Monthly House View - September 2021 - Download here
This decade is decidedly unlike any in the past. In just a year, Western countries have gone from a triple consensus of liberalism/globalisation/budgetary discipline to a more controlled view of capitalism and greater protection of their borders, while launching fiscal stimulus programmes unprecedented in size. This recalls the welfare state of the Roosevelt years or post-war years in Europe, when the role of the State increased substantially, and the economic goal of governments was not limited to growth rates but was to increase the well-being of the population. The question that arises now for companies is whether tax hikes and the acceptability of a higher dose of wage inflation will not end up impacting the record margins recorded in Q2, which have driven stock markets to new highs.
On the other side of the world, change of scene in China as well. After close to three decades of somewhat unbridled development of capitalism initiated by the first reforms of Deng Xiaoping and continued by Jiang Zemin and then Hu Jintao, the China of Xi Jinping appears to be implementing a different calibration between the State and the market. The regulatory tightening seen this summer in a growing list of sectors is in line with the search for “common prosperity”, a concept advocated on many occasions by Xi Jinping’s predecessors, and recently reiterated at the party’s 100th anniversary.
This is not just a slogan: the idea this time is to recreate the conditions for greater sharing and participation of the population in growth - following a sharp rise in inequalities - and to favour the demographics of an already ageing country, where the costs involved in having children (housing, education) have become exorbitant.
What resembles economic dirigisme, with spectacular decisions that have virtually reduced the market value of entire market sectors to nothing, such as education, is not a step backwards. This is not the end of Chinese capitalism, but a new phase marked by a stronger State presence and the search for a balance between the market and society, a condition for the social stability of the country, and vital to the party. Furthermore, it involves limiting the power of the large technology groups and their use of data. Three lessons can be learned: firstly, in China announcements are followed by actions, and more rapidly than anticipated; second, policymakers appear immune to the lobbying of the sectors concerned; third, the list of the sectors concerned could become longer.
After 18 months during which investors focused on the pandemic and then the monetary and fiscal recovery plans, it might be time to shift attention to the question of the political framework and changes underway, which could see three versions of capitalism and policy-mix emerge: a neo-Rooseveltian model in Washington (the State as reformer and builder), a neo-Beveridgian model in Europe (the State as insurer and redistributor) and State-directed prosperity in China. This becomes all the more necessary as the geopolitical events of the summer have accelerated the already well-anchored trends: the fallback of the US, the impossible interventionism of Europe, the ramp-up of China’s regions.
Monthly House View, 01/09/2021 release - Excerpt of the Editorial
September 09, 2021