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Is America About to Have Its Perestroika Moment?

Nan Yang

May 1, 2010
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Is America About to Have Its Perestroika Moment?​


The Biden administration recognizes that America’s sociopolitical and economic system no longer works. But can it be reformed?

by Carlos Roa

In a speech shortly after he took power as General Secretary of the Communist Party of the Soviet Union, Mikhail Gorbachev declared “It’s obvious, comrades, that we all need to change. All of us.” The line foreshadowed perestroika—Gorbachev’s effort to reform the USSR’s deteriorating political and economic system. It was, as he later described to the United Nations, an endeavor by which the USSR was “restructuring itself in accordance with new tasks and fundamental changes in society as a whole.” Yet, despite Gorbachev’s optimism, perestroika failed; the Soviet system simply did not have the capacity to pull off such massive change without collapsing.

With this in mind, it is worth noting the significance of U.S. national security advisor Jake Sullivan’s recent speech on “Renewing American Economic Leadership” at the Brookings Institution. His remarks mark a profound shift in American strategic and economic thinking; a confession that much of what the United States has been doing and saying for decades has been wrong, and a recognition that painful and urgent reform is necessary.

As Gorbachev learned, recognizing the need for change and successfully enacting such change are two wildly different things. Is the Biden administration on the path to learning the same painful lesson?

The Failure of the “Old” Washington Consensus
Sullivan’s speech does not just reflect his individual views—the whole event was billed in the days leading up to it as an “outline” of “the Biden administration’s international economic doctrine.” It also builds upon views that Sullivan and others in the administration have been developing for quite a while.

In brief, the speech was a strong repudiation of the United States’ strong free-market economic policies for the past forty-odd years. Sullivan challenged the idea that markets always allocate capital effectively and in socially optimal ways, that “in the name of oversimplified market efficiency, entire supply chains of strategic goods—along with the industries and jobs that made them—moved overseas. And the postulate that deep trade liberalization would help America export goods, not jobs and capacity, was a promise made but not kept.” He also acknowledged the mistake of favoring the financial sector over the “real economy” (involving material goods): “our industrial capacity—which is crucial to any country’s ability to continue to innovate—took a real hit.”

Sullivan noted that much of international economic policy, predicated on the notion that economic integration could result in countries adopting essentially Western political values, turned out to be dead wrong. “Economic integration didn’t stop China from expanding its military ambitions in the region, or stop Russia from invading its democratic neighbors,” he admitted. The China shock in particular was not adequately anticipated or addressed.

On top of these issues, Sullivan went on, are two new challenges: the climate crisis and economic inequality, the latter of which is partially a consequence of previous economic thinking. These two issues have fundamentally changed the economic landscape and require a new approach to economics. Trickle-down economics, labor union squashing, tax cuts, deregulation, and corporate concentration—all the product of strong free-market thinking—have made things worse. The combined result of all of these factors have endangered democratic stability in both America and other countries. As such, Sullivan argues, there is a need for a new approach to economics that takes into account these new realities, including a return of industrial policy.

All of this sounds awfully familiar to Donald Trump’s denunciations over the “rape” of America and calls to “make things” again, but with much more moderated language. In fact, the more intellectual cohort of the so-called New Right has been advocating for such changes over the past few years, from the hitherto heterodox economic think tank American Compass to the industrial policy-focused journal American Affairs. I myself have argued along these lines, noting America’s long and storied history of utilizing industrial policy to pursue national development.

That the Biden administration—and thus, implicitly, Washington policy officialdom—is now reading from the same music sheet is a welcome development. President Joe Biden’s agenda, per Sullivan, is centered around the capacity to build, produce, and innovate. The first step towards such is investing at home through a modern American industrial strategy. Sullivan argues, though some would contest this, that although industrial policy as a word went away, the practice did not. He cites the Defense Advanced Research Projects Agency (DARPA) as an example.

Overall, Sullivan’s speech highlights a growing recognition that a new approach to economics is needed, especially in light of changing domestic and international economic conditions and realities.

