Daily Archives: June 4, 2020

The Coming Post-COVID Anarchy

The Pandemic Bodes Ill for Both American and Chinese Power—and for the Global Order
By Kevin Rudd – In January and February of this year, there was audible popping of champagne corks in certain quarters of the U.S. foreign policy establishment. What some observers had long seen as this era’s giant geopolitical bubble had finally begun to deflate. China’s Communist Party leadership, the thinking went, was at last coming apart, a result of its obsession with official secrecy, its initial missteps in responding to the novel coronavirus outbreak, and the unfolding economic carnage across the country.

Then, as China began to recover and the virus migrated to the West in March and April, irrational jubilation turned to irrational despair. The commentariat greeted with outrage any possibility that the pandemic might in fact help China emerge triumphant in the ongoing geopolitical contest with the United States. This concern was a product of China’s seemingly cunning remolding of the narrative on the origins of the virus, the brutal efficiency of the Chinese authoritarian model in containing it, and Beijing’s global COVID-aid campaign. China’s own nationalist commentariat happily piled on, delighting in the United States’ distress and noting the supposed contrast between Chinese largesse and American indifference: the “people’s war” against COVID-19 had been won, and the virtues of China’s political model had been vindicated.

Yet despite the best efforts of ideological warriors in Beijing and Washington, the uncomfortable truth is that China and the United States are both likely to emerge from this crisis significantly diminished. Neither a new Pax Sinica nor a renewed Pax Americana will rise from the ruins. Rather, both powers will be weakened, at home and abroad. And the result will be a continued slow but steady drift toward international anarchy across everything from international security to trade to pandemic management. With nobody directing traffic, various forms of rampant nationalism are taking the place of order and cooperation. The chaotic nature of national and global responses to the pandemic thus stands as a warning of what could come on an even broader scale.

As with other historical inflection points, three factors will shape the future of the global order: changes in the relative military and economic strength of the great powers, how those changes are perceived around the world, and what strategies the great powers deploy. Based on all three factors, China and the United States have reason to worry about their global influence in the post-pandemic world.

Contrary to the common trope, China’s national power has taken a hit from this crisis on multiple levels. The outbreak has opened up significant political dissension within the Chinese Communist Party, even prompting thinly veiled criticism of President Xi Jinping’s highly centralized leadership style. This has been reflected in a number of semiofficial commentaries that have mysteriously found their way into the public domain during April. Xi’s draconian lockdown of half the country for months to suppress the virus has been widely hailed, but he has not emerged unscathed. Internal debate rages on the precise number of the dead and the infected, on the risks of second-wave effects as the country slowly reopens, and on the future direction of economic and foreign policy.

The economic damage has been massive. Despite China’s published return-to-work rates, no amount of domestic stimulus in the second half of 2020 will make up for the loss in economic activity in the first and second quarters. Drastic economic retrenchment among China’s principal trading partners will further impede economic recovery plans, given that pre-crisis, the traded sector of the economy represented 38 percent of GDP. Overall, 2020 growth is likely to be around zero—the worst performance since the Cultural Revolution five decades ago. China’s debt-to-GDP ratio already stands at around 310 percent, acting as a drag on other Chinese spending priorities, including education, technology, defense, and foreign aid. And all of this comes on the eve of the party’s centenary celebrations in 2021, by which point the leadership had committed to double China’s GDP over a decade. The pandemic now makes that impossible.

As for the United States’ power, the Trump administration’s chaotic management has left an indelible impression around the world of a country incapable of handling its own crises, let alone anybody else’s. More important, the United States seems set to emerge from this period as a more divided polity rather than a more united one, as would normally be the case following a national crisis of this magnitude; this continued fracturing of the American political establishment adds a further constraint on U.S. global leadership.

Meanwhile, conservative estimates see the U.S. economy shrinking by between six and 14 percent in 2020, the largest single contraction since the demobilization at the end of World War II. Washington’s fiscal interventions meant to arrest the slide already amount to ten percent of GDP, pushing the United States’ ratio of public debt to GDP toward 100 percent—near the wartime record of 106 percent. The U.S. dollar’s global reserve currency status enables the government to continue selling U.S. treasuries to fund the deficit. Nonetheless, large-scale debt sooner or later will constrain post-recovery spending, including on the military. And there’s also risk that the current economic crisis will metastasize into a broader financial crisis, although the Federal Reserve, other G-20 central banks, and the International Monetary Fund have so far managed to mitigate that risk.

