Jake Sullivan and Janet Yellin on ... a "New Washington Consenus"? (1 of 2)

National Security Adviser Jake Sullivan just gave a major speech on economic and international policy¹ that on its face signals a major shift in emphasis from the old neoliberal orthodoxy of privatization, deregulation, austerity in public services, and international trade treaties that further impose those policies. It was held at the liberal Brookings Institution²:

He explicitly describes what he envisions as a “new Washington consensus.”

Sullivan also positions his speech as a wider version of the one Treasury Secretary Janet Yellin gave on April 20, ³ which, as he notes, was “on our economic policy with respect to China.“ He characterizes his own speech as dealing with “our broader international economic policy, particularly as it relates to President Biden’s core commitment—indeed, to his daily direction to us—to more deeply integrate domestic policy and foreign policy.”

I doubt it will be mentioned on the mainstream pod-pundit shows, but it’s worth noting that the Treasury Secretary was the one giving a major speech on China policy while the National Security Adviser was making a broad statement indicating what sounds like a major shift in the US perspective in both national and international economic policy. Or, as he said, dealing with integrating both national and international economic policy.“ There must be some kind of diplomatic signal being sent here by who is giving which presentation. (Also, was Secretary of State Anthony Blinken not available to give a speech on either topic?)

Yellen’s take

The Treasury Secretary framed the US view this way:

In the years that followed, I saw China choose to implement market reforms and open itself to the global economy, driving an impressive rise into the second-largest economy in the world. Its development was supported by assistance from the World Bank and other international economic institutions. And the U.S. Congress and successive administrations played a major role in supporting China’s integration into global markets.

But in recent years, I’ve also seen China’s decision to pivot away from market reforms toward a more state-driven approach that has undercut its neighbors and countries across the world. This has come as China is striking a more confrontational posture toward the United States and our allies and partners – not only in the Indo-Pacific but also in Europe and other regions.

There are some not-inconsiderable semantic hurdles that official and political discussion in the US about China have to navigate. John Kenneth Galbraith observed in 1992 that with the Nixon Administration’s opening to China, American discourse started taking China as a kind of honorary capitalist country:

From being considered a source of fear and concern, only Communist China was, from the early 1970s on, exempt. Turning against the Soviet Union and forgiven for its earlier role in Korea and Vietnam, it became an honorary bastion of democracy and free enterprise, which, later repressive actions notwithstanding, it rather substantially remains.⁴ [my emphasis]

Galbraith may have overstated a bit in that it was not common to talk about China as a democracy. But the “free enterprise” part was pretty straightforward. In popular discourse and to a significant extent in the business press and academia, China was considered as having embraced a capitalist-style of economics after Mao’s death. And that flourishing of “free enterprise” was widely predicted by liberals and conservatives to lead in a kind of historical determinist way to China adopting Western-style liberal democracy.

In this last book published during his lifetime, Galbraith noted that in the history of capitalism, the unfortunately downsides of the system has meant a conscious search for more palpable terms for the system.

Managers, as will later be emphasized, not the owners of capital, are the effective power in the modern enterprise. For this reason and because the term "capitalism" evokes a sometimes sour history, the name is in decline. In the reputable expression of economists, business spokesmen, careful political orators and some journalists, it is now "the Market System."

[The label] "Free Enterprise" had a trial in the United States. It didn't take. Freedom, meaning for enterprise decisions, was not reassuring. In Europe there was "Social Democracy"-capitalism and socialism in a companionate mix. In the United States, however, socialism was {as it remains) unacceptable. In the next years reference was to the New Deal; this, however, was too clearly identified with Franklin D. Roosevelt and his cohorts. So in reasonably learned expression there came "the market system." There was no adverse history here, in fact no history at all. It would have been hard, indeed, to find a more meaningless designation-this a reason for the choice.⁵ [my emphasis]

But Sullivan apparently doesn’t want to go back to calling China’s system “socialism” yet. He notes that beginning with the Biden Presidency, “we had to contend with the reality that a large non-market economy had been integrated into theinternational economic order in a way that posed considerable challenges.” The “non-market economy“ is China, of course.

The fact that even ancient economies had some kind of markets presumably is part of why Galbraith considered the term “market economy” essentially meaningless. The idea that China has no markets would also sound like a QAnon-type construction. Even defining the term to make “market” economies a modern phenomenon only is tricky enough.⁶ Coming up with one that defines the China of 2023 of being devoid of “markets” would be quite a challenge!

Yellin finesses the change in terminology this way:

In the years that followed [1972], I saw China choose to implement market reforms and open itself to the global economy, driving an impressive rise into the second-largest economy in the world. ...

