Since the early 2000s, Hong Kong economist Andrew Sheng has offered the most insightful commentary on Chinese political economy that I've been able to find. In this interview he describes the new global condition of cascading system-wide shocks, or what Ian Goldin calls "systemic risks" (the key concept of The Butterfly Defect, now hailed as a prophetic book). Still more importantly, Sheng points out how the Chinese leadership is likely to use big data and AI analytics in order to analyze and plan for the knock-on consequences of major sectoral shocks, as they reverberate both within the national frame and throughout the interconnected world. Such developments could be the most crucial innovations to arise from the current crisis. Like anyone with a brain, Sheng stresses the need for international cooperation to prevent, or recover from, the most destructive consequences. For him, "the COVID-19 outbreak is perhaps the biggest wake-up call in history."
The weird thing is the feeling of deja-vu that creeps over you while reading this. Just yesterday, North and South American, European, African and Asian officials coordinated through global bodies such as WHO to analyze, manage and quell epidemic outbreaks such as SARS or Ebola. True, they did nothing to stem the continuous production of such risks through wildly accelerated globalization. But neither did they abandon international institutions, wantonly destroy vital government services, publicly scorn scientific expertise or propagate conspiracy theories through their Twitter accounts. The US Republicans and the British Brexiteers are obviously the super-spreaders of that pandemic. Yet in face of it, like any other massive contagion, we all have to think a little more about our own roles in maintaining public health. Do you too feel sharp pains in the chest when an authoritarian state starts looking more competent than former democracies? Try a little dose of Andrew Sheng - it might be good for everyone. - BH **** An interview with Andrew Sheng This week, Project Syndicate catches up with Andrew Sheng, a former chairman of the Hong Kong Securities and Futures Commission and Distinguished Fellow of the Asia Global Institute at the University of Hong Kong. (https://www.project-syndicate.org/onpoint/ps-say-more-andrew-sheng) Project Syndicate: You recently wrote that, in China, COVID-19 has already led to a "massive re-orientation of priorities, such as innovative ways of dealing with business cash flows, survival of [small and medium-size enterprises (SMEs)], job disruptions, and restoring key supply chains." Should we expect the government to revise its policy approach in the wake of the crisis? What might the most significant changes be? Andrew Sheng: The COVID-19 outbreak is perhaps the biggest wake-up call in history, threatening both individual lives and entire economic and social systems. It is truly a "viral" crisis, not only because of the pathogen in question, but also in terms of information transmission. Never have so many people been alerted so fast to new developments in any large-scale shock. There is one chart - which I call the "shock and shift" chart - that has gotten particular attention, as it illustrates the importance of "flattening the curve." When a highly contagious pathogen like the COVID-19 coronavirus hits suddenly, it can quickly overwhelm a health system, resulting in a higher death toll and social panic. But when measures are taken to slow the spread of the virus, the situation becomes manageable. When COVID-19 first emerged in China, the country was not able to prepare. (Other countries did have that opportunity, but few took it.) But Chinese leaders and residents quickly stepped up for what Xiao Geng and I call "China's COVID moment." The government imposed a draconian lockdown, confining more than 700 million people to their homes for more than eight weeks. As anxious and uncomfortable as they were, people recognized that the community's collective survival was at stake and accepted the unprecedented measures. But China - including its policy approach - will never be the same. The COVID-19 pandemic has highlighted a fundamental shift in the economics paradigm: we now exist in interactive and interconnected "complex adaptive systems," where shocks are both exogenous and endogenous. The fact is that, when it comes to a systemic shock like the COVID-19 pandemic, the market cannot solve everything. The marginalist neo-classical framework does not prepare policymakers for very large external and internal shocks to systems that do not return to equilibrium. In times of crisis, the state must ensure that the community's interests come first. In the case of COVID-19, that means, for example, ensuring that any vaccine or treatment is distributed widely (and affordably); supporting those whose livelihoods are decimated, such as hourly service workers and SME owners; and repairing broken supply chains. Otherwise, interconnected failures will continue to cascade through the entire (global) economy. Of course, China has long emphasized the state's role in maintaining stability and promoting prosperity, just as it has long engaged in complex adaptive systems thinking. But the COVID-19 stress test will push the government to adopt an even more system-wide approach, based on the understanding that when one part of the system is disrupted, the entire system - including production, distribution, payments, and income - will be= . Like an earthquake, the damage is most severe in the epicenter, but the effects reverberate outward in waves (and may then reverberate back inward). The COVID-19 crisis first caused a production shock in China. This then formed into a demand shock - a sharp reduction in consumption in China and the rest of the world. The next phase was a massive