capital flows. It was the Genoese Bank of St George that funded Christopher Columbus’s voyages that eventually opened the Atlantic to trade.

Genoese domination lasted from the late 15th to the late 16th centuries and was followed by the rise of Holland, whose dominance in global capital accumulation lasted from the late 16thth century to the 18th century. The Dutch in turn were toppled by the British, whose career as the world’s hegemon lasted from the 19th century to the Second World War. Since then, the US, of course, has been the premier global power.

To be sure, this view of global power is very Eurocentric, but perhaps Arrighi’s main interest was in chronicling the development of capitalism and how it came to be a global force.

As capital accumulation went on in the hegemon, trade and production expanded. But there came a time when competition led to lower profits from these activities and the hegemon turned to finance and speculation as a way out. Arrighi said that in each of the leading powers, material expansion was succeeded by financial expansion. This happened in the 16th century in Genoa, in the 18th century among the Dutch, in the late 19th century in Britain, and in the 1980s in the US, when capital controls were abandoned and financialisation of the economy took off. But financialisation, he said, was a sign of decline, a signal that an economy had passed the peak of its powers. It is, as the French historian Fernand Braudel said, “a sign of autumn". Ironically, very often it is the old power that finances the rise of the new one—the Genoese merchants financed Holland, Holland financed the British and the US has helped the rise of China.

In an interview with the geographer David Harvey, Arrighi said, “The basic hypothesis is that all these financial expansions were fundamentally unsustainable, because they were drawing into speculation more capital than could actually be managed — in other words, there was a tendency for these financial expansions to develop bubbles of various kinds. I foresaw that this financial expansion would eventually lead to a terminal crisis, because bubbles are as unsustainable today as they have been in the past.” The relevance to current financial conditions is obvious.

It's also impossible to foretell which new power will take the crown. For instance, it was Germany that challenged Britain for global leadership, but the crown went to the US after the World Wars. Similarly, when Britain took over global leadership it had to fight another challenger—France, in the Napoleonic Wars. What is clear, however, is that the transition from one hegemon to the other is a protracted struggle and usually far from peaceful.

Is there a way out? Now that capitalism has expanded throughout the globe, could things be different? In his book ‘Chaos and Governance in the Modern World System’, co-authored with Beverly Silver, Arrighi wrote, “If the system eventually breaks down, it will be primarily because of US resistance to adjustment and accommodation. And conversely, US adjustment and accommodation to the rising economic power of the East Asian region is an essential condition for a non-catastrophic transition to a new world order.”

At Bali, President Joe Biden did talk about managing differences with China to prevent conflict. That is the way forward. But the US has to recognise, as we pointed out, that global geopolitical outcomes are now dictated by Asia, not the G7.

Thankfully, in the midst of all this gloom, there is one aspect of globalisation that continues to be strong -- the globalisation of sport. The football World Cup, the biggest sporting event in the world, kicks off on Sunday. Statista tells us the average live TV audience for the 64 matches at the 2018 World Cup was 191 million, while the France-Croatia final drew a TV audience of 517 million. It gives a 15.8 percent chance for Brazil to win the Cup, with Argentina following with 12.6 percent. Do check out the betting odds on your favourite teams.

Happy Watching, 

Cheers,

Manas Chakravarty

 

Here are the stories and insights we had this week:

Stocks 

Will LIC’s stock price recover as the insurance behemoth gains market share?

Delhivery; Bharat Forge; Ruchira Papers; Lemon Tree Hotels; Weekly tactical pick; Minda Corp; Hindalco; Apollo Hospitals; Dhanuka Agritech; Royal Orchid Hotels; FMCG—recovery in gross margins under way; Indian Hotels; PidiliteIPCA Labs; Amber Enterprises; IRCTC; Uflex; Vesuvius India; Concor; Berger Paints; Info Edge; Page Industries; Repco Home Finance; Zomato; Muthoot Finance; Ashok Leyland; M&M; Power Grid

 

Markets 

Will robust equity markets fire up appetite for IPOs again?

Why markets may rally further

What the inflation trend means for markets and investors

Buybacks to get a leg-up from SEBI proposals

This one simple habit can improve your trading returns

A pivot towards Chinese equities comes at India’s expense

US mid-term election results and the markets

Bond markets are back

Financial Times 

Bitcoin: an unregulated market is a good place for price support wheezes

FTX: Crypto cloud flashes three silver linings

Central banks are right to act decisively

Investors’ incrementalism lays them open to ambush

Central banks to shift away from ‘jumbo’ rate rises

Policy 

India can seize its demographic dividend only if we build skills

RBI report highlights the glaring gaps in municipal financing in India

Rewiring power transmission

Recommending governance changes in shadow of NSE scam

Why pricing of off-patent drugs doesn’t solve the problem

Companies and Industry 

Capital goods firms in comfort zone on domestic capex revival

Indian IT’s inability to move up the value chain is a drag in tough times

What can help Mrs Bectors reduce its valuation gap with Britannia

Nykaa’s bonus issue leaves a bad taste

Q2 results show Indian healthcare sector firmly on the recovery path

Banking and finance 

Riding the credit boom won’t be easy for PSU banks

Economy 

Economic Recovery Tracker

Merchandise exports plunge in October as global slowdown bites

The fall in retail inflation in October is entirely due to the base effect

Unlike the rest of the world, unemployment fell in India during the pandemic

Are the IIP numbers correct?

Others 

Start-up Street: How startups can battle against large incumbents

Marketing Musings: The Right to Win

Personal Finance: what running a marathon and investment have in common

What the FTX meltdown is telling us

US mid-terms: a shot in the arm for Biden

 
Manas Chakravarty
first published: Nov 19, 2022 11:07 am