Biden: neither friend nor foe to big tech

Obama’s presidency was paradise for big tech. After that, Trump was a gift from the gods, tax-wise, but caused some rocky and restless years in Silicon Valley nonetheless. Biden will partly restore peace in the Valley, but we shouldn’t expect a return to the heyday of the Obama administration. During Biden’s first term, we will see a relationship with big tech that is less than clear-cut in terms of amity or enmity. Big tech and Biden need each other and don’t appear to want to make life difficult for each other, but the tension between big tech and society and Silicon Valley and Europe won’t be easily resolved.

Our observations

  • For tech companies, there will be a large contrast between Trump’s fiscal policy and that of his successor Biden. Trump’s tax reforms were a present to big tech, which was able to withdraw money from abroad at low cost and drive up its own share price by buying back shares with this money. Biden wants to tax large companies more heavily by raising corporate taxes to 28%. In addition, he may want to make it more difficult to deposit money on offshore accounts untaxed or to transfer it to tax havens.
  • As a consequence of Trump’s immigration policy, tech companies struggled to attract foreign talent. Biden is a proponent of a friendlier immigration policy and has promised that, during his presidency, it will become easier to apply for a permanent visa again.
  • Under Biden, we can also expect a reintroduction of net neutrality. He has repeatedly expressed approval of net neutrality, which was instated by Obama but subsequently repealed by Trump. Without net neutrality, telecom providers are able to discriminate between content providers and slow down access to certain websites or platforms or charge differentiated fees.
  • Trump and Biden are different in many respects but both of them want big tech to take more responsibility for content moderation. The debate centers around Section 230. In the early years of the internet, Section 230 was devised to give digital platforms legal immunity regarding the content posted on the platform. The law is widely criticized now, though it’s helpful to understand it in the context of the rise of the internet as a free public space.
  • The left flanks of the Democrats have long advocated the forced sale of business units to tackle market concentration and big tech monopolies. Biden is less eager to break up tech companies and has indicated that it’s still too early to discuss this.

Connecting the dots

During the Obama presidency, big tech companies were given a free hand regarding growth and the president frequently sang the sector’s praises. Obama was (too) friendly with big tech. Under Trump, things became a bit more ambivalent, leaning towards hostility. Trump often expressed criticism of tech platforms. Moreover, he became the key player and catalyst in the societal problems that currently characterize the industry (e.g. misinformation, polarization, foreign interference, etc.). At the same time, it’s mostly tech companies who seem to have reaped the benefits of Trump’s fiscal policy (e.g. cheap repatriation of foreign cash and lower taxes). Societal criticism became immensely widespread, but the share price rose with it. With Biden, we’re starting a new chapter that’s more difficult to define in terms of amity or enmity towards big tech. The consensus is (see observations) that Biden will implement stricter regulation of big tech and higher taxes, so it would appear as though there’s some hostility. But in other respects, Biden and big tech are completely on the same page and mutually dependent.

First, to expect that big tech has some rough years ahead because of the extra regulation would be misguided.  After all the (internal) unrest and increasing societal criticism, more regulation, even if it affects companies’ profitability, may even be desirable within the sector. The fact that big tech, despite Biden’s campaign promises of fiscal reform, made prodigious donations to the Biden campaign, supports this theory. Moreover, Biden and Harris have close ties with the tech sector, so there might be an assumption that in (a divided) Congress, the lobby will have enough room to water down propositions. And perhaps regulation might benefit big tech anyway: the GDPR is widely held to serve the big players, who are far better able than their smaller competitors to build the necessary infrastructure. For smaller companies, this is likely to be very expensive and time-consuming.

Big tech welcomes Biden but the reverse is true as well. Among other things, Biden plans to rejoin the Paris climate deal and seems to be of a mind to revive multilateral institutions. But in other domains, he will want to continue Trump’s protectionism and protect big tech. Commentators all agree that stricter regulation of big tech will play into the hands of Chinese competitors, and this will certainly be taken into consideration by the Biden administration. It looks like Biden is aiming for a softer, more differentiated version of Trump’s America First policy, so the trade-off between protective industry policy and restrictive competition policy could work in big tech’s favor.

There is, then, enough amity and/or mutual dependence in the relationship between big tech and Biden, but under the surface, hostility and tension remain. Breaking up big tech is one of the most radical plans of the Democrats and was a spearhead in the campaign of other candidates, such as Elizabeth Warren. Because Biden has never made any such extreme statements and there was no “blue wave”, this plan doesn’t seem to be a priority. Nonetheless, CEOs will not rest easily after their recent hearings with the House Judiciary Committee’s antitrust subcommittee. In a lengthy report, the latter considers the monopolies or market forces of big tech proven and urges the forced sale of business units or subsidiaries. It will be difficult to get this through Congress, but the battle for the Senate is not over yet, as a new voting round in Georgia will decide who gets the last two seats in the Senate. It should be noted here that not all big tech companies are the same. Especially Mark Zuckerberg will have sleepless nights, because Biden and his tweeting deputy communications director seem to have set their sights on Facebook in particular.

