With the debt ceiling debacle behind us we are closing this series, as we are of the opinion that a new cycle for the American and the global economy is starting. The starting premise of this last commentary is that we need to view economic transitions in cycles that co-move with political developments. Furthermore, as the history of the last five centuries can demonstrate, polyarchy rather than centralized power is more suitable for growth and development. Polyarchy is vital for the cycle of global cooperation and conflict.
The history of major powers (Dutch, Spanish, British, US, etc.) reflects the concept of strong growth and dominance of a system characterized by polyarchy where the investors and merchants’ interests are supported by an institutional/governmental framework which instrumentalize the state in service of the markets. As history evolves, geopolitical power evolves with it. Therefore, whether we talk about the Dutch and their dominance in the 16th or early 17th century, or whether the focus is on the British Empire in the late 18th and 19th centuries, or the American dominance of the 20th and 21st century, the common underlying factor is the representation of the investment and commercial interests in the federal governments’ policies. This kind of polyarchy seems to be fundamental for advancing growth, and Adam Smith discussed exactly this concept in the second chapter of book 4 of The Wealth of Nations.
As nations move from export-oriented growth to industrialization supported by technological developments, and finally to financialization (where finance becomes the focus), they also move through cycles of free trade/globalization and protectionism/deglobalization while military strengthening increases in importance. The Dutch, the Spanish, the British, and the United States experienced exactly that cycle.
It is also interesting to note that as the cycle moves, interest rates move along with the development of that cycle to either promote exports (low rates, relatively speaking weaker currencies, support of globalization) or to keep the money within the country’s borders and protect the supremacy of its currencies (high rates, deglobalization, strong currency). Having said that, we cannot ignore the reality that economic dominance without technological primacy is almost impossible, as technological primacy shapes the character and direction of trade.
We also cannot ignore the fact that the unfolding of the cycle coincides with rising inequalities within the country as well as among countries. Rising inequalities become fertile ground for resentment (especially when corruption thrives), while the middle class shrinks, and institutional checks and balances become weaker. If stagnation starts prevailing and becomes a long-term trend, then heightened precarity among the working classes could unleash forces of instability, and hence, the need to choose among a menu of policy options that could emphasize technological supremacy, military, and currency strength. Such evolution leads to competition (polyarchy) of interests which vie for government influence and funding, while social developments take place at the same time (see the English Bill of Rights in 1688, the abolition of slavery in both Britain and the US, etc.).
In the global cycle of cooperation and conflict, the dependence of Britain, France, and a myriad of other nations on the Dutch in the 1600s changed hands and, after the Napoleonic Wars, the baton was passed on to the British which, through the sterling, dominated global trade and investments, only to lose control to the Americans in the beginning of the 20th century.
As the cycle moves along and secular stagnation (in the sense of long-term stagnation) threatens the status quo, emerging crises are addressed with more state intervention, military conflicts, and eventually war which becomes an engine of reversing demand deficiencies and advances finance.
It might be time to prepare for the new cycle of cooperation and conflict, and portfolios should start adjusting to this possibly forthcoming new cycle.
And because we cannot be sustained by bread alone:
“There is time for everything, and a season for every activity under the heavens:
A time to be born and a time to die,
A time to kill and a time to heal,
A time to tear down and a time to build…
A time to keep and a time to throw away…
A time for war and a time for peace.”
Ecclesiastes, Chapter 3, 1-8, New International Version
Polyarchy at a Time of Geopolitical Cycles: Canceling the Noise, Part XXV (finale)
Author : John E. Charalambakis
Date : June 7, 2023
With the debt ceiling debacle behind us we are closing this series, as we are of the opinion that a new cycle for the American and the global economy is starting. The starting premise of this last commentary is that we need to view economic transitions in cycles that co-move with political developments. Furthermore, as the history of the last five centuries can demonstrate, polyarchy rather than centralized power is more suitable for growth and development. Polyarchy is vital for the cycle of global cooperation and conflict.
The history of major powers (Dutch, Spanish, British, US, etc.) reflects the concept of strong growth and dominance of a system characterized by polyarchy where the investors and merchants’ interests are supported by an institutional/governmental framework which instrumentalize the state in service of the markets. As history evolves, geopolitical power evolves with it. Therefore, whether we talk about the Dutch and their dominance in the 16th or early 17th century, or whether the focus is on the British Empire in the late 18th and 19th centuries, or the American dominance of the 20th and 21st century, the common underlying factor is the representation of the investment and commercial interests in the federal governments’ policies. This kind of polyarchy seems to be fundamental for advancing growth, and Adam Smith discussed exactly this concept in the second chapter of book 4 of The Wealth of Nations.
As nations move from export-oriented growth to industrialization supported by technological developments, and finally to financialization (where finance becomes the focus), they also move through cycles of free trade/globalization and protectionism/deglobalization while military strengthening increases in importance. The Dutch, the Spanish, the British, and the United States experienced exactly that cycle.
It is also interesting to note that as the cycle moves, interest rates move along with the development of that cycle to either promote exports (low rates, relatively speaking weaker currencies, support of globalization) or to keep the money within the country’s borders and protect the supremacy of its currencies (high rates, deglobalization, strong currency). Having said that, we cannot ignore the reality that economic dominance without technological primacy is almost impossible, as technological primacy shapes the character and direction of trade.
We also cannot ignore the fact that the unfolding of the cycle coincides with rising inequalities within the country as well as among countries. Rising inequalities become fertile ground for resentment (especially when corruption thrives), while the middle class shrinks, and institutional checks and balances become weaker. If stagnation starts prevailing and becomes a long-term trend, then heightened precarity among the working classes could unleash forces of instability, and hence, the need to choose among a menu of policy options that could emphasize technological supremacy, military, and currency strength. Such evolution leads to competition (polyarchy) of interests which vie for government influence and funding, while social developments take place at the same time (see the English Bill of Rights in 1688, the abolition of slavery in both Britain and the US, etc.).
In the global cycle of cooperation and conflict, the dependence of Britain, France, and a myriad of other nations on the Dutch in the 1600s changed hands and, after the Napoleonic Wars, the baton was passed on to the British which, through the sterling, dominated global trade and investments, only to lose control to the Americans in the beginning of the 20th century.
As the cycle moves along and secular stagnation (in the sense of long-term stagnation) threatens the status quo, emerging crises are addressed with more state intervention, military conflicts, and eventually war which becomes an engine of reversing demand deficiencies and advances finance.
It might be time to prepare for the new cycle of cooperation and conflict, and portfolios should start adjusting to this possibly forthcoming new cycle.
And because we cannot be sustained by bread alone:
“There is time for everything, and a season for every activity under the heavens:
A time to be born and a time to die,
A time to kill and a time to heal,
A time to tear down and a time to build…
A time to keep and a time to throw away…
A time for war and a time for peace.”
Ecclesiastes, Chapter 3, 1-8, New International Version