decline in income that could produce a vicious deflationary spiral. All of this has shifted the mindset of Chinese leaders: they must now plan for system-wide shock waves, ensuring that they can adapt to rapidly changing and dynamic or reflexive conditions. Given China's position at the frontier of artificial intelligence and big data analytics, its leaders will most likely rely increasingly on these tools to understand better the implications of system-wide shocks (in terms of both the Chinese and global systems). The agent-based models China is now using are multi-disciplinary and multi-level models - what the nuclear physicist Qian Xuesen called "open giant complex system" models. They remain crude, but with enough data and adequate AI tools - which China is collecting and developing, respectively - one can search out "knowable unknowns" and provide better options. PS: What about everyone else? Globalization, you say, means that, "Every country must work to build its resilience, or no one will be safe." What are the pillars of such a long-term agenda? AS: One shocking aspect of the COVID-19 crisis is the denial, blame, and prejudice accompanying it. We are all in the same boat - a single interconnected world facing a highly contagious new virus that does not respect borders. Saying that those sitting on the other side of the boat are villains who deserve all the pain and loss makes little sense; assuming that such statements will protect you from pain and loss makes even less. If one side of the boat sinks, the entire boat goes down. What all governments should be doing is, first and foremost, ensuring that their hospitals are well equipped - including with a sufficient supply of COVID-19 testing kits - and staffed with appropriately trained medical professionals. They must also reassure the public, guaranteeing that all people's basic short-term needs - food, water, energy, and health care - will be met. And they must impose whatever measures are needed to gain enough time to prepare for systemic disruptions at all levels. Otherwise, a local systemic failure could drag everyone down. In the medium term, governments must work to strengthen institutions - including institutional coordination - at home and in vulnerable countries. If a health system is designed to run at 90% capacity, it cannot cope with a sudden rise in need. China had the institutional depth to withstand the first-wave shock, at least so far. The advanced economies, with their robust institutions, will also be able to cope, to varying degrees. But developing countries with fragile institutions are simply not in a position to handle what is coming. To prevent those failures from triggering reverse-shock waves - causing outbreaks in countries that had contained the virus - countries with the necessary resources and capabilities must help those that lack them. I am talking about global cooperation on an unprecedented scale. The first pillar of this agenda is knowledge-sharing. Political and bureaucratic rivalries must not be allowed to continue hampering technical solutions. The second pillar is economic intervention. The market cannot resolve such a multi-dimensional crisis on its own. The G20 should take the lead in devising shared solutions to address the shocks to production, distribution, and income. Economic interventions must not follow the pattern of the response to the 2008 global financial crisis: monetary policy first, fiscal policy next, and maybe structural reforms later. This time, we must actually resolve the underlying causes of fragility and invest in global public goods. This may require us to consider seriously a form of global taxation, such as a Tobin tax (a small tax on short-term currency speculation proposed by the Nobel laureate economist James Tobin in 1972). The third pillar of a resilience agenda is the abandonment of false binaries. This is not about capitalism versus socialism or state versus market. COVID-19 emerged not because of a specific practice in a specific place, but because of global phenomena: climate change and population growth, which have put unprecedented human pressure on the natural world. This produces new zoonotic diseases - from Ebola to COVID-19 - which spread from animals to humans. We should have the humility to accept that, even with the best science, there is no such thing as perfect knowledge and optimal solutions. And we should have the wisdom to recognize that working together in an open and adaptive way vastly improves our chances of coping with new challenges. PS: At a time when the United States and China are engaged in what you've described as a "cool war" - characterized by "an unprecedented combination of wide-ranging competition and deep interconnection" - is such cooperation possible? AS: Absolutely. Hot or cold wars are false binaries. The real existential enemy has always been climate change, caused by excessive human consumption, in turn enabled by unlimited debt creation. If every developing-country citizen consumes like every Westerner, there will be no natural resources left and the planet will become inhospitable to human life. The American Dream of maximum freedom to consume cannot be for everyone; it can’t even be for Americans anymore. If the COVID-19 c= risis doesn’t wake up everyone to this reality, nothing will. PS: Shifting gears, you have called China's fostering of innovation in - and competition among - dynamic urban clusters "the key to developing and implementing more sustainable and inclusive economic models." To what extent is the model applicable beyond China? What are the preconditions for success, and which countries meet them or come closest? AS: At its most basic level, it is replicable everywhere. China adopted an "open-door" policy, borrowing promising ideas from others. It