Ultimately, we shouldn’t set too much store by Biden’s current intentions and campaign promises and stay attuned to what happens societally and ideologically. Societally, in his close-to-victory speech, Biden presented himself to the world as the president of reconciliation. But in the unfortunate case that the power concentration, misinformation, polarization and societal tensions in the digital realm continue to increase, so will the pressure to act on this. Finally, we are in the midst of an ideological reappraisal of the internet itself. Among academics, politicians, organizations and platforms, there’s a growing push for an overhaul of the digital economy, with the foundation of a decentral and open infrastructure of the internet. At its core, this ideology criticizes the way tech companies have been able to privatize the open space of the internet in the past decades and seeks technological alternatives. The strength of this new ideology could have more severe consequences for the revenue model of big tech than Biden’s policy.

At this point, it’s not easy to draw any straightforward conclusion about the consequences of Biden’s first term for big tech. Despite stricter regulation, big tech seems to be headed for a period of amity under Biden, but with subterranean long-term insecurities that could result in some heavy blows for companies.


  • Compared to Trump, Biden will undoubtedly be more eager to cooperate with Europe, but this doesn’t pertain to tech policy. In this regard, the EU and U.S. have drifted apart in the past years, among other issues because of privacy and data regulation, and Biden apparently doesn’t intend to change much about that.

  • In addition, though at first glance Biden seems tougher on big tech fiscally and appears to comply with Europe’s desire to tax American tech companies more fairly abroad, when we look closely, it’s clear that he plans to give big tech free rein in certain fiscal areas to remain a strong competitor of foreign counterparts. European countries, for instance, have been pressing for years for a tax on digital services that would affect mainly American tech companies, but Biden – like his predecessors – isn’t likely to respond to this call. Biden, it seems, wants to limit the power of big tech somewhat, without inordinately weakening Silicon Valley economically.

  • Nevertheless, there is still agreement and room for mutual inspiration. Europe is able to indirectly exert influence with its own tech policy. The European model of internet and the local legislation that’s derived from it could inspire other democratic countries (e.g. GDPR, Digital Services Act, etc.), including the U.S. In 2018 the GDPR, for example, led to similar privacy legislation in California, which, in one fell swoop, gave forty million Americans the right to request their data, correct it if necessary and prohibit its sale to third parties.

Carbon border tax

What do semiconductors and artificial intelligence have in common? Both have great impact on the economy as well as national security. Historically, such “strategic technologies” trigger a predictable pattern of politics, as shown by Jade Leung. The pattern pertains to the role of the state, firms and researchers, whose roles change in each phase of technological development. During the first phase of emergence, there is primarily synergy between them as the state supports its firms.

However, in the second phase of commercialization, fearful images arise as the impact on security gains more attention, and in the third phase of maturation, a big shift occurs as the state attempts to take back control to prevent foreign actors from gaining access to its strategic technology. We have seen this happening in the semiconductor industry and it is likely to happen in AI as well. Part of the pattern is that some firms will cooperate with the state (e.g. Palantir), whereas others publicly distance themselves from the state (e.g. Google). Overall, the politics of strategic technology will shape the future of semiconductors and AI.

Trump is making opposition media great (the platform becomes the bubble)

On November 5th, CNN interrupted a speech by President Trump because he was making unfounded claims about electoral fraud. Twitter and Facebook have also repeatedly labeled statements by Trump as misinformation. Moreover, Twitter has announced that it will not grant him anymore special treatment when he is no longer president and will delete his account if necessary. Supporters of Trump and his ideas have long sought alternative news sources and platforms where they can freely express their views.

When Trump began retweeting Newsmax, a conservative American news and opinion website that refuses to acknowledge Biden winner of the elections, it saw its visitor numbers soar (from an average 500,000 to 7.3 million a week). Conservative Twitter alternative Parler is currently even the most downloaded app in the U.S. Trump may start his own media outlet, but in any case, his departure from the White House will considerably boost these existing “opposition media”. Slowly but surely, completely separate universes will arise, even more so than now, with different groups each inhabiting their own platforms.

The sharing economy is dead, long live the rental economy

Written by Sjoerd Bakker
October 22, 2020

After hearing a lot about the sharing economy in the past ten years, the craze now seems to have passed. Society is more critical of the use of the term and the actual added value of platforms that offer these services. However, this doesn’t mean that the as-a-service-model has become any less popular. In fact, the coronavirus crisis seems to create even more demand for access to products and services at low cost and with minimal obligations. The difference is that this is now grouped under the much more pragmatic heading of the “rental economy”.

