The US vs China: Economic models in the pandemic stress test

Abstract

This paper makes two interrelated arguments. First, at the root of the contrasting performance of the US and China amid the pandemic are the contrasting ways in which the two societies have come to organize their economies, particularly their money and credit systems. These differences are not widely recognized, let alone analyzed. Secondly, these contrasts emerge from the longer history of antagonisms in the geopolitical economy of world capitalism and its dialectic of uneven and combined development. This dialectic between and dominant nations and those contesting their domination have typically featured contrasting monetary and financial systems. The original dominant country, Britain inherited a creditor-oriented financial system providing short-term credit that preyed upon, rather than expanded, the productive economy. Britain fostered this system and projected it abroad through the gold-sterling standard through which it exercised a financial dominance long after its industrial dominance. The US, which sought to emulate such financial dominance, also reverted to the UK's archaic financial model. By contrast, countries interested in challenging the domination of powerful countries, with their need for stronger productive economies and growth, have had financial systems that have subserved productive expansion with longterm ‘patient’ credit, considered the interest of debtors–usually productive investors–as well as creditors, and usually managed or controlled international capital flows. The predatory system of the originally dominant country, Britain, should have declined after the outbreak of the First World War in the face of the strength of countries with production-oriented systems. However, a complex twist of history gave it a second life as the post 1970s US financial system.