The Strong State - Key To Lasting Economic Growth?

(A) Economic Growth

Economic growth is commonly defined as the increase in the value of goods and services produced in an economy over time. It is typically measured by policymakers and academics as the percentage rate of increase in real GDP[1] and compared across countries using GDP per capita, but not without its limitations. For the purpose of this article and given its multi-dimensional nature, I will evaluate economic growth using GDP as a complimentary indicator alongside other helpful statistics and indices, with particular focus on a country s long-term performance. First, this article will assess whether a strong state, in accordance with the definition below, is a necessary condition for economic growth this will be done by exploring the capabilities of weak states to promote economic growth. Secondly, I will investigate which types of strong states are best suited to stimulate economic growth and which ones obstruct it, all in the context of modern economic history.

(B) What is a strong state?

The notion of a strong state is one academics struggle to agree on. Some have correlated strength with the state s ability to implement policies[2]. Others, in accordance with the Weberian definition of the state, believe a strong state to be one which has high state capacity [3]. This article will follow the latter, with strong states, although distinctive in their characteristics, sharing the ability to effectively collect taxes, legitimately enforce law and order, and provide necessary public goods. This definition excludes those states which only appear strong on account of their despotic power[4], lacking the ability to exercise infrastructural power [5] and cooperate with its citizens.

(C) A Strong State a prerequisite?

Weak governments are hindered by their inability to enforce property rights and laws. As a result, their market interventions are often based on administrative or executive discretion rather than legitimate and systematic procedure. This provokes corruption and opportunism, forcing private firms into the informal sector. Government becomes incapable of providing basic services and maintaining private business activity, unless powerful political figures intervene, providing market access to favourites, which in turn obstructs the discipline of market forces and subverts market competition. Corrupt bureaucrats, undermined by their inability to enforce interventionist rules, collude with powerful private groups to extract domestic resources. With the rule of law at the discretion of a handful of individuals, the state is reduced to a predatory [6] market-wrecker, stalling economic growth.

Marcos s 1972 martial law in the Philippines was destructive. He used his immense power to help cronies establish monopolies, which produced minor economic returns[7]. The Marcos administration relied heavily on international loans to fund projects and by 1982, debt had skyrocketed to $24.4 billion[8]. Marcos compounded the country s stagnating economy by using government-owned financial institutions, like the National Bank, to bail out these firms. Increased interest rates as a result of the 1981 US recession only worsened the country s debt[9] and repelled foreign investment[10]. Marcos s reckless industrial policy saw the worst recession in Philippine history, with the economy contracting by 7.3% in 1984 and 19859. The 1986 Revolution ousted him. A weak state, plagued with illegitimate, oligarchic politics and corruption, is incapable of preventing internal conflict and sustaining economic growth.

Mobutu, President of Zaire[11] from 1965 to 1997, institutionalized corruption to prevent rivals from challenging his control he nationalized foreign-owned firms, deterring foreign investors, and handed their management to allies. Mobuto siphoned off much of the country s wealth for his friends and family, as domestic infrastructure deteriorated and his people starved[12]. His policy of kleptocracy and nepotism saw him overthrown and flee into exile.

During the first three years of Brazil s Lava Jato (Operation Car Wash), an investigation launched in early 2014 to trace corruption from state-owned oil company Petrobas to the highest levels of government, the national unemployment rate almost doubled[13] and GDP growth fell from 0.5% to -3.5% (at its lowest)[14]. Studies indicate the scandal cost the government at least $14 billion in lost tax and dividends from its stake in the company[15], and that it was a very big [16] factor in nearly three years of economic recession and socio-political instability. A weak state, fraudulently neglectful of its duty towards its citizens, impairs its ability to collect taxes and invest in public goods, thwarting long-term economic growth.