The Coming Failure of the “New” Washington Consensus

Sullivan’s remarks are certainly welcome, but admitting that there is a problem is merely the first step to addressing it. The Biden administration faces three major obstacles that will frustrate, if not completely demolish, its efforts at reform.

First, the popular name for this new economic policy—the “New Washington Consensus,” a clear reference to the old, free-market-oriented Washington Consensus—suggests a failure to fully let go of the current paradigm. It is a symptom of a broader problem in Western policy circles, which is an inability to articulate and justify a forward-looking vision for society without leaning on past glories—see no further than the recurrent attempts to cast economic development programs as “a Marshall Plan for [insert country/region here],” the “Green New Deal,” the “Longer Telegram” for addressing the challenge posed by China, and so on. One gets the feeling that Western policymaking is intellectually exhausted and out of ideas. At the very least, there is a failure of imagination at play here, which is concerning when broad and serious reform is at stake.

Second, the speech is dishonest about what the Biden administration—and U.S. policymakers more broadly—says its intentions are for its relationship vis-à-vis China. Sullivan stressed the United States is “competing with China on multiple dimensions, but we are not looking for confrontation or conflict. We’re looking to manage competition responsibly and seeking to work together with China where we can.” Sullivan’s position—and, implicitly, the administration’s—is, as Todd N. Tucker summarized, “We are not trying to constrain China's growth. Their development and that of others is good for the world and stability.”

This rings hollow. Since the current administration took office, it has implemented significant export controls on semiconductors and blacklisted numerous Chinese companies via the Department of Commerce, whose secretary, Gina Raimondo, has stated that the United States must work with European states to “slow down China’s rate of innovation.”

An observer might point out that the intention here is to pursue “a healthy economic competition,” per Sullivan’s description, in contrast to China’s current approach of liberally pilfering U.S. intellectual property and systemically breaking and abusing the current trade system. That is true. But putting aside that industrial espionage and intellectual theft are, realistically, the rules of the game in geoeconomic competition—something the United States is intimately familiar withForeign Policy columnist Adam Tooze made a key observation a few days ago while analyzing Treasury Secretary Janet Yellen’s own speech on competing with China. Tooze, summarizing Yellen’s nominal stated position (and, implicitly, the Biden administration’s position), noted that “a strong and self-confident America has no reason to stand in the way of China’s economic and technological modernization except in every area that America’s national security establishment, the most gigantic in the world, defines as being of essential national interest. For this to be anything other than hypocrisy, you have to imagine that we live in a goldilocks world in which the technology, industrial capacity, and trade that are relevant to national security are incidental to economic and technological modernization more broadly speaking.”

Washington, it seems, wants to have it both ways: it recognizes it must engage in the painful (but necessary!) reform, which would realistically require a limited drawdown of the American-led unipolar world order, while also somehow maintaining that order, refusing to give an inch to the prospect of multipolarity. The feasibility of this is an open question.

Third, and most importantly, while Sullivan’s speech recognizes the urgent need to address America’s multiple economic problems and challenges, it is yet unclear whether such change can be realistically achieved at this point in the country’s current political and socio-economic context. Having written ardently in favor of this sort of change, I am now skeptical given the broader structural economic impact of the coronavirus pandemic, the war in Ukraine, and Washington’s reactions to these events. Our position is simply far weaker than it used to be, and domestic political unity has eroded over the past three years.

As Swedish writer Malcom Kyeyune has noted, “the single most dangerous period for a political system is when it has ignored a looming crisis for years and decades, and then finally, backs snugly perched against a wall that cannot be moved, tries to apply wide-reaching reforms.” It is here that political revolutions are most liable to occur; consider the French Revolution, the fall of the Qing dynasty, or the collapse of the Soviet Union. Even the current cause célèbre of defenders of the American-led order, the war in Ukraine, has its origins in a similar situation; the Maidan Revolution occurred in large part because the politically bankrupt Yanukovych regime tried and failed to save the country’s economy, described in 2014 by the Washington Post as “a legacy of 23 years of incompetent economic management.”

It's good that policymakers are finally admitting our problems are real. But, as Gorbachev could attest, fixing these problems requires buy-in from multiple levels of society, which may not be so disposed toward change.