Our observations

  • The term sharing economy has been bandied about in the past decade by various digital platforms in order to portray themselves favorably. The term suggests that platforms and services make valuable contributions to society. That is, that they bring people closer together and liberate the world from its abundance of things. Misuse of the term by companies that are actually not a part of the sharing economy has considerably weakened the craze surrounding the sharing economy.
  • Whereas the sharing economy is essentially based in consumer-to-consumer services, the rental economy, now coming (back) in vogue, is more focused on business-to-consumer services. The use of this term as opposed to the more idealistic “sharing economy” reflects a pragmatic shift, both rhetorically as well as regarding the services referred to. In the rental economy, low costs and minimal obligations are the main objectives.
  • A number of these rental services initially suffered because of the coronavirus crisis. Especially services to do with travel and mobility were hit hard at first. Airbnb and car rental services are examples of this. Now, these and other rental companies have found ways to profit from the coronavirus crisis (e.g. by providing an alternative to public transportation or offering temporary workspaces). Business models based on temporary use are as old as the economy itself. Since the early days of the car industry, cars have been rented out to people who can’t afford their own car or only need one occasionally. Telephone companies such as AT&T even obligated their customers to rent phones from them, supposedly so they could guarantee the quality of the phone connection.
  • Because of digitalization, a lot of things or spaces can now be rented out that previously could not. First, this is because supply from large numbers of providers and demand can be more efficiently brought together, with digital means of communication also awakening much latent supply and demand to become manifest (e.g. people with a car in the driveway who would be open to renting it out can do so more easily by signing up to a platform, while people with a smartphone can quickly find a car near them). Second, administration costs have decreased dramatically, making it more lucrative to process modest transactions (from cheap products to short-term rentals).

Connecting the dots

One of the most significant promises of digitalization is that it can make a wide array of transactions simpler and cheaper. This is where especially the rental, lending and sharing platforms excel; they enable us to have a simple and real-time overview of the availability of various goods, to book them and pay. This provides us access to an assortment of products and services, without having to purchase anything or being tied down by long-term contracts.

In the past decade, the term sharing economy was widely applied. In the ideal sharing economy, consumers offer their own means when they’re not using them themselves. This allows for all sorts of capital goods to be used more efficiently, leading to a decrease in the use of natural resources and pollution in the manufacture of these goods. This would enable consumers to (partly) earn back their investment and increase their wealth. Moreover, the sharing economy would stimulate social cohesion by bringing people together and could revive old practices of shared ownership.

Now, the term sharing economy has lost much of its cachet and, both in the framing of this market as well as in the services involved, we’re seeing a shift to a more traditional rental economy.  The framing of the sharing economy has been done away with because the practice has failed to live up to the ideal, with all sorts of companies claiming to be part of the sharing economy without actually contributing anything in regard to the values the sharing economy purportedly upholds. Many of these companies (such as Uber) are in fact more a part of the gig economy or operate partly or entirely in a traditional rental market (such as Airbnb). As such, these companies have failed to contribute anything to achieve the societal goals of the sharing economy. With respect to the services involved, we can now carefully conclude that real consumer-to-consumer sharing is not without disadvantages. Although digital platforms are specifically able to bring together supply and demand and facilitate financial transactions, this doesn’t mean the transaction is always smooth, cheap or fair in the end. In practice, the use of a private share car is more complicated than hiring a car from a 24-hour car rental service; think of the key exchange and possible damage claims. On the side of the private provider, there are still high costs involved; a rented-out residence needs to be cleaned afterwards and acquiring good ratings requires time and effort. In other words, amateurism is inhibiting the growth of the real sharing economy.

Nonetheless, the demand for cheap and temporary services is increasing and the (digital) rental economy is eagerly playing into this. Before the coronavirus crisis, it was already clear that the as-a-service model, in mobility for instance, caters to the needs of new generations. The crisis has enhanced this. First, because it has led to a demand for temporary solutions, e.g. regarding work space and office furniture and personal mobility solutions. In the longer term, the crisis will also leave us with lasting economic and societal trauma, and chances are that many of us will not be very eager to commit to any long-term obligations for fear that another crisis, of any nature, will create problems for us. This kind of no-strings-attached mentality plays into the hands of as-a-service providers.