Chinese leaders have a simple Leninist view of the United States’ power. It rests on two fundamentals: the U.S. military and the U.S. dollar (including the depth and liquidity of the U.S. financial markets that underpin it). Everything else is detail.

All states are mindful of what Leninists call “objective power” and the willingness of the great powers to deploy it. But the perception of power is equally important. China is now working overtime to repair the enormous damage to its global standing that resulted from the geographical origin of the virus and Beijing’s failure to contain the epidemic in the critical early months. Whatever China’s new generation of “wolf-warrior” diplomats may report back to Beijing, the reality is that China’s standing has taken a huge hit (the irony is that these wolf-warriors are adding to this damage, not ameliorating it). Anti-Chinese reaction over the spread of the virus, often racially charged, has been seen in countries as disparate as India, Indonesia, and Iran. Chinese soft power runs the risk of being shredded.

For different reasons, the United States does not come out of the crisis much better. The world has watched in horror as an American president acts not as the leader of the free world but as a quack apothecary recommending unproven “treatments.” It has seen what “America First” means in practice: don’t look to the United States for help in a genuine global crisis, because it can’t even look after itself. Once there was the United States of the Berlin airlift. Now there is the image of the USS Theodore Roosevelt crippled by the virus, reports of the administration trying to take exclusive control of a vaccine being developed in Germany, and federal intervention to stop the commercial sale of personal protective equipment to Canada. The world has been turned on its head.

The crisis also appears to have shredded much of what was left of the U.S.-Chinese relationship. In Washington, any return to a pre-2017 world of “strategic engagement” with Beijing is no longer politically tenable. A second Trump term will mean greater decoupling and possibly attempted containment, driven by Trump’s base and widespread national anger over the origins of the virus, although this strategy will be rendered incoherent at times by the president’s personal interventions. In a Biden administration, strategic competition (and decoupling in some areas) will continue, likely to be executed on a more systematic basis and leaving some scope for cooperation in defined areas, such as climate, pandemics, and global financial stability. On balance, Beijing would prefer Trump’s reelection over the alternative, because it sees value in his tendency to fracture traditional alliances, to withdraw from multilateral leadership, and episodically to derail the United States’ China strategy. Either way, the U.S. relationship with Beijing will become more confrontational.

In Beijing, China’s response to the United States’ ever-hardening posture is now under intense review. This process began in 2018, during the first full year of the U.S.-Chinese trade war. It has now been intensified, because of the pandemic and its international consequences. The review is part of a broader internal debate in Beijing about whether China’s national strategy, at this stage of its economic and military development, has in recent years become insufficiently reformist at home and excessively assertive abroad.

Prior to Xi, the strategy was to wait until the correlation of economic and military forces shifted in China’s favor before seeking any major adjustments to the regional and international order—including on Taiwan, the South China Sea, and the U.S. presence in Asia. Under Xi, Beijing has become significantly more assertive, taking calculated—and so far successful—risks to bring about changes on the ground, as demonstrated by island reclamation in the South China Sea and the Belt and Road Initiative (BRI). The United States’ reaction to this approach has been deemed to be manageable, but that calculation could change in a post-trade war, post-pandemic world. Xi could seek to ameliorate tensions with the United States until the pandemic is lost to political memory; or facing internal challenges, he could take a more nationalist approach abroad. Both of these tendencies will likely appear in Chinese policy behavior until China’s internal policy review process concludes, which may not happen until shortly before the 20th Communist Party Congress in 2022. But if Xi’s style thus far is any indication, he is likely to double down in the face of any internal dissent.

