Your previous book, Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State (Princeton, 2018) charts how the extraordinary power of unelected central bankers and regulators needs to be structured and checked in the interest of democratic legitimacy. This new book, Global Discord: Values and Power in a Fractured World Order (Princeton, 2022), is about the geopolitics and legitimacy of the international economic and legal system. Which is the fil-rouge between them?
The connection is how to avoid constitutional democracies taking risks with their legitimacy when they delegate power to domestic independent agencies (Unelected Power) or to international organisations (Global Discord). The latter, and so my new book, has to confront much more difficult questions. We, the lucky citizens of liberal democracies, can largely take for granted order at home, and the legitimacy of our system of government; and so Unelected Power did so, concentrating on the problems presented by central banks and regulators. But, globally, we obviously cannot take peaceful coexistence for granted. Moreover, the international system largely reflects the world view of the US and Europe, and the new superpower in Beijing is not going to be entirely happy with that. Global Discord therefore ranges wider and deeper, and is a more ambitious book. It offers an account of international politics before turning to more technocratic things.
In Global Discord you argue that we live in a world of “geoeconomics within geopolitics”: may you detail a bit?
Think of geoeconomics as being about the use of economic policy instruments to prop up national security, and to promote or defend geopolitical interests. Those instruments obviously include sanctions, but they extend to outward and inward investment controls, trade tariffs, the terms of development aid, even deciding which currency to use for invoicing energy and other vital commodities, and a lot more. One of my messages is that the policy world can no longer operate in cosy technocratic silos.
As the great powers navigate territory between Superpower Struggle and New Cold War, I think this is going to stretch the comprehension and capacities of the leaders of multinational corporations, who have been brought up in a world where geo-economic actions barely affected them. In the book I talk about the prospect of them suffering reverse Stockholm Syndrome if ever they have to choose, or have a choice imposed upon them (as could easily happen if the PRC tried to take Taiwan by force).
You refer to “two Giant Knaves”, China and the US, which threaten co-operation under the existing system. Where do Europe, the UK and Russia stand in the current geopolitical and geoeconomics context?
I should explain that this is a play on the British 18th century philosopher and political economist David Hume’s discussion of the Sensible Knave, who free-rides on the public goods and other cooperative institutions enabled by a state, safe in the knowledge that nearly everyone else will be sociable. But Hume is thinking of a state in which there are no overmighty citizens whose defection could undermine the whole system. When we turn to the world, things are different. A Trump-like America could undermine the international system by simply withdrawing (remember the US keeps open the sea lanes on which world trade in goods relies). And China could topple parts of the system. That is because they are both Giants relative to everyone else.
Russia has great hard power, and the EU has great economic power, but neither has both. What Europe would do if the US withdrew is a massive question. In the meantime, Europe needs to contribute more to its own defence, but without becoming a rival superpower, because that could make the world even more unstable. These are massive decisions, on a scale not faced by democratic leaders for generations.
You propose a world of concentric circles with deeper co-operation among States that show more norms and values: couldn’t this further emphasise the current fractured world order?
I disagree. It would recognise the reality of the existing fracture, and make us less vulnerable. I wrote Global Discord before the war on Ukraine, and much of the thinking was done before Covid. We need somehow to get to a place where trade continues, but not in stuff that leaves us hopelessly vulnerable if things get really nasty. That consideration is symmetric by the way. It would be a world unlike the old Cold War, in which the Soviet-bloc economy was detached from ours (with a little funnel for exchanges of oil and dollars, and during détente cultural exchange). Whether it is achievable will depend partly on the course of proxy wars. From the beginning, I have seen the Ukraine war as the first proxy war, at least in the sense that Putin would struggle to prosecute it without Beijing’s acquiescence.
You are an emeritus central banker and we cannot finish this interview without asking you something about the current macroeconomic situation: may you share with us your view on inflation and monetary policy in the US, Eurozone, UK and Switzerland? Where do you see them at the end of 2023 and beyond?
Oddly enough, this question has a direct read across to Global Discord. Maintaining the dollar as the pre-eminent international reserve currency is important to our (European, but even world) security, because in a heap of ways it makes it easier for Washington to provide a defence umbrella. This means things like the “debt ceiling” debate or failing to make shadow banking resilient are now national security issues.
And the same goes, of course, for low and stable inflation in the US and Europe. Over recent years, the main central banks deprioritized low inflation as their overriding goal, on which all else depends. They are now playing catch up. If it turns out the anchor has slipped, that will be much harder. We need to look back and learn lessons from why, during 2020 and 2021, and probably earlier, there was more QE and more “low for long” Guidance than was prudent.
Sir Paul Tucker is a Research Fellow at Harvard University and former Deputy Governor of the Bank of England
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