The rhetorical and factual transition from a sharing economy to a rental economy is also interesting and relevant with respect to the long-term success of this kind of service. We could view this as the unmasking of the supposedly socially committed millennial. The sharing economy has specifically fed into this image, with its ideals such as cohesion and sustainability, but it now appears that millennials mostly want user-friendly services at low cost and with minimal obligations. In the longer term, this offers better (economic) perspective for providers of rental services than the “youthful idealism” aimed for by the sharing economy. The same appears to apply to Gen Z, who are said to have had an overprotective upbringing, causing in them a strong aversion to any potential source of worry. The success of Swapfiets is telling in this respect; Gen Z are more than willing to pay for services that relieve them of responsibilities.


  • The pragmatic transition from the sharing economy to the rental economy means that the platforms offering services of the latter kind are likely to be successful in the long-term, as they are less dependent on ideals that may go out of fashion. Nonetheless, the professional rental economy could still contribute to a more efficient use of resources and goods and serve (some of) the ideals of the sharing economy in this way.

  • With the label of the rental economy, these parties are now once again expressly part of the regular economy, subjecting them to stronger regulation (already visible in the fact that Airbnb and its lessors are now treated more like regular hotels in many places).

  • The demand for professional rental services, not offered by “amateurs”, will also compel some of the platforms to operate in a more “asset-heavy” way. This trend was already incited by an increased need among platforms to gain more control over the user experience and acquire more data with their own hardware. This does mean, however, that because of the investment costs, these platforms will be less scalable and there will be less of a winner-takes-all dynamic.

The geopolitics of rare earth metals

Short Insight written by Pim Korsten
October 22, 2020

Last year, China scared markets when it threatened to halt the export of rare earth metals to the U.S. For decades, China has invested heavily in rare earth industries (Deng Xiaoping compared them to oil) and it is now home to 90% of global production. Rare earth metals are used in everything from chips to batteries to military and green technologies. As such, these raw materials are the material backbone of our digital technology, powering data centers, electric cars and solar panels.

Given the fact that nascent exponential technologies such as AI, 5G, and quantum computing will determine who achieves digital hegemony, these materials will become important vectors of geopolitical interest. Last month, China again stockpiled huge quantities of the strategic resources, citing the coronavirus crisis as the cause of the dwindling exports, since an outright export ban would mean an act of economic war. In response, both the U.S. and Europe are trying to secure their supply, through investments as well as new exploration. In the foreseeable future, these materials will be in the crosshairs of a great power competition.

The not-so United States of America

Short Insight written by Pim Korsten
October 7, 2020

In the run-up to the U.S. elections, a lot of attention is paid to partisan, generational, ethnic and socio-economic dividing lines. These differences, however, are transcended by the various American “nations” with their distinct geography and economic systems and unique history and culture. For example, the East and West Coast share a “Yankee” mentality of individualism, combined with belief in reform and social engineering by the state. In Yankeedom and the Left Coast, support for egalitarian and liberal policies is highest.

Washington, around Tidewater, on the other hand, was founded by English gentry who created an aristocratic and very unequal society. The central regions of Greater Appalachia and the Midlands were founded by Irish and Scots with a fierce warrior ethic. These nations have suffered from deindustrialization, and still support Trump against Yankee domination, while also opposing southern nations they see as “El Norte”. Within these southern nations, large differences also loom, such as the difference between Texas and California, which hold different views about the future of the U.S. In fact, the United States might be even less united than we think.

Who do we trust in the stack war?

Short Insight written by Arief Hühn
October 7, 2020

After threats from Trump to ban TikTok on security grounds, Oracle, Walmart and TikTok’s mother company Bytedance have proposed a deal in which the U.S. will have a 20% stake in TikTok Global. Furthermore, Oracle will host the service for the U.S. as a ‘trusted technology provider’, in order to guarantee the safety of U.S. citizens’ data. However, the deal will not involve the transfer of the service’s algorithms.

The fight over services and underlying algorithms and user data seems to be a progression of the tech war that mostly has been focusing on lower layers of the stack, whether it be rare-earth metals, hard infrastructure (Huawei) or soft infrastructure (new IP). Even though the deal still has to be approved by the U.S. and China, we can already expect that the dependency on trusted providers and tech could become a future template for popular services that aim to operate across adversarial national stacks. In fact, Apple and Amazon are already subjected to a similar treatment for their services in China.

The new power of technical standards

Written by Alexander van Wijnen, september 25 2020

Behind the global “interoperability” between technical systems, the shadow of Western dominance still lurks. This will change, however, now that China is playing an increasingly important role in the development of standards for 5G, blockchain, facial recognition, AI and network protocols. Technical standards are thus becoming the new battlefield of the economic and cosmotechnical power struggle between countries.