Weak states pursue excessive centralization due to their dependency on foreign capital. Following the 1953 Cuban Revolution, Castro steered Cuba towards becoming a full-scope command economy [17], with the state determining resource allocation, production, prices, wages and targets for foreign trade. Response-time to economic transformations became too slow, leading to chronic shortages of goods and services [18], which in turn caused black markets to emerge. In 1970, Castro diverted resources from all industrial sectors to attempt to increase national sugar output to 10 million tons, a target which was not met. This disruption forced Castro to seek foreign subsidies and by 1974, debt to the Soviet un ion was around $5 billion[19]. Furthermore, Castro s strategy of state-set wages and full employment harmed productivity in the public sector, which still accounted for around 80% of total employment by 2001[20]. Such a policy spread the economic costs to the entire population and negatively affected long-term economic growth [21]. Over-centralized weak states, rendered vulnerable by their over-reliance on foreign capital, paralyse production, competition, invention and investment.

North Korea is a centralized command economy still recovering from the collapse of the Soviet Union[22] and reluctant to liberalize[23]. It relies greatly on trade with China[24]. The secretive regime s emphasis on nuclear armament and defence, which is estimated at 30-50% of total expenditure, has overshadowed development (see graph below[25]), food production, living standards and human rights. The state, despite seeming strong, fails to provide necessary public goods and infrastructure, and hence, displays intermittent periods of stagnation and sluggish growth.

Pre-Independence British India appeared a strong state when measured by military capacity and violence, but a weak state when measured by revenues and public expenditure. After Independence in 1947, India s weak fiscal capacity and ability to formulate policies improved drastically. Despite encouraging recent economic indicators[26], severe weaknesses remain in its front-line, with understaffed[27] and under-resourced local governments unable to implement programs effectively. As of 2015, local government expenditure accounted for only 3% of total government expenditure[28]. Pritchett characterized India as a flailing state whose brilliantly formulated policies are disconnected from realities on the ground [29]. India has the lowest per capita GDP of consistently democratic countries over the last half-century (see graph[30] below residualized).

Premature democracy appears to have reduced India s ability to raise revenues[31], undermining the state s ability to finance public goods and redistribute efficiently. It struggles to promote widespread economic growth, exacerbating regional poverty and social inequality[32]. Modi s re-election as Prime Minister in 2019 demonstrates India s desire for a strong, decisive and competent government. Weak states, beset by administrative fragmentation and inferior fiscal capacity, immobilise effective policy implementation and, ultimately, yield conditions inadequate for sustained economic growth.

(D) A Strong State necessary or sufficient?

Saudi Arabia is the largest economy in the Middle East[33]. It has evolved into a totalitarian absolute monarchy, with the King both head of state and government. It owns about 20% of the world s oil reserves and is the largest exporter of petroleum[34]. Saudi Arabia s production is dominated by the fluctuation of oil prices. Recent[35] attacks on state-owned Aramco s two main oil infrastructures saw the country s oil production drop 58%, Saudi stocks fall sharply and the price of crude oil surge[36]. Collapse of oil prices due to the coronavirus pandemic has compelled the kingdom to triple the tax originally imposed in 2018 on most goods and services and cut spending. Citizens are too fearful to protest[37]. Recent strikes in France and Italy dented European growth[38]. Bin Salman s radical measures risk damaging consumption, foreign investment and the private sector, which remains part of the Crown Prince s vision to diversify the economy away from oil. Regional instability, trade wars, institutionalized corruption, poverty, oppression, denial of human rights and an erratic educational system aggravate the kingdom s economy, which only yields short periods of growth[39]. The economy is too heavily dependent on foreign demand, comparable to Germany s emphasis on exports[40], without a developed financial sector and therefore, remains too unstable for sustained economic growth.

Putin s take over in 1999 saw Russia s share of the world s economy recover rapidly from the Soviet Union s collapse. However, the 2008 financial crisis, magnified by the 2014 collapse of oil prices, propelled Russia s economy into stagnation (see graph below) and ruined major economic reform plans[41].

Nevertheless, increasingly effective tax systems[42], competent regulation of the banking sector, declining inflation[43], enormous reductions in external debt[44]and state budget surpluses, seem to have made Russia more resilient to new slumps or sanctions. But these gains in stability have cost the state private consumption and economic growth, with the country experiencing positive net private capital outflow since 2008[45]. Russia has shifted to modest risks, low inflation but lower growth as well [46]. Lack of foreign investment due to a stagnating economy, increased nationalism, international strife, western sanctions and an absence of corporate transparency (and corruption) appear to be obstructing the state s responsibility to increase expenditure, diversify trade and liberalize its economy. Required reforms would likely challenge Putin s authoritarian control and the country struggles, notwithstanding Covid-19, to maintain economic growth above a feeble 1%[47].