then used competition to encourage different cities, provinces, and firms (including foreign firms) to experiment with different adaptations, and pushed for the wider application (and further adaptation) of "winning" models. When mistakes were made, leaders would regroup, rethink, and try again. The goal was always to find the best fit for local conditions, rather than force the implementation of universal best practices. After all, what works in the US, with its strong institutions, will not work in countries without basic infrastructure. Exploiting comparative advantages is essential. For example, Singapore had relatively few natural resources but plenty of talent, so it focused on building human capital. But there is one more prerequisite to success: leaders and elites must remember that they are stewards, not masters, of their communities. PS: Some observers have argued that Chinese policymakers' early missteps in responding to COVID-19 have undermined public trust in China's leaders to such an extent that the one-party regime could be called into question. But not you. What are the doubters missing? AS: The Chinese public understands history. A leader is not judged by one moment today, but by the results tomorrow. The Mandate of Heaven - essentially the source of a Chinese leader's "divine right" to rule - is Darwinian: the leader adapts to survive, or loses the mandate. Everyone makes mistakes; the question is whether they can adapt quickly enough not to be destroyed by them. And China's leaders have adapted quickly to COVID-19. That is what will stay in people's memories, assuming the government remains on the right path. And there is reason to believe that it will. China's leaders are a diverse group. Many have first-hand experience with the country's poor. They know that, to retain their mandate, they must serve the masses, not just elites. It is impossible to say exactly what reforms this crisis will produce, but the effort to improve feedback and consultation is definitely the right way forward. PS: The US Federal Reserve slashed its benchmark interest rate and unveiled emergency lending programs in response to the coronavirus-induced collapse in business activity, and many governments are considering fiscal measures as well. But how effective is conventional macroeconomic stimulus likely to be when demand is collapsing because people fear for their safety, and when much of the disruption is occurring on the supply side? AS: I disagree with the conventional macro approach. Measures like quantitative easing - which did little more than paper over the reasons for the 2008 financial crisis, while exacerbating inequality and creating more debt risk - are woefully inadequate to manage a systemic crisis like the COVID-19 pandemic. The current disruption is on both the supply and demand sides, which (including income) are deeply entangled systemically. Rather than employ monetary and fiscal measures, a whole-of-government or whole-of-society approach - much like what China is pursuing - is needed. Different departments and agencies must develop potential measures within their areas of expertise. The national government then combines these options to develop a cohesive, system-wide strategy before key measures are rolled out. There are bound to be losses at the individual level, but ultimately, the damage must be shared systemically. PS: Your 2009 book, From Asian to Global Financial Crisis, argues that global finance is so interlinked and interactive that our current tools and institutional structures are utterly inadequate to deal with crises. Where has progress been made in the last 11 years, and what tools remain most in need of upgrading? AS: The world is so interlinked and entangled that siloed solutions will never work. After the 2008 crisis, each separate group - central bankers, regulators - wanted the power or tools to handle the problem on its own. Over the last 11 years, rules have become increasingly complex, even incomprehensible, and virtually every silo has remained intact. As a result, no one is prepared to act collectively to tackle systemic issues. But the problem lies not so much in the tools as in the mindsets of those who wield them. The mainstream economic paradigm remains partial, marginalist, and mechanical. The crisis today is systemic, stochastic (big change, not at the margins), non-linear, and fast-moving. Some measures might turn out to help - even a broken clock is right twice a day. Yet, paraphrasing a joke I read on the Internet, COVID-19, like war, is not about who is right, but who is left. What we need are effective discussions that produce timely decisions on how to deliver good public health and social services, on a system-wide basis. Those who are part of the problem - including believers in the failed paradigm - cannot be part of the solution. PS: When you were ranked as one of Time magazine's 100 most influential people, the Nobel laureate economist Joseph Stiglitz wrote the blurb honoring your contributions. For whom you would like to write such a blurb? AS: I will always be grateful to Joe and Time Magazine for that honor. Today, however, I will say that the real heroes are not the thinkers, but the doers: the nameless doctor, nurse, or carer who has marched selflessly into the fight to contain the pandemic. They prove that a career in medicine is not about money or glory, but about protecting communities and saving lives. # distributed via <nettime>: no commercial use without permission # <nettime> is a moderated mailing list for net criticism, # collaborative text filtering and cultural politics of the nets # more info: http://mx.kein.org/mailman/listinfo/nettime-l # archive: http://www.nettime.org contact: nett...@kein.org # @nettime_bot tweets mail w/ sender unless #ANON is in Subject: