April 27, 2021

It is instinctively difficult, when we consider the human suffering caused by Covid and the threat to global peace represented by the looming Cold War between the United States and China, to view either development in positive terms. Yet I would argue we should view both as developments which, in the grand sweep of history, usher in the final break with the failing social and economic model of the past four decades: an era which has seen the prosperity of ordinary people across the Western world plummet even as it has birthed all manner of morbid political symptoms in response. Indeed, we should view the world of 2021 as one filled with with hopeful political possibilities for both Right and Left, as long as we are willing to make use of them.

For critics of recent economic orthodoxy, long corralled at the fringes of political debate, the argument had always been that soon, the politically hegemonic fantasies of the neoliberals would be forced to meet reality, a historic collision which would bring their whole ideological edifice crashing down. That moment has arrived: and to understand the process through which great power competition will, perhaps counterintuitively, advance our happiness and prosperity, we should consider the work of the late historical sociologist Charles Tilly.

A theorist of the state and state formation, Tilly’s fundamental insight was that the modern system of national states, a curious European quirk which eventually conquered the entire world, derived from military competition. As he summarised the process, “war makes the state and the state makes war.”

In his 1990 work Coercion, Capital and European States, Tilly traced the origin of the European state system to the patchwork of feudal demesnes which succeeded the Roman Empire in Western Europe. Hemmed in from the rest of the world by the sprawling Islamic empires to the south and east, and the vast, coercive tributary states of Europe’s eastern steppes, Western European rulers created the modern state system through a process of constant competition, war, consolidation, and capitalist economic development. 

“Struggle over the means of war produced state structures that no one had planned to create, or even particularly desired,” Tilly observes. “From the late seventeenth century onward budgets, debts, and taxes arose to the rhythm of war. All of Europe’s warmaking states had the same experience,” which drove them to create “courts, treasuries, systems of taxation, regional administrations, public assemblies, and much more.” 

Different models of statehood — the capital-intensive trading networks of city states like Venice and Genoa, the sprawling continental empires of Spain and the Holy Roman Empire, studded with more or less independent towns and cities — each had their moment in the sun. Yet the precise combination of capitalism and military competition which birthed the modern national state was forged through this process of convergent evolutionary adaptation. As Tilly underlines, “the eventual organisational convergence of European states resulted from competition among them, both within Europe and in the rest of the world.”

As waging war became more expensive — the costs of warfare rocketed with the technological advances of the Early Modern period — battlefield success was granted to the states that expanded enough to create a vast tax base, which necessitated the creation of state bureaucracies to oversee tax collection and the creation of dynamic capitalist economies to fund the entire process. Driving all these developments were the demands placed on rulers by war — or by what would now be considered “great power competition”, like that currently accelerating between the United States and China.

As Tilly notes, “only the great sixteenth-century expansion in the scale and expense of international wars… gave national states a definitive advantage over the empires, city-states, and federations that prevailed in Europe up to that time.” England, for example, is a nation forged by a thousand-year long competition with France, which helped centralise London’s rule, accelerated the absorption of the Celtic nations and led English elites to adopt new Dutch capitalist models of wealth creation which forged British pre-eminence. The unintended byproduct of this competition between the kings of England and France is the modern British state, which began as nothing more or less than the most efficient possible administrative machine for waging war.

When the Covid crisis struck last year, it functioned as a dry run for war. It is not by accident that the logic of great power competition with China only won wide acceptance over the past year. States realised, with mounting horror, that they had outsourced almost all the vital functions of statehood either to a hostile rival, or to external contractors incapable of matching the resources and sheer productive will of a coherent state actor. Like Tilly’s freewheeling mercantile states of the 16th century, we found ourselves outcompeted by a stronger, larger, state actor with a vast tax and industrial base. While the United States and European countries scrabbled around for PPE on the global marketplace or agonised over lockdowns and border closures, China defeated Covid in a matter of weeks, marshalling the almost unimaginable resources of its vast industrial base at the directed will of its central state apparatus. Western nations pulled the levers of the state, and realised they were not attached to anything

How could they possibly be confident of success in a great struggle against China? The only clear successes of Western economies, as this excellent recent Jacobin essay makes clear, were Trump’s Operation Warp Speed vaccine program and Britain’s parallel vaccine effort, both instances of central state planning and direction of market processes in pursuit of an overriding strategic goal.