The USA has had the highest growth rates in real GDP among the G7 countries since 2018[48]. Its unemployment rate has declined for over a decade, from around 10% in October 2009 to 3.5% in March 2020[49]. Prior to the pandemic, the US economy saw its longest period of growth on record a slow and controlled expansion since 2009. The Great Depression[50] and Great Recession[51] in the USA were in part the result of a lack of state regulation. Focused, effectual fiscal and monetary policies have allowed firms to recover, with slow-rising wages, reduced commodity prices and the Federal Reserve s low interest rates keeping costs low and maximising profits. Its foreign trade policy[52], including tariff war with China[53], risks impairing productivity, employment and investment. USA s advanced infrastructure, efficient tax regime, developed education system and competitive culture enhance growth, despite weaknesses in its health system and protection of human rights. A strong state, with restraints on its power and a developed system of public accountability, is capable of maintaining high fiscal expenditure and boosting private investment.

Since opening up to foreign trade and investment, and implementing free-market reforms in 1979, China has been amongst the fastest-growing economies, with real annual GDP growth averaging 9.5% through 2018 the fastest sustained expansion by a major economy in history [54]. China has become the world s largest economy (by PPP), manufacturer, merchandise trader and holder of foreign-exchange reserves. As China s economy has matured, its real GDP growth has slowed significantly, from 14.2% in 2007 to 6.6% in 2018, and that growth is projected by the IMF, despite the pandemic, to fall to 5.5% by 2024. China is undergoing a major restructuring of its economic model, seeking to promote more sustainable (and less costly[55]) growth through increased private consumption and innovation (Made in China 2025). Its unprecedented growth has been accredited to successful state manipulation of the economy and pro-market policies[56]. China has demonstrated the vitality of free-market liberalism [57], but it must effectively implement economic reforms if it is to overcome the middle-income trap, which means further loosening its grip of the economy and, perhaps more problematically, becoming more democratic. Otherwise, China s strong state risks becoming more of an obstacle than a facilitator of sustained economic growth.

(E) Conclusion

The successful economies of East Asia[58] have encouraged growth by encouraging cooperation between businesses and government, wealth-sharing schemes and providing a competent bureaucracy committed to long-term, growth-enhancing policies. The Nordic model s welfare states, encouraging high public spending, labour unions, low corruption, free trade, collective risk sharing, strong law enforcement and tax-funded public services, have seen reductions in poverty, increased happiness and longer periods of sustained economic growth. Israel has experienced consistent growth by investing in technological development and attracting foreign capital through trade. Weak states often falter because, in their effort to establish competitive markets, narrow interest groups obtain control over the market, over the judiciary and ultimately, over the polity [59]. A strong state is necessary but not sufficient strong and limited states are best suited to channel long-term economic growth, dependant on the existence of institutions that create incentives for political officials to abide by limits on their power and preserve the system. Good governance, therefore, becomes vital the state must effectively adapt to economic transition, even if it requires greater mechanisms of accountability or democratization. Strong states, which incorporate pro-growth institutions and implement pro-market policies as part of its wider national outlook, are fundamental to stimulate lasting economic growth.

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Footnotes:[1] Usually inflated-adjusted terms national income accounting is used.

[2] Davidheiser (1992) Strong States, Weak States: The Role of the State in Revolution Comparative Politics Vol. 24 (4), pp. 463-475 recognises three criteria for a strong state: how deeply the state penetrates into society, the breadth of that penetration and state autonomy ( penetration of the state by society ) Davidheiser emphasises that this involves evaluating the state s ability to implement policies which transform society.

[3] Johnson and Koyama (2017) Explorations in Economic History States and Economic Growth: Capacity and Constraints. High state capacity relies on strong states having both high legal capacity (an effective ability to enforce law and order across the entirety of its territory) and fiscal capacity (an effective ability to collect tax revenues) in order to implement its policies effectively). The origin of state capacity as a notion is often associated with Tilly (1975), Evans (1985) et al, following their work on state building and economic development.

