If you want to understand how Joe Biden’s “build back better” domestic industrial policies will connect to a new foreign policy, talk to Jennifer Harris. She was, until recently, a special adviser to the President and senior director for international economics at the National Security Council, reporting to both its head, Jake Sullivan, and former head of the National Economic Council, Brian Deese.
A former Clinton State Department alumnus and former founding head of the William & Flora Hewlett Foundation’s economy and society initiative — where she funded many of the most influential policy thinkers in areas like antitrust and corporate governance — Harris’s job was to figure out how to best balance the interests of the President’s two favourite interest groups: American workers and diplomatic allies. She is behind much of the structure of the administration’s signature Inflation Reduction Act, and is currently overseeing BuildUS, a philanthropic fund to support the Act’s implementation across the United States.
Harris is also one of the key reasons that the White House has a new willingness to use economic tools of statecraft to forward its foreign policy aims, something she advocated in her 2016 book, War By Other Means, co-authored with Robert Blackwill. Here, she discusses the opportunities and the challenges of a post-neoliberal world. Rana Foroohar: How did you first become interested in economics as a tool of statecraft? Jennifer Harris: During my time at the State Department, I was thinking about economics really through the lens of the US’s relationship with China.
This was back in the early days after China’s WTO membership when the George W Bush administration was telling us that this was really a geopolitical necessity, that we would be changing China more than China would be changing the system. Obviously, I had scepticism at the time, but didn’t quite know how vindicated I would be some 20 years on. And it wasn’t until I left the State Department and wrote a book (War By Other Means) that I traced how we used to be pretty good at flexing economic muscle for geopolitical rather than economic ends, as a country. It’s what explains the success of the US in foreign policy from, really, the founding, on through to the middle of the cold war. With the rise of the Chicago School, you saw a more neoliberal market order which said that the market should be placed above all national aims. And so began the logic of trade for trade’s sake and market liberalisation as an end unto itself. It took on normative weight, and that meant that there was a whole lot that became unseemly about using economics for a set of foreign policy ends.
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We used to be pretty good at flexing economic muscle for geopolitical ends. It’s what explains the success of the US in foreign policy from its founding through to the middle of the cold war
And when you’re talking about questions of war and peace, I think that that’s just really dangerous, sloppy logic that really needed to be better interrogated. So, I came full circle when I went to the Hewlett Foundation after the 2016 election and started a programme there, really squarely focused on replacing the neoliberal economic ideas with something that worked a little better, that was better suited to our times. Something that took on the [neoliberal] orthodoxy across the political spectrum, and really understood how deeply those ideas were constraining all of our policy, domestic, foreign or otherwise.
RF: You’re a lawyer by training, and I’ve always thought it was easier to see the flaws in the economic paradigm when you come from outside the profession. Was there a particularly telling “aha” moment for you on that score?
JH: Yes. It was right around 2012, the fever pitch of the Iran nuclear sanctions episodes, back when Benjamin Netanyahu had his nuclear risk charts that he was trotting out to whoever would listen to him. And it was clear that the West’s sanctions had created a bit of a currency crisis in Iran. Shipping insurance was needed to underwrite the buyers who, under the US-led sanctions regime, were legally allowed to buy some threshold of oil from Iran. It was clear that it would not be hard for a set of countries to do some dance moves in the currency markets to make that kind of shipping insurance four times more expensive overnight. And that was exactly the kind of force multiplication of pressure that we could capitalise on, the underlying currency crisis, to really put the squeeze on Iran. And that was somehow seen as a third rail. The idea that we would make some calls to see whether countries were interested in really pushing on this point of leverage through some well-executed moves in the currency markets was just perceived as totally unseemly. And I was like, am I wrong to think that we are within spitting distance of nuclear war? Is this really the equivalence that we’re going to have? And that was really the moment for me where the whole thing just felt, if it weren’t so dangerous, laughably silly.
RF: For years now, you’ve been more hawkish on China than many others in policy circles. Was there a point where your views on the risks crystallised?
JH: I was looking at their economic model and just appreciating how it seemed incredibly adept at disentangling the liberalisation-cum-democracy story that we were all sold. That, in fact, there was a lot of twisting of market mechanisms as points of leverage that, in geopolitical terms, could make it seem as though China would meaningfully integrate themselves into the liberal order, when in fact that wasn’t going to happen. That’s when there was a debate about whether China’s Treasury holdings were more of a point of leverage for them or for us. And my point there, going back to the Iran example, was, the reason often given why it would be unthinkable for China to dump their holdings in a way that would cause the US a lot of pain and instability was that it would be really costly for China to do this. To which I said, yes, everything costs something in foreign policy terms. There are no free lunches here either. Certainly, war costs something, by my count. Sending a signal of this sort to the Americans over something that was really valuable — like Taiwan or Hong Kong — would have been pretty cheap, as geopolitical signals go.