That would mean hardening China’s posture toward the United States, including on issues such as Taiwan, the single most destabilizing element in the U.S.-Chinese relationship. Beijing is likely to sharpen its strategy of shrinking Taiwan’s international space, even as U.S. efforts to secure Taiwan’s readmission to the World Health Organization intensify. Given that this comes on the heels of other recent U.S. efforts to upgrade official-level engagement between Washington and Taipei, the understandings of the “one China policy” that underpinned the normalization of U.S.-Chinese relations in 1979 could begin to unravel. If these understandings collapse, the prospect of some form of military confrontation over Taiwan, even as the inadvertent result of failed crisis management, suddenly moves from abstraction to reality.

Prior to the current crisis, the postwar liberal international order was already beginning to fragment. The United States’ military and economic power, the geopolitical fulcrum on which the order rested, was being challenged by China, first regionally and more recently, globally. The Trump administration was adding to the order’s problems by weakening the U.S. alliance structure (which in conventional strategic logic would have been central to maintaining a balance of power against Beijing) and systematically delegitimizing multilateral institutions (effectively creating a political and diplomatic vacuum for China to fill). The result has been an increasingly dysfunctional and chaotic world.

The current crisis is likely to reinforce such trends. Strategic rivalry will now define the entire spectrum of the U.S.-Chinese relationship—military, economic, financial, technological, ideological—and increasingly shape Beijing’s and Washington’s relationships with third countries. Until the current crisis, the notion that the world had entered a new Cold War, or Cold War 2.0, seemed premature at best; the two countries’ financial systems were so intertwined that true decoupling was unlikely, and there seemed to be little prospect of geopolitical or ideological proxy wars in third countries, a defining feature of the U.S.-Soviet rivalry.

But the new threats that both sides are making as COVID-related tensions grow could change all that. A decision in Washington to end U.S. pension-fund investments in China, restrict future Chinese holdings of U.S. Treasury bonds, or start a new currency war (exacerbated by the recent launch of China’s new digital currency) would quickly remove the financial glue that has held the two economies together; a decision in Beijing to increasingly militarize the BRI would raise the risk of proxy wars. Moreover, as U.S.-Chinese confrontation grows, the multilateral system and the norms and institutions underpinning it are beginning to falter. Many institutions are themselves becoming arenas for rivalry. And with a damaged United States and a damaged China, there is no “system manager,” to borrow Joseph Nye’s phrase, to keep the international system in functioning order. It may not yet be Cold War 2.0, but it is starting to look like Cold War 1.5.

There are better alternatives to this scenario. They depend, however, on significant political and policy change in Washington; a reformist and internationalist readjustment in Beijing; the development of a new architecture of détente between the United States and China (drawing on the U.S.-Soviet experience), which places clear parameters around competition in order to avoid military disaster; and efforts by other countries to pool political and financial resources to preserve the essential multilateral institutions of the current system as a form of institutional triage until there is a return to geopolitical stability. History is not predetermined. But none of this will come about unless political leaders in multiple capitals decide to change course. With the wrong decisions, the 2020s will look like a mindless rerun of the 1930s; the right decisions, however, could pull us back from the abyss. more>

Updates from McKinsey

Energizing industrial manufacturing through active performance management
A new approach can help industrials gain greater visibility into performance and capture lasting gains.
By Ryan Fletcher, Kairat Kasymaliev, Abhijit Mahindroo, and Nick Santhanam – Along with its severe human toll, the spread of the coronavirus has exacerbated long-standing challenges in businesses worldwide. For industrial companies—especially those with high-mix, low-volume manufacturing—COVID-19 has increased the already-widespread problems with shop-floor productivity. As supply-chain disruptions affect shipment of critical parts, industrials are struggling to meet their promised customer delivery dates. Within plants, physical-distancing requirements and line closures are disturbing some workflows. These delays often prevent industrials from delivering critical products, including sanitization tools and other equipment to help their customers both fight and recover from the pandemic.

For many years, industrials have deployed lean levers and performance-management initiatives to improve productivity and expand margins. They usually achieved good initial results, but their gains frequently vanished or decreased as managers became distracted and employees returned to their old ways. Some industrials have also offshored production to reduce costs but then encountered substantial challenges and high start-up costs when they tried to replicate their capabilities and skills in new locations. With recent tariffs and travel disruptions creating unprecedented uncertainty, more businesses are considering reshoring production to increase their resilience and flexibility in the “next normal.” That makes manufacturing performance even more important.