[4] Often sternly supressing journalists, opposition politicians and rival ethnic groups.

[5] Mann (1984) The autonomous power of the state: its origins, mechanisms and results European Journal of Sociology Vol. 25 (2) distinguishes between despotic and infrastructural to identify the two different ways in which the state acquires and uses centralized power, with the former representing power over society and the latter power through society infrastructural power involves a cooperative relationship between citizen and government , while despotic power only demands the will of an elite class.

[6] Root (2001) Do Strong Governments Produce Strong Economies? The Independent Review Vol. 5 (4), p. 567.

[7] Marcos favoured firms as a result of their loyalty, as opposed to any proven business acumen, enabling them to control entire industries, permitted by presidential decrees and letters of instruction. Manapat (1991) Some are smarter than others: the history of Marcos` crony capitalism (New York Aletheia Publications)

[8] Guido de los Reyes (2017) The best of times? Data debunk Macros economic golden years (ABS-CBN News and Public Affairs)

[9] National debt in the Philippines rose by more than 200% of exports between 1978 and 1991. More than half the value of the country s exports in this period went to debt servicing, rather than imports, slowing domestic markets and the national flow of income.

[10] Particularly companies from Japan, Taiwan and Hong Kong.

[11] Now the Democratic Republic of the Congo

[12] GDP per capita fell from US $1100 in 1969 to $350 in 1998 (https://tradingeconomics.com/congo/gdp-per-capita), just after Mobutu had fled into exile. He died shortly after in Morocco in September 1997.

[13] From 6.66% to 12.82% Unemployment, total (% of total labour force) Brazil: International Labour Organization, ILOSTAT database.

[14] GDP growth (annual %) Brazil: World Bank national accounts data, and OECD National Accounts data files 0.5% in 2014, -3.5% in 2015 and -3.28% in 2016.

[15] Davey (2018) Enough to educate 17 million children: the true cost of Brazil s Car Wash scandal (New Statesman article dated 23rd March 2018)

[16] Cavalcanti, Brazilian economist at the University of Cambridge ibid.

[17] P rez-L pez (2003) from Gonzalez McCarthy (2004) CUBA AFTER CASTRO The Institutional Legacy of a Centralized Economy Ch. 6, p. 84.

[18] Gonzalez McCarthy (2004) CUBA AFTER CASTRO The Institutional Legacy of a Centralized Economy Ch. 6, p. 84.

[19] Tsokhas (1980) The Political Economy of Cuban Dependence on the Soviet Union (Theory and Society 9, 319-362). Cuba also heavily relied on subsidies from Venezuela, another victim of excessive centralization. Early 2014, however, saw Venezuela slip into recession and Industrial Production in Cuba suffered, shrinking by 16.9% from 2013 (statistic found at https://tradingeconomics.com/cuba/industrial-production)

[20] Oficina Nacional de Estad sticas [ONE], 2001.

[21] P rez-L pez (2004) The Legacies of Socialism: Some Implications for the Cuban Transition (Appendix D in Gonzalez McCarthy 2004)

[22] The collapse of the Eastern Bloc during the cold war forced the North Korean economy to adjust its foreign economic relations. The new Russian government under Yeltsin, following the dissolution of the USSR, refused to offer support to North Korea, favouring South Korea instead. It was not until 1996 that the two countries met and agreed to restore bilateral trade and economic cooperation.

[23] As a consequence of the government`s policy of pursuing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world. Its industrial development and fragmented state structure impede its international competitiveness. Domestic firms are shielded from international and domestic competition and its trade is limited mainly to China, Russia and India.

[24] Mainly Petroleum and machinery more than 90% of North Korea s total imports come from China (CIA s World Factbook), who also provide aid and support.

[25] This graph includes a comparison with South Korea to demonstrate the inferiority of North Korea s state in stimulating widespread economic growth and failure to provide necessary goods services for its population, despite being two separate countries in near-identical geographical locations North Korea s sluggish GDP per capita growth demonstrates a clear deficiency in the state s economic policy and management. Series are adjusted for price differences between countries using multiple benchmark years and are therefore suitable for cross-country comparisons of income levels at different points in time. Lack of Data for North Korea accounts for missing values for 2016-2019. Graph data source: Maddison Project Database (2018). Graph constructed on Our World in Data website.