Our observations

  • A number of international organizations set global technical standards, such as the International Organization for Standards (ISO), the International Electrotechnical Commission (IEC), the International Telecommunication Union (ITU) and the 3rd Generation Partnership Project (3GPP).
  • A recent paper shows that China’s influence in the most important organizations for technical standards has increased rapidly. A clear sign of this is the number of Chinese in leadership positions. Zhao Houlin is secretary-general of the ITU. Shu Yinbiao is president of the IEC. From 2015 to 2018, Zhang Xiaogang was president of the ISO.
  • Last year, China submitted 830 technical proposals to the ITU – more than the following three countries, South-Korea, the U.S. and Japan, combined. Since 2014, 16 out of the 65 proposals in the ISO and the IEC have come from China.
  • Huawei is working on new internet protocols for the ITU. The Chinese company is proposing a “New IP” model in which the state has more influence on digital infrastructure compared to the TCP/IP network protocols developed in the U.S.
  • Chinese companies such as ZTE, Dahua and China Telecom have introduced standards for facial recognition and other forms of surveillance to the ITU.
  • This month, he ITU approved blockchain standards developed by Huawei, the People’s Bank of China and the China Academy of Information and Communications Technology.
  • Since 2017, SC 42 (subcommission 42), a collaboration between the ISO and the IEC, has been the most important subcommission for AI standards. At its first meeting, which took place in Beijing, the China Electronic Standards Institute presented a white paper.
  • In the book The New Global Rulers: The Privatization of Regulation in the World Economy (2011), the authors note that the decision-making process of the large organizations (e.g. ISO, IEC, ITU) is more political than we think. Oftentimes, there is no optimal technical solution. According to the authors, the key to successfully setting technical standards is to speak with one national voice (companies and governments that are on the same page in their thinking), which might work to China’s advantage.

Connecting the dots

Where does geopolitical power come from? The term “geopolitics” especially connotes armies, capital or energy. These are important, but every age will also create new forms of power. Our age included. The technical standard is such a new form of power, which does not receive much attention. The forcefield around technical standards is changing rapidly and China is already playing an important role. Besides being of economic value, the Chinese technical standard will give China more influence by spreading the Chinese perspective on technology around the world.

In the current system, technical standards are determined by international organizations such as the ISO, IEC and ITU. Many countries participate in these organizations through associations between governments and businesses, and standards are developed in committees with engineer workgroups. One theme has long been central to this system: the worldwide interoperability of technical standards (to improve efficiency, scalability and innovation). At the same time, however, this system has been used by Western countries to exert power. The ISO was established in 1947 and the ITU joined the UN in 1949. In the post-war period, the U.S. and Europe dominated the world and the development of technical standards was part of this. That has begun to change. China has taken great strides in the fields of 5G, facial recognition, blockchain and AI. Moreover, China has created a strong position for itself within the most important organizations.

The question is what the impact this greater role of China will have. Two types of impact are already noticeable. First, China will economically profit from setting technical standards. This became clear, for example, when the U.S. government recently gave American companies permission to continue to collaborate with Huawei in the standard organizations, for fear of being excluded from the international process. In the coming years, Chinese companies will increasingly profit from their current role in setting fundamental standards. Because, for instance, their existing products and competencies meet these standards, which gives them a lead on international competitors. Second, the Chinese cosmotechnics (the Chinese way of thinking about technology) will become more influential – and incur more resistance because of it. Technology is always connected to culture, and this holds even more true in our time of digital technology, in which, for instance, SC 42 is attempting to determine how we should regard transparence and the explainability of AI systems. Modern technology (more so than railroads or electricity networks in the past) is programmed in advance, according to certain rules that derive from cultural values. This has become apparent in the development of facial recognition, which more and more American companies are pulling out of, and Chinese companies have seized the opportunity to set the global standard.

Technical standards are geo-economic (countries become dependent on each other, which can create political pressure) and cosmotechnical (shaped by “foreign” cultural values). There is thus much at stake, especially to a hegemon (the U.S.) witnessing the decline of its influence. This means that the battle over technical standards might harden in the coming years, putting companies in a vulnerable position.


  • Through the Belt and Road Initiative, Chinese companies will increasingly use technical standards to create lock-in effects in rising countries in Asia and Africa. This applies not only to digital technology but also to industries such as the railway industry and the energy industry.

  • In the battle over technical standards, momentum for open-source platforms could increase. Recently, the open-source chip design platform RISC-V chose to move from the U.S. to Switzerland to protect its appeal in a geopolitical world becoming increasingly strict where technology is concerned.

The future of monetary policy and central banks

Written by Pim Korsten, september 25 2020

In the past months, central banks and governments have announced enormous economic aid packages to prevent their economies from freefalling after the coronavirus crisis. This crisis has accelerated macro-economic trends and, in response to this, central banks are reformulating their key objectives and common purpose. By viewing the economic issues of the twenty-first century from a perspective of long-lasting, economy-transcending developments, we will gain insight into the future of monetary policy.

