Globubblization Part II: The Creation of East and West Economic Hemispheres

Today, we’re witnessing a grand realignment of the geopolitical and economic architecture of the 20th and early 21st centuries. Over the next decade, the world will move out of the relative equilibrium that has characterized global politics to witness the birth of a new geopolitical paradigm with unprecedented rules of power and influence.

Two great bubbles are forming — one East and one West — and their struggle for dominance will be contested in the minds of peoples, on trade routes of land and sea, and on the floors of the world’s stock exchanges.

The Beginning of a New Economic Cycle and the Rise of Bubble Dynamics

How did we get here? We can say it began when Bretton Woods was abandoned in the 70s and world economies were decoupled from gold and the fortifications of Western economic dominance began to erode under a riptide of economic forces. All economies were floating, and the gaps in the free market allowed global competitors to inch their way in.

Meanwhile, the billion Chinese citizens languishing in poverty through the better part of the 20th century were finally freed from the chains of communism. For three decades, their combined strength slowly reseeded the fallow fields of Red China. When the WTO watered the soil with access to western finance in 2001, Beijing’s economy bloomed.

The Conclusion of Our Current?Cycle

Let’s face facts: sometime in the next 15 years , China is going to become the largest economy in the history of the world. There are analysts who suggest it could be as early as 2028, and others who push it out to the mid-2030s. Whether it happens sooner or slightly later, the significance of China’s impending economic prominence is twofold.

First, the United States has been the dominant economic power on the planet Earth since the 1890s . We are going to live to see that end. Second, and perhaps of greater significance, the country we took that spot from was not the UK. It was China. In 1890, the top three economies were the US, China, and India, largely because they had the most land and the most people. Britain was fourth, and there is a temptation to say it was first if you consider an empire part of a country. But it’s not. That is a myopic view of economic tectonics.

The Fundamentals of Cycle?Dynamics

Big country, big population. All things being equal, if you have those two and you aren’t in the top three economies in your contiguous world, you’re screwing up somewhere.

China, for instance, had a relatively terrible 20th century. Why? Because when you have a huge country with a billion people but most of them are poor, a communist redistribution is the worst idea ever. Then everyone is poor and nobody can do anything about it. That’s why China went from being number one in 1889 to number seven in 1989, stuck behind states like France and Italy despite having all the traditional advantages.

Every economic cycle has its unique geopolitical and technological characteristics that countries can manipulate to dominate others. Portugal, for instance, is a small country with a small population. On paper, it shouldn’t have been able to compete with the Ming Dynasty or the Russian Tsar in the 16th century. However, at the dawn of the Age of Sail, the Portuguese were able to control European and Asian trade through superior ship and navigation technologies and shrewd political leverage with the money they made.

This brings us to the difference between an empire and a country. Countries exist in a particular cycle. Empires, whether geographical or economic, are a product of that cycle. When the system evolves — and it always does — empirical structures collapse, and the natural advantages of land and population begin to reassert themselves until the sociopolitical and technological dynamics of the next cycle emerge.?

That’s what we’re seeing today. The old world order is fizzling out, and we’re sitting on a brief node of economic fundamentalism before the next one begins. The top countries today — China, India, and the US — are one-two-three in population, top seven in land, and sometime in the 2030s India will join China and the US as the top three in GDP. Just like in 1890.?

The only reason they aren’t accompanied by Russia and Brazil is that those two screwed up. The fastest way to nowhere is trying to use the last cycle’s tactics to succeed in the next one. Brazil ran slavery nearly into the 20th century and they still haven’t recovered from it. Russia thinks it can reform the Soviet Union with 1960s-style muscling. They can’t. Those rules don’t apply anymore and until they understand that, states will continue trending down.

China’s Gambit

There goes the old world and here comes the new, and we’re finally starting to get a sense of the rules of tomorrow’s game. On the Chinese side, the strategy is to centralize the means of infrastructure, politics, and finance. The idea is simple: if you have the most pieces, you will always win if you set them up right. It doesn’t matter what they think or want; if your opening game is solid, then even a few stupid moves here or there aren’t going to matter.