But in recent years, I’ve also seen China’s decision to pivot away from market reforms toward a more state-driven approach that has undercut its neighbors and countries across the world. [my emphasis]

It would be easier to go back to saying that China has a “socialist” economy, which it’s always called itself during all that time of so-called more-market/less-market transitions. But diplomatic language is often even weirder than normal language.

Part of what Yellin is doing there is recognizing that “market reforms” or not, China has always used a great deal more state direction of its economy than the Western neoliberal faith allows. (“China’s government employs non-market tools [aka, government policy] at a much larger scale and breadth than other major.”) And the US and Europe were fine with that so long as they benefitted from the outsourcing of manufacturing to China and the increasing trade with the rapidly-growing Chinese economy.

She then provides a list of principles for the new China-policy orientation:

1. Approach China with the New Cold War framing of Democracies vs. Autocracies (“we will secure our national security interests and those of our allies and partners, and we will protect human rights”).

2. Move away from the relatively privileged position China still enjoys by being treated in trade relations as a developing country (“healthy economic competition – where both sides benefit – is only sustainable if that competition is fair”).

3. But the US knows it can’t go back to a 1950s world where it officially pretends the Communist government of China doesn’t exist (“both countries have agreed to enhance communication around the macroeconomy and cooperation on issues like climate and debt distress”).

The remainder of her speech is basically diplomatic boilerplate about how the US is awesome and will remain the economic champion of the world. No uneasy reflections about China growing to become the world’s largest economy here.

There is some discussion re-emphasizing the need to protect advanced technologies from being rapidly acquired by China. But her speech is notable in emphasizing issues that one might expect more from the Secretary of State or Secretary of Defense than the Treasury Secretary, like good communications to prevent unnecessary escalation in crises and defending human rights.

The Treasury Department website adds emphasis to this passage:

As I’ve said, the United States will assert ourselves when our vital interests are at stake. But we do not seek to “decouple” our economy from China’s. A full separation of our economies would be disastrous for both countries. It would be destabilizing for the rest of the world.

She proceeds to point to Biden’s infrastructure bill, the CHIPS and Science Act, and the Inflation Reduction Act as important efforts to strengthen the American economy. But she weirdly creates a new label that is also a real groaner: “an economic agenda that I call modern supply-side economics.“ Modern “supply-side economics“? Seriously??

But she also employs the phrase “industrial policy,” a term which was widely used in the 1980s, then became taboo. She uses it in the context of criticizing China’s not-”market”-enough policies. But it shows up the following week in Sullivan’s speech the following week, too.

Yellin notes with disapproval that China uses “its economic power to impose consequences on choices [by other countries] that it dislikes – and to force sovereign governments to capitulate to its political demands.” American officials are shocked, shocked, I tell you, shocked!! to hear of a country doing such things!

Whether what Yellin says about international financial institutions is reassuring or terrifying depends largely on where a country sits in the world system:

And when the international system needs updating, we will not hesitate to do so. The United States is working with shareholders to evolve the multilateral development banks to better combat todayʼs pressing global challenges – like climate change, pandemics, and fragility and conflict.

Yellin does note, “China is the largest emitter of greenhouse gases, followed by the United States.“ One can hope that both countries will not be excessively shy in using “non-market tools” to address the climate crisis. Because the Free Market ain’t gonna fix it on its own. And, to give the Biden Administration credit, it has taken some welcomely active measures in the context of his economic policies that Congress has enacted.

1. Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution. Sullivan, Jake (2023): Remarks by National Security Advisor Jake Sullivan on Renewing American Economic Leadership at the Brookings Institution. White House website 04/27/2023. <https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/04/27/remarks-by-national-security-advisorjake-sullivan-on-renewing-american-economic-leadership-at-the-brookings-institution/> (Accessed 2023-29-04).

2. The Biden administration’s international economic agenda: National Security Advisor Jake Sullivan. Brookings Institution YouTube channel 04/27/2023. (Accessed: 2023-29-04).

3. Remarks by Secretary of the Treasury Janet L. Yellen on the U.S. - China Economic Relationship at Johns Hopkins School of Advanced International Studies. Department of the Treasury website 04/20/2023. <https://home.treasury.gov/news/press-releases/jy1425#:~:text=As%20I've%20said%2C%20the,the%20rest%20of%20the%20world.> (Accessed: 2023-29-04).

4. Galbraith, John Kenneth (1992): The Culture of Contentment, 24. Boston/New York/London: Houghton Mifflin.

5. Galbraith, John Kenneth (1992): The Economics of Innocent Fraud: Truth for Our Time, 3, 6. Boston/New York/London: Houghton Mifflin.

6. Robinson, Joan Violet (2023): Market. Britannica Online 04/15/2023. <https://www.britannica.com/topic/market> (Accessed: 2023-30-04).