Consider Wall Street. Can U.S. banks, the originators of credit and the economy’s most essential actors, truly accept that the Trente Glorieuses of American finance have ended? The current low-interest rate environment has already led these institutions to increase spending on lobbying in DC by 20 percent. Will venture capitalists, private equity firms, and investors—those who have gotten fantastically wealthy in the pro-speculation environment of the past few decades—welcome a world where options are limited? A world where investing in tech app companies that deliver 5-10x returns in two years is no longer an option, and instead money must be directed towards long-term (ten to twenty years), low-return (relative to tech), risk-loaded projects like factories, refineries, and the like? Common sense says such change would be fought every step of the way.

What about the military-industrial sector? Will the major prime contractors, who have gotten rich off of the current financial paradigm while failing to deliver productivity, be open to painful adjustments? Will the U.S. Army be receptive to arguments that their budget must be cut to empower the Navy? Will various congressmen really vote in favor of closing down unnecessary bases, factories, and other job-producing facilities in their own home districts? Will hundreds of former senior-level military officials, including influential and media-savvy types, embrace a fiscally necessary end to their lucrative consulting gigs?

Perhaps most concerningly, what of nonprofits and the broader media space? Much of the sector’s recent growth was due to surplus capital and a low-interest rate environment—billionaires being able to fund NGOs and media empires because there was plenty of money. Think Jeff Bezos’ famous acquisition of the Washington Post, private equity companies’ buying of newspapers, or even cryptocurrency exchange Binance’s $200 million“strategic investment” in Forbes. Now that the (low-interest rate) party is over, the preference for the service sector is ending, and economic adjustments must be made, much of the money that allowed these socially important but economically “unproductive” enterprises will vanish. In the past week alone, Buzzfeed News shut down, Vice Media closed its flagship program and is looking to sell itself, Insider cut 10 percent of its staff, and Disney will be laying off 7,000 employees in its news division—including Nate Silver, the founder of the opinion poll analytics website FiveThirtyEight (a favorite of the Washington DC class). Will this throng of employees, and others like them, who are typically college-educated and politically savvy, not fight back like mad to prevent “change” that is taking their jobs, even if said jobs are fiscally unsustainable in a new economic environment? This notion alone should cause Democrats and many Republicans to take pause and worry.

At this point in time, implementing a U.S. industrial strategy will not be easy, if at all feasible. While still wealthy and powerful, the United States faces internal political division, multiple external challengers, and, perhaps most worryingly, strongly entrenched internal interests that would take a firm line against any sort of radical but needed change in the country’s national and international economic doctrine. Without a clear plan of attack, the Biden administration’s agenda—to say nothing of any potential successor administration's efforts after the 2024 election—could well founder.

Policymakers and experts must address this reality and come to grips with its implications. Otherwise, the country risks waking up one day, like the French monarchy, to tiles being thrown from the roofs by enraged citizens—an eerie prelude of what could follow.

Carlos Roa is the Executive Editor of The National Interest.

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The Biden administration recognizes that America’s sociopolitical and economic system no longer works. But can it be reformed?

Wonderful. Let's started with absolutely no evidence for a predetermined premise and then build a whole false edifice upon it. Utter garbage. :D
Wonderful. Let's started with absolutely no evidence for a predetermined premise and then build a whole false edifice upon it. Utter garbage. :D

We can roll things back to pre-1970 when there was no air, water, and land pollution laws which companies are now liable to be sued for these days for breaking.
You know what followed after Perestroika right?
We can roll things back to pre-1970 when there was no air, water, and land pollution laws which companies are now liable to be sued for these days for breaking.

Not good either, but the "failed" sociopolitical and economic system of the country will continue to work to not only find the right balances between conflicting demands but also the ever changes global landscapes. Let there be no doubt about that at all.

You know what followed after Perestroika right?

Keep dreaming! The communists will fall in China first, well before US systems fail. :D
in this stage no one still believes the US political system can adopt such radical changes, they need something no less than a civil war for that to happen.

We can roll things back to pre-1970 when there was no air, water, and land pollution laws which companies are now liable to be sued for these days for breaking.
Unions were a even bigger headache back then, too much negotiating power

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