That’s why Beijing launched a massive infrastructure program that poured three times more concrete between 2011 and 2013 than the US did in the entire 20th century. They’re building up ports in the Middle East, probing Africa for resources like coal to keep the concrete kilns burning, and extending unprecedented amounts of credit to countries like Pakistan and Sri Lanka to maintain economic corridors. Build a bridge, and people will walk across it.

Meanwhile, to keep their bees buzzing at home, China spends an unknown (and presumably enormous) amount of money every year on propaganda and censorship. Again, as long as people go to work and don’t start getting ideas, the clockwork keeps ticking. The same goes for countries like Pakistan. If they are ensnared with Chinese debt, they can’t afford opinions. They have to keep moving around the board on China’s terms.

The Western Tactical?Approach

The Western sphere’s approach to the game is fundamentally different. Western economies are largely decentralized and in private hands, so you can’t just lay out the opening game and assume your pawns are going to move to the most obvious squares. Even the US space program — the absolute icon of American unified dominance in the last cycle — is getting outsourced to private companies (see: SpaceX).

The democratic capitalist’s strategy is to have a strong middle game where all the pieces are making the best tactical moves in response to changing board conditions. You need to keep the players informed, create an environment with enticing incentives, and then let them play good chess without demanding a particular end-game position.?

This is why it’s sometimes a bit scary to sit on democracy’s side of the table through the first few moves. Our politically centralized opponents set up very strong, methodical positions that are intimidating in front of our nervously shuffling pieces. The Cold War started like that. The Soviet Union shot Sputnik and then Yuri Gagarin into orbit when the United States couldn’t even get a hamster into the stratosphere. It was unnerving, but over the next decade the free market and a great deal of consternation eventually put American boots on the moon.

Today, the Western economic bubble that has been forming in opposition to its Chinese counterpart is starting to feel some of that familiar discomfort. China has been positioning itself for this confrontation for decades, and they’re tactically solid. The US and Western Europe wasted a lot of time on Instagram and Wordle jazzing up their retirement after the Cold War.

We’re going to have to play well in the next decade if we want to get back in the game. With rising inflation, labor shortages, a supply chain that’s stretched too thin, a war in Ukraine, and an imperative to reverse climate change, it’s a tall order. Our allies in Europe are suffering as well, with soaring energy costs getting thrown into the mix by Russia. And winter is coming.?

The odds, nevertheless, are in our favor. Why? Because success in competitive and challenging environments is what private companies and democratic freedoms tend to produce under pressure. What’s more, China’s opening theory is starting to look a little flawed.

China’s Faltering Economic?Strategy

As we’ve covered in previous posts, China is spectacularly overextended both domestically and abroad. The domestic housing market is imploding as major Chinese developers default on bad debt, and this is causing increasing civil unrest. Infrastructure partners Pakistan and Sri Lanka are teetering on the edge of insolubility, to the point that Sri Lanka’s government just collapsed under the weight. Harsh enforcement of COVID lockdowns across the mainland is fraying the tolerance of its citizenry even further, and Beijing’s lockdowns and police tactics are beginning to look like test runs for crushing a full-scale revolt.?

In this period of relative stability, global economies are still considerably entangled. However, it may be that, as the East/West bubbles solidify, the yuan and the dollar will naturally migrate apart as well. As the old Chinese curse — or is it a blessing? — goes: “May you live in interesting times!” And we do.

We’re poised on the brink of a new cycle, with a whole host of fresh challenges, opportunities, and new ideas. There will be conflict, but these bubbles also offer the possibility of a world that is more stable and predictable than the one that is closing its doors and shuttering its windows today as the previous economic cycle draws to a close.?

Next up: How Technology Will Harden Globubblization, and the New Levers of Power.