[26] Although India is touted as one of the fastest-growing economies in the world (expanding above 3% since 1991: 8.5% in 2010 and 8.2% in 2016 World Bank), growth has slowed substantially (even when studied in the context of the 2020 Coronavirus pandemic), as a result of declining private investment, credit growth and demand, as well as continuingly high levels of corruption and socio-political instability. Lamba Subramanian (2020) Dynamism with Incommensurate Development: The Distinctive Indian Model Journal of Economic Perspectives Vol. 34 (1), pp.3-30 suggests India s economic growth is deteriorating.

[27] In India, from 1980 to 2012, central government employment declined from 21.1% to 14.3%, local governments from 13.8% to 12.0% and subnational government increased from 36.3% to 40.8%. In India, local government employees as a % of total employment is five times lower than in the USA and China figures from Ren (2015).

[28] Compared with 27% in the USA and 51% in China Ren (2015) City Power and Urban Fiscal Crises: The USA, China, and India International Journal of Urban Sciences Vol. 19 (1), pp. 73-81.

[29] Pritchett (2009) A Review of Edward Luce s In Spite of the Gods: The Strange Rise of Modern India Journal of Economic Literature Vol. 47 (3), pp. 771-780.

[30] Kapur (2020) Why Does the Indian State Both Fail and Succeed? The Journal of Economic Perspectives Vol. 34 (1), pp. 31-54 represents the relationship between the ratio of the number of taxpayers to the population in a country and the log of per capita GDP, in a graph labelled Figure 1A. In a graph labelled Figure 1B (which can be found in this article s main body), Kapur displays the same relationship as 1A but controlling the level of democracy as measured by the average Polity IV score , using the Frisch-Waugh theorem to plot the residualized values (distance between data point and line of best-fit ). [The source of this graph s data is cited as the Centre for Tax Policy and Administration (2011) Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2010)]

[31] According to the Economic Survey of India (2016-2017), there are 7 taxpayers for every 1000 voters. India enormous population, which was 1.35 billion in 2018 (World Bank), poses even more of a challenge when it comes to large-scale implementation of economic policy.

[32] On the 2019 Global Hunger Index, India ranked 102nd (out of 117 countries).Credit Suisse s Global Wealth Databook for 2014 reports that the richest 20% of Indian society owned 96.4% of national wealth, while the richest 10% owned 77%. According to the World Bank, in 2013, with 17.5% of the world s population, India had a 20.6% share of the world s poorest.

[33] GDP (current US$) World Bank (retrieved 9th Sept 2019)

[34] The OPEC (Organization of the Petroleum Exporting Countries) website ,OPEC.org, states Saudi Arabia owned 18% of world s oil reserves in 2018. Saudi Arabia plays a leading role in OPEC, whose mission it is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.

[35] September 14th, 2019.

[36] Saudi Arabian officials stated that the attacks forced the shutdown of facilities, cutting the country s oil production from 9.8 to 4.1 million barrels a day (-5.7 million ~ 58%). The Saudi stock market`s benchmark index, the Tadawul All Share Index (TASI) was down 1.3% in early trading hours the following day (15th Sept 2019) and the energy index down 3.35%. (https://english.alarabiya.net/en/business/markets/2019/09/15/Saudi-stocks-fall-sharply-after-oil-facility-attacks.html)

[37] The American Revolution followed the rallying cry No taxation without representation and the French Revolution was partly incited by a regressive tax system which caused fierce resentment of the aristocracy.

[38] France and Italy s GDP Growth rates have not significantly surpassed 1% since 2000, in part due to internal instability, and the outbreak of widespread protests saw them both drop below 0%. The European Union s GDP Growth rate felt the impact, even before Covid-19, contracting 0.5% during 2019 alone (Q1 to Q4 OECD Database).

[39] Annual change in GDP growth (%) from 2001 to 2017 : -6.84% in 2001, -1.61% in 2002, +14.06% in 2003, -3.28% in 2004, -2.38% in 2005. -2.79% in 2006, -0.94% in 2007, +4.40% in 2008, -8.3% in 2009, +7.10% in 2010, +4.96% in 2011, -4.59% in 2012, -2.71% in 2013, +0.95% in 2014, +0.45% in 2015, -2.44% in 2016 -2.41% in 2017 (World Bank).

