China is now the world’s biggest exporter and its second biggest economy. Its quasi-communist, state capitalist system is massively distorting global trade. When Donald Trump was elected, he promised to put a stop to these distortions. Unfortunately, his main tactic for doing so seems to involve wading into trade war with everyone. Watching this, as a supporter of free trade, I bristled. “Who is this madman intent on taking us back to the 1930s?” I thought.

In order to make this documentary, I had to look into the issue far more closely. I found that some of my criticisms were valid: Trump has managed to alienate everyone who could be a potential ally and thereby seriously reduced his likelihood of success. On the fundamental issue, however, I had to concede: Trump has a point. China is breaking the rules of global trade and the West has been far too weak about it for far too long.

To explain why this matters and what we should do about it, I spoke to voices on both sides. I heard from supporters of Trump’s approach, such as Florida senator Marco Rubio and Clyde Prestowitz, the former US commerce secretary under Ronald Reagan. I obtained an interview with AMSC, one of the only companies in the world willing to talk openly about how its Chinese business partner’s theft of its technology almost tipped the company into bankruptcy.

But I also spoke to those who shared my instincts for free trade and openness. I interviewed David Willetts, the former UK universities minister now leading a Sino-British investment fund, and a senior manager at Imagination Technologies, an innovative British firm that was saved from being broken up when Chinese investors bought the company.

To hear my conclusions, listen here to “Taking on China: how the West can save free trade”.

https://soundcloud.com/user-350933778/capitalism-on-a-knife-edge

Here are the big observations that I took from the podcast:

• That ‘end of history’ thing? History is still going: It seems a long time ago that a politician like Tony Blair would proudly say that government cannot protect people from the ups and downs of the global trading system but his words – with which the podcast begins – and his call for all people to be prepared to embrace constant change feel like much more than a decade ago.
• Helping capitalism’s casualties: Ruth Davidson readily acknowledges that capitalism has lifted hundreds of millions of people out of poverty in recent decades but for too many people in advanced nations the chances of owning their own home, of being as well off as their parents or enjoying job security all seem to be in retreat (see YouGov’s transatlantic polling for UnHerd). While inequality is down across the planet as a whole it has worsened in many advanced nations and – argues Victoria Bateman – not enough has been done by governments to help the victims of the ‘two Ts’ (trade and technology) to adjust. More investment, she says, should have been made in retraining and in helping people set up new businesses so that they can be part of the change – rather than be the victims of economic change.
• We need more regulation: According to economist Ann Pettifor, the ‘neoliberal’ era taught us that finance capitalism is a terrible master and that it must be tamed by government regulators – or democracy itself will wither.
• We DON’T need more regulation: Niall Ferguson takes a different position. Arguing that Donald Trump campaigned more against globalisation – including outsourcing, immigration and free trade (see Henry Olsen today on Steve Bannon’s message) – than against capitalism as an economic system, he also worries that we might be learning the wrong lessons from the crisis. The banks who caused so much financial destruction ten years ago were actually heavily-regulated and even more regulation – if it’s of a similar nature – could make matters worse – especially if it distorts behaviour and gives false comfort and security to consumers, investors and other counterparties.
• The stagnant wages problem: Paul Mason, author and former broadcaster, also argues for radical change. Claiming that low wages are a feature rather than a bug of global capitalism he recommends stronger union movements and investment in high skill workforces. Pettifor agrees; pointing to inadequate investment as the key reason why wages and productivity are low. When financial institutions can make more money from investing in property and a new factory, they will continue to “buy flats in London”.
• The rigged housing market: There is strong agreement that the property market – especially in Britain is a huge problem – and probably isn’t a ‘market’ at all. Citing a report by the House of Lords, Liam Halligan likens the development industry to a “cartel” which has every incentive to restrain supply in order to maintain high house prices. When fewer and fewer Britons owning their own homes, don’t be surprised – he says – if people without any capital turn away from capital-ism.
• Cronyism among the elites: Liam then goes to the heart of UnHerd’s critique of western capitalism as currently configured. The political class are simply too close to housing developers, bankers and other commercial interests – meaning that we have crony capitalism rather than a free market capitalism that is adequately open to new businesses and innovators. Future historians will be harsh judges of the cosy relations between political and economic powers during this period in British history, he claims.
• Complacency among the elites: Mason says the elites are not only cronyist but “clearly don’t know what they’re doing”. He says change that is as radical as that which characterised the Thatcher years will be necessary – although, disarmingly adds, he’s not sure if such upheaval will deliver but that it has to be tried. He distinguishes between the 5 to 10 year challenges associated with contemporary market failures and the much greater disruptions over the next 30 to 50 years that will be associated with Artificial Intelligence and mass robotics.
• Not just market failure but State failure, too: For Ferguson there’s also a need to fix the State. Noting how literacy, numeracy and even public health (on some measures) are regressing he says the State is no longer doing its key jobs – which, in her conclusion, Juliet Samuel identifies as (i) ensuring vested interests do not become monopolistic and (ii) investing in a highly educated workforce.
• There might not be an alternative but voters are increasingly open to seek one: Simon Wolfson warns that the alternatives to capitalism, including today’s Exhibit A of Venezuela are no solution. But, concludes Juliet, if friends of capitalism do not address flat wages, declining towns (such as Blackpool in North West England which is featured prominently in the podcast) and unaffordable housing, they’ll hand the keys of power to the system’s enemies. It’s “reform or revolution”.

These few bullet points are only a brief summary of the 40 minute recording – do listen when you can for all of the colour, detail and context that Juliet, Sean and their guests provide. And please do subscribe to our podcast on iTunes or through whatever system you use. We go weekly from next month.

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