Jeffrey Sommers: "There are no imminent signs of US collapse"

The growing potential of Eastern powers is forcing the West to use unfair methods of competition, redundant use of sanctions being a prime example. For instance, on December 9, the US Assistant Secretary of State for Political-Military Affairs R. Clarke Cooper threatened countries that considered buying weapons from Russia and China. Under such circumstances, integration becomes especially important for countries that want to maintain their positions in the world market and develop their economies, says Jeffrey Sommers, Professor of Political Economy and Public Policy in the African and African Diaspora Studies Department at the University of Wisconsin-Milwaukee. In an interview he assessed how the coronavirus crisis will affect global competition and what we should expect to tackle after it is resolved.


– Mr. Sommers, speaking in Penza at a lecture organized by the Post-Globalization Initiative, you compared the economies of the United States, China and Russia with three pyramids. The financial pyramid, you said, is being built in the United States, the export pyramid – in China and the energy pyramid – in Russia. What is happening to these three pyramids today in the context of the pandemic and what future awaits them after it ends?

- Of the 3 pyramids referenced, under stable conditions, China’s is the most robust. China continues building manufacturing capacity, infrastructure and leveraging up its technology. It also, while still polluting heavily, builds green capacities for a cleaner future. The downside of their model is they get too little profit per unit for what they produce (which is a net good for the global economy). The US’s financializatiion pyramid extracts the highest profit margins from they system. The model is built on dollar dominance (dollar as global reserve currency) that delivers a massive subsidy to the US in the form of an overvalued currency. This allows it to import lots of stuff cheap. It also permits the US to borrow huge amounts of money at the lowest, if not even negative, inflation adjusted rates of interest. This order was built on the petro-dollar system that had the Saudis creating a global market for oil priced in dollars. Because of their outsized oil production, this then shaped a global market for oil priced in dollars. The break-up of the USSR also contributed to dollar dominance as the Commonwealth of Independent States (CIS) went to a de facto dollar system. This structure saw CIS dollars return to the US via offshore banks in places like Latvia that was connected to banks in London and New York.

The US system is also built on an Intellectual Property Rights (IPR) regime that delivers outsized profits on goods or services produced or licensed by US companies. Built over the past few decades, the IPR system put in place global agreements permitting monopoly pricing on many US technologies and brands. However, if China continues climbing the value-added chain, its high technology will begin competing with the US. As it approaches the US it might begin withdraw from US technology, such as the Android OS for phones. At this point, it can stop buying from the US, but also offer other countries substitutes for top US technology at better prices, thus subverting the US’s IPR system. This would also erode US dollar dominance. In short, the US pyramid, while big, is fragile and eroding. New means could be found to reinforce it, but the ability to do so is far from certain.

Russia’s pyramid is the weakest in many ways. Its chief export, energy, ensures some demand, but is diminishing as a revenue source, and this likely will continue. Russia’s demographic situation is challenging too, with much land and too few people. Moreover, it has lost much of its “strategic depth” from the Czarist and Soviet periods. This is tricky, as overreactions in preserving what depth remains, could provoke further erosion of its depth by borderlands looking to preserve their independence through NATO. At the same time, Russia has interests and clearly cannot allow unlimited inroads into areas seen as Russian. There are strengths, such as a solid fiscal situation. Yet, this money might better be invested in growth promoting infrastructure rather than holding it. Yet, how to do it without the money being stolen? Infrastructure projects nearly always invite theft anywhere, but Russia needs to work harder to reduce, if not eliminate, the amounts stolen. Part of the problem comes from the legacy of the late Soviet period when theft became more common in the 1980s. Then, the Yeltsin years were a disaster for normalizing corruption, and where Russia’s (and CIS) oligarchs began living like Boyars. The US and UK at worst encouraged this behavior, or at best, shut their eyes to it, as much of the stolen money ended up in their banks as offshore accounts. EU sanctions have helped Russia. AS we know, Russia’s agricultural sector was rebuilt under the sanctions, and its wheat exports are now again the world’s largest. This is a major success. Russia also needs to increase research and development spending, which is at exceptionally low levels throughout the post-Soviet world. Medical and space research seem to be 2 areas where Russia has strengths. If Russia’s coronavirus vaccines prove safe, effective and cheap, this could make Russia a major medical power. Space, of course, is another area where Russia has strengths.