A new approach to productivity—active performance management (APM)—may be more likely to deliver lasting gains than previous methods. It focuses on three areas where most current solutions fall short: real-time performance visibility, daily performance planning, and end-to-end accountability. When high-mix, low-volume industrials incorporate APM into their standard workflows, they typically improve productivity by 30 to 50 percent within eight to 12 weeks of deployment while simultaneously increasing on-time deliveries and unlocking additional capacity.

Surprisingly, many high-mix, low-volume manufacturing operations lack real-time visibility into performance. Instead, they review key performance indicators (KPIs) weekly or even monthly. This frequency may be enough to drive performance in high-volume environments, where variability is low and processes are predictable, but it is not well suited to the complexity of a high-mix factory.

Without real-time transparency, supervisors are unlikely to discuss and address issues until their impact has snowballed. more>

Related>

Inequality Causes Economic Collapse

Circulation represents the lifeblood of all flow-systems, be they economies, ecosystems, or living organisms.
By Sally Goerner – Circulation represents the lifeblood of all flow-systems, be they economies, ecosystems, or living organisms. In living organisms, poor circulation of blood causes necrosis that can kill. In the biosphere, poor circulation of carbon, oxygen, nitrogen, etc. strangles life and would cause every living system, from bacteria to the biosphere, to collapse. Similarly, poor circulation of money, goods, resources, and services leads to economic necrosis – the dying off of large swaths of economic tissue that ultimately undermines the health of the economy as a whole.

In flow systems, balance is not simply a nice way to be, but a set of complementary factors – such as big and little; efficiency and resilience; flexibility and constraint – whose optimal balance is critical to maintaining circulation across scales. For example, the familiar branching structure seen in lungs, trees, circulatory systems, river deltas, and banking systems connects a geometrically constant ratio of a few large, a few more medium-sized, and a great many small entities. This arrangement, which mathematicians call a fractal, is extremely common because it’s particular balance of small, medium, and large helps optimize circulation across different levels of the whole. Just as too many large animals and too few small ones creates an unstable ecosystem, so financial systems with too many big banks and too few small ones tend towards poor circulation, poor health, and high instability.

In his documentary film, Inequality for All , Robert Reich uses virtuous cycles to clarify how robust circulation of money serves systemic health. In virtuous cycles, each step of money movement makes things better. For example, when wages go up, workers have more money to buy things, which should increase demand, expand the economy, stimulate hiring, and boost tax revenues. In theory, government will then spend more money on education which will increase worker skills, productivity and hopefully wages. This stimulates even more circulation, which starts the virtuous cycle over again. In flow terms, all of this represents robust constructive flow, the kind that develops human and network capital and enhances well-being for all.

Of course, economies also sometimes exhibit vicious cycles, in which weaker circulation makes everything go downhill – i.e., falling wages, consumption, demand, hiring, tax revenues, government spending, etc. These are destructive flows, ones that erode system health. more>

Updates from Adobe

How to Set Up and Light a Home Studio
By Kendall Plant – I’m a designer, content creator, and associate art director at Adobe who loves to incorporate nature, street photography, and even skulls into my work.

Once you set up your home studio, your own photos are good candidates for these editing techniques. I also provided one of my unedited photos if you’d like to try fixing it up in Lightroom.

Find a space with enough natural light to brighten your scene. Sometimes it’s the room with the largest window. In my case, opening the door to the garage let in plenty of afternoon sunlight. Next, create a backdrop for the photo’s subject. If you want to get a little fancy, grab some paper, secure it, and gently slope it to make it seem like the background goes on forever. Props help me see how the lighting affects my setup. For the scene below, I like how the light comes in from the side and creates a shadow that extends from the figurine.

In the photography world, bounce cards and reflectors help light a subject by reflecting a primary light source into the scene. You can use pretty much anything rigid and reflective: a board with tin foil taped to it, a collapsible car window shade, or white poster paper. For this shot, I held a piece of white foam board on the left side of my subject to reflect the light coming in from the right. more>

Related>