[40] Germany s economy is far from being at the mercy of unpredictable global forces but its heavily trade-orientated focus is clear from its domestic policy over the last 15 years. Economic slumps, instigated by uncontrollable events such as the coronavirus pandemic, highly influence its export levels, which accounted for 47% of its GDP in 2019 (World Bank OECD). The German economy grew at 0.6% in 2019, according to Destatis, the country s federal statistics office. This represents its slowest expansion since 2013.

[41] The 2000 Gref plan (Programme for the Socio-Economic Development of the Russian Federation for the Period 2000-2010) was abandoned only 30% through completion following the 2008 global financial crisis. For the same reason, the 2007 Concept of Long-term Socioeconomic Development of the Russian Federation was never implemented. The 2012 May Decrees did little to reverse Russia s unproductive economy Aris Tkachev (2019) Long Read: 20 Years of Russia s Economy Under Putin, in Numbers (bne IntelliNews, Aug 19th).

[42] In 2019, tax revenue accounted for around a third of government revenue and has some years even surpassed oil and gas revenues (World Bank). In July 2019, Mikhail Mishustin, Head of Russia s Federal Tax Service (now Prime Minister), boasted the future of tax administration digital, real-time and with no tax returns . Putin announced in June 2020 that, as of 2021, Russians earning more than 5 million rubles a year will pay 15% tax on all income above that level.

[43] The annual inflation rate in Russia decreased from around 17% in 2015 to 5.7% in 2019. At the beginning of 2020, it was under 2.5% (https://tradingeconomics.com/russia/inflation-cpi)

[44] Russia s federal external debt fell from 1243% of international reserves in 2000 to 8.9% in 2019. Russia s international reserves have exceeded the federal and central government foreign debt since 2005. Reducing debt has been a core part of Putin s financial policy, with one of the first things he did as president being the repayment of IMF s 90s loans Aris Tkachev (2019) ibid.

[45] Aris Tkachev (2019) ibid.

[46] Vladimir Osakovskiy, Chief economist for Russia at Bank of America: Kramer (2020) Pessimistic Outlook in Russia Slows Investment, and the Economy (The New York Times, Feb 18th)

[47] Russia has struggled since 2013 to maintain its annual GDP growth rate above 2%, since dropping as low as -2.3% in 2015 (World Bank). Equally, Russia s business confidence index has not surpassed 0, remaining negative since early-2013.

[48] Real GDP growth (Annual % change) IMF DataMapper, World Economic Outlook (April 2020)

[49] International Labour Organization, ILOSTAT database (retrieved June 21, 2020 World Bank)

[50] The regulatory state under Coolidge was almost non-existent and thin to the point of invisibility (Ferrell 1998 The presidency of Calvin Coolidge). During his presidency, the USA experienced rapid economic growth ( Roaring Twenties ). Coolidge lowered tax rates and proposed reductions in federal expenditures and retiring of the federal debt. The 1929 Wall Street Crash followed five years of significant credit expansion by the Federal Reserve under Coolidge s Administration. Coolidge s laissez faire approach and deregulation policies were initially highly successful but ultimately, exposed stock markets and banks to eventual collapse. The Fed failed multiple times to stabilize the economy, selling government securities and increasing rates. Confidence hit the floor, with the stock market plunging on Black Thursday (October 24th, 1929), as masses rushed to banks to withdraw their money. Thousands of banks failed as a result. Hoover s Smoot-Hawley Tariff (Tariff Act of 1930), aimed at protecting U.S industry from foreign competitors, saw imports and exports decrease by over 60% in three years unemployment more than tripled in the same time (United States Census Bureau, Historical Statistics series F-1). The Revenue Act of 1932 raised tax rates across the board and had similarly destructive impacts. F.D Roosevelt s New Deal highlighted the need for increased state regulation in the economy.