A weakness of Russia is that the USSR’s economy was built to survive wars. This was a strength, in that this strategy worked in defending during WW II. Industry was massively built and spread over a dozen time zones. This was great for any future war survivability, but bad for efficiencies (transport, etc.) during times of peace. In short, the chief way by which the US “defeated” the USSR, was simply by not going to war with it, but by giving the illusion of a threat, thus allowing the USSR to collapse from the expense and inefficiency of preserving a wartime economy and massive internal surveillancse apparatus against internal threats. This is not completely a criticism, for the Soviets had to respond to the world as they knew it. And, before the Cold War, that was a world of aggressive imperial expansion, including against Russia. Yet, ironically, Russia is best poised to survive as a “civilization” should future pandemic or catastrophe dismember the world-system. In such circumstances, Russia can revert to autarky, and the resilience of its people is well known. Yet, Russia must continue planning for a world order that does not collapse. Again, the best method for doing so at their disposal is infrastructure spending. The biggest threat to Russia are liberal interventionists in the United States, and Russia’s own elites. The latter possess too much wealth, and invest too little of it in productive assets at home. The living standards and investment models of East Asian elites in Japan and South Korea during the Cold War would serve as better norms for Russia’s elites to emulate.

A weakness of Russia is that the USSR’s economy was built to survive wars.

This was a strength, in that this strategy worked in defending during WW II. Industry was massively built and spread over a dozen time zones. This was great for any future war survivability, but bad for efficiencies (transport, etc.) during times of peace. In short, the chief way by which the US “defeated” the USSR, was simply by not going to war with it, but by giving the illusion of a threat, thus allowing the USSR to collapse from the expense and inefficiency of preserving a wartime economy and massive internal surveillance apparatus against internal threats. This is not completely a criticism, for the Soviets had to respond to the world as they knew it. And, before the Cold War, that was a world of aggressive imperial expansion, including against Russia.

Yet, ironically, Russia is best poised to survive as a “civilization” should future pandemic or catastrophe dismember the world-system. In such circumstances, Russia can revert to autarky, and the resilience of its people is well known. Yet, Russia must continue planning for a world order that does not collapse. Again, the best method for doing so at their disposal is infrastructure spending.

The biggest threat to Russia are liberal interventionists in the United States, and Russia’s own elites. The latter possess too much wealth, and invest too little of it in productive assets at home. The living standards and investment models of East Asian elites in Japan and South Korea during the Cold War would serve as better norms for Russia’s elites to emulate.

– The world order built under the auspices of the United States after World War II no longer fits modern reality and the current balance of power in the international arena, Le Monde writes. According to the authors of the article, the coronavirus pandemic demonstrated how the economic and political rise of China has destabilized the system built on the hegemony of Washington. How serious is the crisis of US hegemony in the world?

– I partially answered this question above. The US system of Intellectual Property Rights and Dollar Dominance confer great benefits to the US. But, both have weaknesses that could see their erosion if not end. But, this does not mean the US could not develop a new innovation making the US system again strong. But, decreasing levels of Research and Development spending in the US make this outcome less likely.

But, there is no doubt that China showed its superior state capacities in better controlling the Coronavirus pandemic, while the US showed the exceptionally fractured and fragile character of its society and state. That said, there are no imminent signs of US collapse. Yet, it is clear that a shock larger than the 2020 Coronavirus crisis might dissolve the US society and state. This should not be welcomed by the world, as any such fall by the US will likely see the US turn towards fascism.

– At the start of the first wave of coronavirus, economic indicators of the most world countries deteriorated sharply, the level of welfare of society dived, inflation increased – to sum up, there is a lot of negative consequences. Many countries are now reintroducing quarantine. What's in store for the global economy?

- It was predicted in spring of 2020 that the worst of the Coronavirus would be in winter of 2021. And, this is exactly what we are seeing. Cold weather brings people indoors, thus the virus spreads in the northern hemisphere now. Winter has the potential to see many health systems challenged as there are insufficient beds to care for all who become ill. That said, we are learning to better deal with those who are ill. Simple measures such as keeping the ill off ventilators and keeping them face down seem to help people better breath and thus reduce death rates. Vaccines will be administered over the course of 2021. By summer, the combination of warmer weather and sufficiently high numbers of people vaccinated, should return the economy to normal conditions. But, “normal” means challenges. Automation and digital work continues to eliminate employment. This could be dealt with by global cooperative agreements to reduce work hours, but rational cooperation does not appear to be in political fashion. Problems of global environmental degradation (chemicals, plastics, deforestation, etc.) and climate change are also remain, and insufficiently addressed.

– Economic crisis, pandemic, wars... In your opinion, what is the way out of this complicated situation?

– Nations should strive, in as much as they can, to leverage up value added production of goods and services. This means creating more complex economies. They should strive to avoid and subvert, in as much as they can, paying rents for intellectual property. They should also look to avoid rents paid to finance and for privately funded infrastructure. The roadmap to develop has already been written in the past experiences of the US, Germany, Japan, South Korea, China, etc. Look to what they have done to develop, rather than what they say to do to develop.

– How do you see the development prospects of the Eurasian Economic Union?

– Eurasian Union in principle is a good idea, especially insofar as they incorporate Central Asian states into larger networks of trade and production. Export of industrial capacity and technology from Russia and Belarus throughout the Union would work to better integrate the member countries into higher value-added networks of production.