Our observations

  • The Fed has recently been making a thorough analysis of the theoretical framework on which it bases its monetary policy. Last month, Jerome Powell, president of the American central bank, announced that the Fed will maintain an average inflation target of 2% as well as strive for “maximum employment”. This new approach to monetary policy means that the Fed will only raise interest rates in case of maximum employment and when inflation is higher than 2%, rather than when employment is below the level of maximum employment (which would mean wages would increase and monetary policy would have a delayed effect on the economy) as it has been the case until now. A flatter Philips curve, indicating a weaker relationship between unemployment and inflation, as well as the deflationary effects of globalization and digitalization, will ensure that low inflation remains the norm for a long time. And by expanding its employment mandate, the Fed is committing itself to stimulating more inclusive economic growth.
  • Christine Lagarde, president of the European Central Bank, has promised that the ECB will include sustainability goals in its operations, such as buy-back programs for corporate bonds. This makes the ECB the first large central bank to actively include sustainability goals in its monetary policy. Since her appointment in December 2019, Lagarde has announced that the ECB will begin with a “strategic review” of the ECB objectives, with climate change seen as a “mission-critical” priority, and that the ECB will take on an active role with respect to Europe’s (geopolitical) sustainability strategy.
  • Last month, Shinzo Abe, Japan’s, longest-serving prime minister, announced that he would be stepping down because of health concerns. The new prime minister, Yoshihide Suga, has said he will continue Abenomics, Abe’s controversial economic policy since 2012 that has three pillars: i) very loose monetary policy by the Bank of Japan, ii) active fiscal policy to stimulate the Japanese economy and iii) structural reforms. The Bank of Japan buys government bonds to keep interest rates low (a strategy called “yield curve control”, because of which the Japanese government has insufficient financial means for its fiscal policy. As a consequence, Japan has the highest government debt-to-GDP ratio in the world, about 240% of GDP, which will nevertheless remain fundable because of the low interest rate. Since the coronavirus crisis, more countries either implicitly or explicitly – are following this strategy to finance economic measures. In the longer term, this strategy will become more popular as a result of green investments, ageing populations and the increasing need for investments in resilient systems (e.g. strategic production chains, global value chains, the care system).
  • As a consequence of the coronavirus crisis and the accompanying economic monetary and fiscal measures, government debts will rise considerably (an estimated 20 percentage points of global GDP). But even before the coronavirus crisis, global debt had been rising in the past decade because of the financial crisis of 2007-2008. Extending the timeline, we see that global debt has risen strongly since the 1980s due to the financialization and liberalization of world trade and capital accounts inspired by neoliberalism. And yet, the economic literature provides few guidelines regarding the optimal amount of government debt. Though it was previously assumed there was a natural ceiling, Modern Monetary Theory (MMT) holds that debt ratios (for countries that issue their own currency) are irrelevant, as are budget deficits in an environment of low inflation and unemployment.

Connecting the dots

There are largely three major paradigms to be distinguished in macro-economic theory on monetary policy. The first began after the Great Depression of the ‘40s and was based on Keynesianism. This paradigm emphasized the role of contra-cyclical fiscal policy, as the market and economy are not naturally correcting mechanisms. This was institutionalized more broadly in the post-war Bretton Woods system, but after relinquishing the gold standard in 1971 (the “Nixon shock”) and the problems of stagflation (high inflation combined with high unemployment) that appeared unsolvable in the Keynesian scheme, the emphasis shifted to money supply to keep inflation low. According to this “monetarism”, governments were to focus on creating the right conditions for sustainable and long-term growth while monetary policy kept the business cycle in check. This paradigm was specifically inspired by the theories of Milton Friedman and his work on the role of money supply in the macro-economic problems of the Great Depression. From the ‘90s, a synthesis between these paradigms emerged, with independent central banks formulating an explicit inflation target for the medium and the long term, making use of short-term interest rates and monetary policy geared towards guaranteeing sufficient liquidity in financial markets. Price stability was seen as the most important condition for growth, and a crucial factor here is that the monetary instruments to achieve this are in the hands of independent, technocratic central banks, at the cost of a democratic deficit (central bankers aren’t democratically elected but have enormous power), while fiscal policy is geared towards balancing government debt (expenditures) and the redistribution of wealth (taxes).

But since the financial crisis of 2007-2008, we’ve been seeing a number of new problems that can’t be solved with this paradigm, such as persistently low inflation and unemployment (a “broken” or “flat” Philips curve), growing inequality, both private as well as public debt, and structurally lower aggregate demand. The coronavirus crisis has accelerated many of these macro-economic trends, and reassessed the relationship between monetary and fiscal policy. Structural characteristics of a post-coronavirus economy will definitely include: i) structural micro-economic inefficiencies (e.g. restaurants and hotels with fewer guests, more safety precautions in production chains, larger reserves and supply for strategic sectors), ii) a larger role for the state in the economy, iii) higher public debt, iv) lower consumer spending and corporate investment due to high insecurity leading to lower inflation. The latter is why the growing. debt remains fundable, but also why there is limited room for tightening monetary policy by, for instance, raising short-term interest rates based on predictive inflation indicators.