[51] Deregulation in the financial sector was a major cause of the 2008 financial crash. It allowed speculation on derivatives backed by cheap, recklessly issued mortgages, even available to those with insufficient credit ratings. Rising property values and easy mortgages attracted many to take out home loans. This created the housing market bubble. When the Fed raised interest rates in 2004, the consequential increased mortgage payments squeezed home borrowers abilities to pay. This burst the bubble in 2007. Since home loans were closely tied to hedge funds, derivatives, and credit default swaps, the resounding crash in the housing industry saw the U.S. financial industry plunge drastically. This risked severely damaging financial sectors across the globe. To prevent this, the U.S. government was forced to implement enormous bail-out programs for financial institutions, previously deemed unsinkable. President Obama blamed deregulation for causing the 2008 financial crisis The White House, Remarks by the President on the Economy Cleveland, OH (https://obamawhitehouse.archives.gov/the-press-office/2012/06/14/remarks-president-economy-cleveland-oh): Without strong enough regulations, families were enticed, and sometimes tricked, into buying homes they couldn t afford. Banks and investors were allowed to package and sell risky mortgages. Huge, reckless bets were made with other people s money on the line. And too many from Wall Street to Washington simply looked the other way.

[52] President Trump has noticeably detached himself from the liberal trade policy of his predecessors: withdrawing the USA from the Trans-Pacific Partnership (TPP) in January 2017, renegotiating trade agreements with South Korea (KORUS) in September 2018 and with Mexico Canada in January 2020 (NAFTA now USMCA), blocking the appointment of members to the Appellate Body of the World Trade Organisation in December 2019 and imposing tariffs on steel and aluminium imports in March 2018.

[53] The US-China Trade War has had a hugely negative impact on US exports, with goods decreasing by $1.8 billion from August to September 2019. According to the United National COMTRADE database, US exports to China decreased from $130 billion during 2017 to $106 billion in 2019 and US imports from China from $565 billion during 2018 to $470 billion in 2019. This has severely affected US businesses, incurring increased costs both to companies and consumers (as indicated by the Consumer Price Index). US companies with supply chains heavily based in China are experiencing serious complications with production. The United Sates stock market has also become more volatile since the feud began, according to Investopedia. Despite both countries signing an agreement aimed at easing the trade war in January 2020, uncertainty still looms with Trump declaring on July 10th that the USA s relationship with China has been severely damaged by the coronavirus pandemic and that a trade deal might be dead.

[54] World Bank Group China Home (www.worldbank.org)

[55] China s past policies have produced rapid economic growth and it has acquired huge global economic influence as a result. However, its enormous expansion has incurred a number of costs, such as widening income inequality, rising corporate debt, increased unemployment, an inefficient financial system, heavy pollution, power shortages and the emergence of a vulnerable property bubble. In addition, corruption intrudes at all levels of government.

[56] The government s massive public spending, command over major companies (such as over The Big Three energy companies PetroChina, Sinopec CNOOC or over tech-giants Huawei, Lenovo Xiaomi), control of the yuan exchange rate (through The People s Bank of China) and regulation of foreign businesses have generated unparalleled improvement in the Chinese economy, with the state able to direct different sectors towards pro-growth outcomes.

[57] Ning (2018) Is China s growth model a threat to free-market economics? (The Economist, June 13th, 2018)

[58] The Four Asian Tigers (Hong Kong, Singapore, South Korea Taiwan) underwent rapid industrialization between the 1960s and 1990s, maintaining extraordinarily high growth rates. By the early 21st ury, they had developed into high-income economies, with Hong Kong Singapore emerging as international financial centres, and South Korea Taiwan as leaders in manufacturing electronics. The Asian Miracle has in part been attributed to strong, development-oriented state management and industrial policy. Despite economic stagnation after its 1991 asset price bubble collapse (Lost Decade) and current challenges posed by an ageing population, Japan witnessed a remarkable period of economic growth from the 1960s to the 1980s. Japan has since become the third-largest economy in the world by nominal GDP and the fourth-largest by PPP. Japan is a member of the G7 and boasts the world s largest electronics goods industry, as well as the third-largest automobile manufacturing industry. As of 2019, 52 of the Fortune Global 500 companies were based in Japan and 16 of them in South Korea.

[59] Root (2001) ibid.