No wonder, then, that the Biden administration has placed infrastructure at the centre of its political program. The “Bidenomics” at the centre of his Build Back Better platform is, as Chatham House recently observed, “a fundamental paradigm shift” which “sounds the death knell for the neoliberal era first ushered in by Ronald Reagan, where markets were deemed to be efficient and best left alone to function”. And it is expressly framed as a product of the looming competition with China.

Yet in his recent profile of the economist Paul Krugman’s conversion from enforcer of the Reagan orthodoxy to advocate of hyper-Keynesian state spending and direction, the economic historian Adam Tooze reminds us that we’ve been here before. Even FDR’s New Deal, Tooze notes, “had delivered far less than promised, until the floodgates were finally opened by the Second World War. The Great Depression, Krugman wrote, ‘ended largely thanks to a guy named Adolf Hitler. He created a human catastrophe, which also led to a lot of government spending.’” Just as the great competition against Germany and Japan created the government-directed spending and infrastructure boom which still stands as the greatest and widest period of prosperity in the history of capitalism, so too does the competition with China offer the prospect of reshaping capitalism in a statist form, bringing prosperity back to the ordinary working and middle classes for the first time in two generations.

In this gamble, we must be thankful that, like the first Cold War, the possession of nuclear weapons by both sides means the return to a world-shaking conflict like that of World War Two, with all its attendant human suffering, is improbable. Instead, like the Cold War where competition was sublimated into the Space Race, technological advance and improving the lives of their rival workers, there is much to be gained from a second period of great power competition. Capitalism may or may not be the best form of economic organisation available to us, but the statist version now opening up is at least a marked improvement on what came before.

Tooze quotes Krugman’s 2012 observation that, “‘if it were announced that we faced a threat from space aliens and needed to build up to defend ourselves, we’d have full employment in a year and a half’,” adding: “If 21st-century America needed an enemy, China was one candidate.” Indeed, Tooze notes, “the infrastructure programme Biden announced on 31 March is designed, like the ‘great projects of the past’, to ‘unify and mobilise the country to meet the great challenges of our time: the climate crisis and the ambitions of an autocratic China’. Perhaps Krugman’s Martians have arrived after all.”

Every day, headlines underline that the new-old statist form of capitalism has been resuscitated by great power competition: the British government’s refusal to sell the chip manufacturer ARM to American investors on national security grounds; the drive to reshore manufacturing of strategic goods like microchips and rare earth metals, the government’s citing of their vaccine success as the basis of a new politico-economic orthodoxy. When the IEA think tank tried last week to re-centre neoliberal ideology with the help of two backbench MPs (and was roundly mocked in the process) it only underlined that their worldview, once hegemonic, is now marginal, proven unfit for survival in a world of resurgent and competitive states — and for this we can thank Covid and China, for ushering in this new economic era.

When no less a figure than Francis Fukuyama, widely (if unfairly) characterised as the cheerleader of liberal triumphalism, recasts himself as an advocate of state-directed industrial policy, we can be certain that we have entered a new phase of capitalism— and as Fukuyama explicitly observes, the Biden administration’s new lust for reshoring and for building up stockpiles of strategic goods was “triggered by the global shortages in semiconductors and medical equipment induced by the Covid pandemic”. It took the pandemic to make the threat of the Chinese model real to Western leaders, and it took their acceptance that Chinese state capitalism is superior, in creating vital infrastructure and spreading prosperity, to the nostrums of recent economic orthodoxy for them to finally jettison neoliberalism.

As long as the two great powers can avoid a major war, and instead compete for dominance through their capacity to spread prosperity to their publics and their allies, then we are heading towards a near future vastly superior to the past few decades. During the Cold War, the rival model of Soviet Communism forced Western capitalist states to provide their workers with a welfare state and with a share in economic growth that capitalism has not, until now, been able to reproduce. Only when the threat from Communism faded with the collapse of the Soviet Union did the orthodoxies of neoliberalism and globalisation conquer the world, the direct result of American hegemony.

Now that hegemony is under threat, Western capitalism will be forced to remake itself in a statist mould to survive. The neomedievalising tendencies of the 1990s onwards already seem to be fading into history, at least for the advanced Western economies whose states are still just strong enough to rebuild themselves for one last great effort. It is not a moment too soon: the looming climate crisis, advancing across the horizon, surely heralds an era of full state mobilisation in the service of human survival.

Yet it took China’s rise, filtered through the great shock of the pandemic, for our leaders to fall back in love with the state, and for that all critics of neoliberalism should be thankful. War makes states, as Charles Tilly observed, and we can now argue that great power competition also remakes them. The death of the state was announced too early; the dawning age of Western state capitalism has only just begun.