Governments and central banks respond to this by fundamentally contemplating their common purpose and reformulating their key objectives. Some decide that monetary policy should stimulate growth and have more milder inflation targets (as in Japan), others that fiscal policy should be unrestrained when it comes to stimulating economic growth (e.g. MMT), while a radical group even advocates negative interest rates (e.g. as a redistribution mechanism and to stimulate spending and investment). Outside of these macro-economic developments, there are also broader, economy-transcending developments determining the future of monetary policy and central banks.

First, back-to-back technological revolutions (e.g. the steam engine, the automobile, IT) have led to industrial modernity with certain rules of play or “metarules” (e.g. strong productivity growth, the use of fossil fuels). Besides enormous wealth, these rules also lead to persistent socioeconomic inequality as well as ecological degradation and climate change. To solve these problems, it will not suffice to merely double down on technology or organize individual systems more efficiently: nothing less than a Deep Transition is required to thoroughly redefine these metarules (e.g. the principle of circularity, internalizing externalities). Central banks and monetary policy can be important stimulators and coordinators by not only allocating capital where it will be most profitable in a narrow economic sense, but by playing a facilitating role in a broader system change. Reforms in the financial system, and with that, “incentive structures” are an important prerequisite for systematically changing the behavior and actions of companies, governments and consumers. In Europe, the ECB is taking the lead in this when it comes to climate change and likewise the Fed in the U.S. They could set an example for other regions.

At the same time, a more “geo-economic” outlook on economy is emerging, bringing fiscal and monetary policy with it. In the ‘90s, central banks became politically independent at the height of American hegemony and when the world was widely believed to be becoming “post-historical”. There was a less strategic approach to technology and economic policy, as the general expectation was that countries would develop into liberal democracies with free market capitalism and mutual differences would become negligible. But now that we’re on the brink of a new hegemonic cycle, the role of central banks and fiscal policy in the economy is being reconsidered in regard to matters such as national security or strengthening countries’ own geo-economic power as compared to their rivals’. This is also the underlying geo-economic reason why the trade war between the U.S. and China is fundamentally a technology war, why production and value chains are now being evaluated more strategically (e.g. “sensor-based technologies” such as 5G, AI or quantum technology, natural resources, medical materials for a coronavirus vaccine). And that also means that central banks may become more politicized in order to fund fiscal and geo-economic policy (e.g. weak exchange rates for a stronger competitive position, monetary loosening for strategic industries and financing government spending such as on defense).

Finally, we’re seeing that technological innovations can change the effectiveness of instruments and the core of central banks’ monetary policies. Because of fintech, more and more financial transactions and interactions are taking place outside of banks and established financial institutions are disintermediating (e.g. peer-to-peer lending). In addition, digital tokens and cryptocurrencies are offering new instruments for central banks to conduct monetary policy: i) the reallocation of risk and guarantee of stability within the financial system through citizen deposits directly to central banks, ii) a more substantial grip on the effects of monetary policy as money is managed digitally more often and iii) allowing technology companies to enter the financial sector so that data can be utilized towards more financial innovations and competition, leading to higher price efficiency. This way, central banks can combat different forms of market failure (e.g. growing inequality due to the “search for yield” of capital investors), gear monetary policy more towards (geo)strategic objectives (e.g. climate change, strategic innovations), stimulate innovation (e.g. through financial inclusion based on digital credit scores, a more decentral economy with less systemic risk). Central banks and monetary policy are thus becoming important drivers of innovation and new economic models and principles.


  • The above-mentioned technological innovations make the scenario of negative interest rates even more realistic, because cash is falling into disuse, banks are further becoming disintermediated (creating more substantial effects of monetary policy instruments on the real economy), and central banks are more directly influencing consumers. But a regime of negative interest rates also entails significant macro-economic risks, such as when inflation rises (and central banks can’t raise interest rates given the high debt) and further destabilizing the financial system.

  • In fragile democracies and authoritarian countries, there’s a high degree of “economic populism” with a strong emphasis on economic growth and income redistribution, while the risks of budget deficits, inflation and other external limitations (e.g. international market reactions to policy) are trivialized. This has always led to higher political risk in these countries, as international investors can see through this and appreciate independent central banks. Now that democratic-liberal markets are taking a more political and (geo)strategic view of central banks’ monetary policy, the geopolitical will increase in capital markets, resulting in higher inefficiencies and new forms of market failure (such as the preservation of important but loss-incurring industries, i.e. zombie markets).

