Op-Ed: That is how Trump or Biden will help save democratic capitalism


IMF staff joked among themselves for years about when the Fund's statutes would come into effect and urged them to move from Washington to Beijing. Written when there was no rival to US business leaders in sight, the statutes require headquarters to be in the largest economy in the world.

You don't laugh anymore.

The underlying story of this week's IMF and World Bank meetings, held virtually from Washington, is that democratic capitalism is suffering dangerous new blows and autocratic capitalism is suffering dangerous new blows as a result of that disruptive year of Covid-19, the 4.4 % of that will be cut, the world economy will make new profits this year or $ 11 trillion in production next year

China, where the pathogen originated, will be the only major economy to see growth this year. The IMF forecast that China, the world's second largest economy, would grow 1.9% in 2020, while the US would shrink 4.3% and Europe 7.2%. China's growth will accelerate to 8.4% next year, the IMF said, compared to 3.1% in the US and 4.7% in Europe.

Fixing the problem won't be easy.

The IMF's new global debt figures featured on this Atlantic Council Tracker show that US debt will hit 130% of GDP thanks to the crisis. This is the highest level since World War II, when the country funded colossal military operations. The US Treasury Department released numbers on Friday showing a record deficit of $ 3.1 trillion for the fiscal year ended September 30th.

The Trump administration's failure to leverage this year's stimulus spending on infrastructure, education, and research and development investments is a missed opportunity. Trade disputes with European and Asian allies have undermined solidarity between global democracies when it was needed most.

The risks to the dollar's continued supremacy in terms of currencies appear to be well above the horizon, but the concerns have become more relevant as China takes advantage of the first-mover advantage by introducing digital currency tests in select cities.

True, the IMF's current voting stake still favors the United States by about three to one, and the statutes require that "the Fund's principal office be in the territory of the member with the largest quota". Even former IMF managing director Christine Lagarde considered in 2017 that the fund's headquarters could be relocated within a decade.

Current events can speed up their timeline.

The more important question than the location of the IMF is in which country or in which group of countries the financial and currency rules for our coming epoch will be established. Will the democracies assembled by the United States revive and reform the form of capitalism that has emerged for more than 75 years?

Or will the future be shaped by China and state-controlled capitalism, which its leaders claim have proven more decisive and resilient in this crisis? Or, alternatively, are we entering a phase of extensive global systemic scramble, as after World War I led to a global economic crisis, currency devaluations, protectionism between beggars and neighbors, a collapse of the international financial system and ultimately war.

In a landmark speech earlier this week, current IMF chief executive Kristalina Georgieva described what the world is experiencing as the "new Bretton Woods moment" dating back to 1944 when the IMF and World Bank were created with a dual purpose were: "Addressing the immediate devastation of war and laying the foundation for a more peaceful and prosperous post-war world."

It is worth pondering the enormity of what Mrs Georgieva is proposing, as the original Bretton Woods was the first of its kind, a fully negotiated global monetary order based on gold and the US dollar at the time. Bretton Woods established the rules and bare minimums for the expansion and sustainability of democratic capitalism, which would ultimately triumph over centrally controlled Soviet-style economies.

The deal came towards the end of World War II, at a time when the US leadership was in a visionary mood and had the economic and political leverage to impose its will on others, contrary to today's conditions. Cordell Hull, US Secretary of State from 1933 to 1944, took the view among many of the views that economic discrimination and trade wars were the causes of both world wars.

Bretton Woods was designed to avoid repeating this result. After two years of preparation, the United States gathered 730 delegates from all 44 Allied nations from July 1 to 22, 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire, before signing the agreement on the final day.

In the cacophony of the final days of the US presidential election, it would be easy to neglect the historic challenge to democratic capitalism. Few Americans will have heard or read Ms. Georgieva's speech this week, instead distracted by the dueling town halls of President Donald Trump and former Vice President Joe Biden.

However, whoever is elected on November 3rd will have the task of reversing the decline in public belief for democratic capitalism before it becomes irreversible, eliminating inequalities while not sacrificing capitalism's irreplaceable engine for growth and innovation.

What the United States and the world need after the November 3 election is another round of transformative American leadership for the brand after World War II.

For President Trump, taking on this generational challenge in a second term would require a dramatic change of heart in building international Bretton Woods coalitions. It would be necessary for Vice President Biden to translate his encouraging language on electroplating global democratic partners, including plans for a first-year democracy summit, into concrete action that would reverse current trends.

Both candidates are talking about emerging stronger from Covid-19, but our problems didn't start with the virus and they won't end with a vaccine. Faced with a second economic crisis in a decade, the United States has a rare second chance of getting things right with its democratic partners.

If we don't do this, democratic capitalism may not get another chance. The stakes are so big.

Frederick Kempe is a best-selling author, award-winning journalist, and President and CEO of the Atlantic Council, one of the United States' most influential think tanks on global affairs. He worked for the Wall Street Journal for more than 25 years as a foreign correspondent, assistant editor-in-chief and senior editor for the European edition of the newspaper. His latest book – "Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth" – was a New York Times best seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his view every Saturday of the top stories and trends of the past week.

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Steven Gregory