RF: When you were at the Hewlett Foundation, before you entered the White House under Biden, how were you thinking about grant-making and philanthropy as a way to push your post-neoliberal world narrative forward?
JH: The deeply pragmatic starting point is, essentially, to note that society is always living in these intellectual boxes, from, really, going back to the beginning of modernity and the advent of classical liberal laissez-faire ideas and, in some ways, mercantilism before that. Those philosophies were in service of a set of national prerogatives. Mercantilism was the reigning orthodoxy because it worked pretty well for a lot of the empires of note, like the British empire. And actually, once you had hegemony comfortably established, and this is in the Anti-Corn Law League, mid-1800s, you see this brief moment of flirting with more liberal economic ideas because there was no competition. That lasts for about five years or something before Germany seems like it’s catching up in ways that feel a little uncomfortable, and then you see a slip back closer to mercantilism.
The idea that we would make some calls to see whether countries were interested in really pushing on this point of leverage [against Iran] through some well-executed moves in the currency markets was just perceived as totally unseemly
In the US context, at the beginning of the country, there’s a push back against mercantilism, married with an interesting Hamiltonian set of ideas about industrial policy as a national security imperative. As you get closer to the industrial revolution, and I think that gets you to another set of issues that then need dealing with, and you align that with the Great Depression, there’s a sense that perhaps our economic ideas were falling down on the job. So, along comes Keynesianism.
These ideas seem to work better with the blocking and tackling of the problems of the day. And when they don’t, it creates room for Milton Friedman and his team to come along. So, it is really just about respecting the evolution of history and the ways in which there’s always a need for the next turn of the intellectual screw, based on the problems of the day. I think that’s the first point. The second point is that I really looked around for concrete domains of policy that had been colonised, really overtaken, by neoliberal ideas. So, areas like antitrust, corporate governance, and industrial policy were three big bets that Hewlett put down. I think two of them paid off really, really well — antitrust and industrial policy.
RF: So, who brought you into the White House?
JH: I’ve been fortunate to have a close intellectual collaboration and professional relationship with Jake Sullivan for probably 15 years, going back to our time together at the State Department. When I was saying all these heretical things, he was one person that would at least hear me out more times than not. And he’s somebody who was a close student of all that went wrong in 2016 and all that wasn’t seen in Donald Trump’s rise. He was asking a lot of critical questions about the failings of the Democratic party and the bankruptcy of a lot of those [neoliberal] ideas. And I had been on the Clinton Campaign, really pushing, often alone, against things like Trans-Pacific Partnership and for harder lines on China earlier. So, we came up with a portfolio that would involve running offence on all of these ideas, including the narrative component of really telling a different story about what US foreign policy should be trying to do, and the important stitching together with our domestic economic agenda. That was probably the piece of the job that sold it for me. I would be reporting to both Brian Deese at NEC, as well as to Jake, and I’d be the person responsible for that stitching across our domestic economic and our foreign policy agendas.
RF: Let’s talk about the Inflation Reduction Act. It represents a very powerful turning away from the ‘market knows best’ approach and towards the idea that climate is a national emergency, a war that we need to wage. Talk a little bit about that evolution and what the conversation was around the way the IRA would be structured.
JH: Climate change was a problem that did not lend itself well to the neoliberal policymaking recipe. And I think the largest indictment there is the attempt and failure and reattempt to put a price on carbon, running at that brick wall again and again and again and having it just get more and more politically toxic. We needed to create a different story about the relationship between state and market and the responsibility of government to really shape markets and pivot them towards a set of national or, in this case, global needs that are, I think, much larger than the outcomes that markets left to their own devices would provide. People also tend to be a fan of good jobs, and if this is the vehicle to get there, I think that it’s load-bearing as a multilateral idea.
RF: You’ve written about the need for multilateral purchasing agreements to underwrite the supply of rare earth minerals needed for the green transition. What are some of the other ways in which you think the rubber is meeting the road in a post-neoliberal world right now? What do we need to be paying attention to?
JH: What’s the balance of foreign and domestic needs? How can we square Biden’s two favourite things — made in America and allies — and why does the moment demand it? This is really the project, I think, of the next decade of US foreign policy. What might this look like practically? It’s a threefold agenda. One is to open up that fiscal space for the rest of the world, mindful that that’s where the meaningful differences are between America and everybody else. That looks like a global minimum corporate tax deal that would be generating a lot more revenue. It looks like emerging market debt forgiveness. It looks like a really sleeves-up agenda on multilateral development bank reform. It looks like getting serious about global infrastructure finance machinery that works a whole lot better than it does now. RF: What are the challenges to getting all this done? JH: I think there’s a double standard between the way the US foreign policy establishment tends to expend political capital on what I like to call kinetic issues of the day, Ukraine, and Iran before that. These kinds of questions have always sat on the high table of US foreign policy, and that’s really where the senior time and attention is. We need to be willing to expend a lot more political capital on things like a global minimum corporate tax deal, which involves getting Europe to do what’s needed with some unhelpful actors like Poland, like Hungary, to get them back in the box so that they could do the political implementation that people like Senator Joe Manchin would have needed to see for the US to have implemented the agreement on our part.
Climate change was a problem that did not lend itself well to the neoliberal policymaking recipe . . . We needed to create a different story about the relationship between the state and the market
We needed to create a different story about the relationship between state and market and the responsibility of government to really shape markets And it’s the same deal on emerging market debt forgiveness. That might involve lending into official arrears for a country like Sri Lanka, or any country experiencing high debt distress, really created by irresponsible lending on the part of the Chinese. And there are ways to push through IMF packages that would allow those countries to default just on the predatory Chinese stuff and get the package of support from the rest of the IMF creditor nations in the face of that non-payment.
We could be coupling that with a most favoured creditor clause that makes sure that once the country gets the benefit of an IMF package, and they get back to a little better fiscal health, they’re not going to go start repaying the Chinese as a first order of business. Coupling that twofold policy solution, I think, would have the US really earning support from a lot of the emerging markets, not condemning them to another generation of austerity. RF: One of the advantages of the neoliberal system was its simplicity. It may have been false in its not taking into account negative externalities, but it was simple. As long as the share price is up and consumer price is down, you’re all good.
That simplicity is hard now, in this new world. How do you think about communicating around a post-neoliberal world? JH: I’m clearly biased here, but I feel like we’re not far off from a fairly simple story, which is that we’re going to get back to the business of actually building things again and do a lot of the things that are necessary to that task. And I think that gives you a framework for thinking about stuff like permitting reform. It gives you a framework for thinking about why we need to come up with a new global critical minerals arrangement, rather than go back and bear hug TPP, so as to make the world safe for more multilateral pharmaceutical companies.
RF: You talked about historical paradigm shifts earlier, and historical paradigm shifts play out over generations, often encompassing more than one leader, more than one administration in the case of the US. Let’s say, we were to get Trump, or let’s say, something were to happen to Biden, even, and you have a different Democratic president. How much of this paradigm shift is going to just stick because that’s what the moment requires?
JH: There are some promising green shoots to suggest this shift will stick. Look at the historic and increasingly bipartisan support for labour unions in the US, and a lot of the new asks that the United Auto Workers leadership is making at the bargaining table. Most striking about those asks is how they are not simply just trying to carve out a private security net for UAW workers, but reaching to the core of the Big Three’s business models, going after things like corporate buybacks (by requiring additional worker pay tethered to buybacks). Antitrust is a thing again. And not only is industrial policy back — it seems like the US’s public investment might deserve credit for the immaculate cooling we’re seeing on inflation. It adds up to a reckoning with how political power moves through the economy; how economic power can warp our political system; and the necessary — not exclusive but necessary — role of both government and public investment in solving the big problems of the day, starting with a clean energy buildout that doesn’t simply trade energy dependence on the Middle East for supply chain dependence on China.
RF: Yes, the US economy right now feels like a repudiation of the economics of trickle down and tax cuts. The stimulus effect has just been so much more powerful and so much longer lasting. Now, maybe there will be some reckoning in the future.
JH: Right, and some people are saying, well, it’s really just supply chains healing themselves. Well, yes, but they are, I think, correcting, in part, on some of the early fruits of the investments we’re making. Certainly, at least, there’s the confidence that these investments are giving those portions of the markets, and this looks a lot like what we always described as the necessary solution for secular stagnation, which never really went away.
I feel like we’re not far off from a fairly simple story, which is that we’re going to get back to the business of actually building things again and do a lot of the things that are necessary to that task
There are two problems that keep economists up at night. There’s those of us who worried about secular stagnation in ways that predated the pandemic, and then those of us who worry about supply chain kinks. The right answer for both of those is to push the productive muscle of the economy rightward, and that’s exactly what these investments are doing.
RF: So now that you’ve left government, what are you up to, and what’s next?
JH: I’m keeping busy really with two projects right now. I’ve just launched a philanthropic fund called BuildUS. I’ve been incubating it since I left the administration. That is a purely domestically focused effort, on green implementation, and we’re getting quite deep into some states, like South Carolina, Louisiana, Tennessee, where the private investment’s going, where the jobs are going. And we need to make sure that they’re good jobs and that we get things like direct pay right. I think direct pay is a great example of a tool that will allow for public ownership, community wealth building. But people have to know about it. They have to know how to use it, so that’s what this fund is really focused on doing. And then thinking a lot about this basic question of how you take the logic of the IRA global and create more IRAs in more places, from Brazil to Europe to east Asia and right now, these are just informal conversations I’m having with some old friends in philanthropy.
Source : Financial Times