  • Besides climate change and growing inequality, another important sociocultural system change in societies is ageing, and the accompanying changes in consumer spending, fiscal positions and pressure on the care system. Japan is a precursor in this, with a severely ageing population, and one of the reasons the central bank finances the government’s fiscal policy, as it includes investing in technologies for gray economies where the average life expectancy is 100 years.a

American soft power is under pressure

Written by Sjoerd Bakker, september 9 2020

The American Dream is showing severe cracks and the U.S. has long ceased to be the country the rest of the world looks up to. The increasing unrest in the United States will inevitably lead to a loss of American soft power. As a result, U.S. hegemony is becoming more dependent on military and economic power display. The Trump presidency seems to be largely responsible for this loss of soft power and a reelection of Trump could have serious consequences for the U.S.’ place in the world order.

Our observations

  • A soft power index from early this year (pre-corona, pre-George Floyd) still put the U.S. in first place, but also indicated that this was mostly owing to the entertainment industry, sports and science and that matters such as (failing) public administration, reliability and international cooperation (on which the U.S. ranks 44th worldwide) are in fact weakening American soft power.
  • Historically, Hollywood and the American music industry have always contributed to American soft power. At the same time, American (pop) culture also expresses frequent criticism of the state of the nation and this denunciation seems to be growing more forceful and more widely shared, e.g. in films such as The Florida Project, American Honey and series like House of Cards. Movies that disparage the American Dream and the utopian image of the suburbs have been around for some time; consider American Beauty (1999) and Blue Velvet (1986).
  • Asian countries now also successfully wield soft power worldwide through their cultural sector. We’ve written before about the role of (Korean) K-Pop and the Chinese TikTok. Moreover, Hollywood is no longer able to make movies solely from an American point of view, simply because it has become too economically dependent on the Chinese market (and censorship).
  • Fukuyama’s thesis of the end of history contained (implicitly at least) the thought that deep down, there is an “American” in each world citizen, who would prefer to live in a democratic, free and economically liberal society. Presently it’s becoming clear that this prototypical American doesn’t exist and that there is a lot of discontent among Americans.
  • The current degree of polarization and corresponding political rhetoric in the U.S. are not associated with a modern and civilized democracy. A president who publicly refers to a conspiracy theory such as the Deep State or congressmen adhering to a conspiracy theory of the likes of QAnon further degrade the country’s reputation.
  • The Black Lives Matter protests, and the responses to them, have painfully revealed how divided America still is. Moreover, the footage of riots and the strongly militarized police forces don’t give the appearance of a civilized state, but rather of an authoritarian-led developing country.

Connecting the dots

Countries’ soft power consists of their ability to persuade or entice other countries to follow a certain course. This as opposed to “hard power”: military and economic means of exerting pressure. In most cases, the degree of soft power is determined by the question to what extent a country is perceived as alluring; act as we do, and experience the same freedom and prosperity.

*Besides this, there is a more explicitly moral aspect; act as we do, and you will be doing what’s Right. The U.S.’ soft power of roughly the past century coincided with its military and economic hard power and was largely generated by the globally visible, often predominant, American (pop) culture that reflected the American consumer lifestyle and “way of life”. Additionally, American brands such as Coca-Cola and Nike, and later big tech corporations and platforms like Apple, have always been important vectors of soft power. Alongside sporting achievements (Team USA), they comprised the most important building blocks of the American Dream; the country where everyone has equal opportunity to become successful and happy.

Today, the rest of the world has gained more insight into the less pleasant aspects of American society. This has gone hand in hand with the decline of American soft power, which rapidly accelerated with the election of Trump, and especially with his battle against Obamacare and his inadequate handling of the coronavirus crisis (and before that, of the hurricane in Puerto Rico).

In addition, and most importantly at present, the world is witnessing the collapse of American society along racial, economic and ideological dividing lines. The antagonizing language of both political camps and the footage of American cities are strengthening this image. Where the anti-racism protests (and earlier, the #metoo protests) are concerned, this could also be explained as a positive step, and “enhancement” of the American project. From its founding on, the U.S. has always presented itself as an “unfinished project”. In that sense, the Black Lives Matter movement could also positively affect the international reputation of America (“the country is working towards equality for all its citizens”). In practice, however, it seems closer to the truth that the BLM movement is showing the world how much structural inequality there still is in society, something we don’t associate with a highly developed and “civilized” country. After all, Fukuyama also posited that equality and freedom are the most important qualities of “post-historic” countries; values that America formally appears to uphold but fails to put into practice.

The decline of American soft power cannot be separated from the relative loss of military and (based on the dominant dollar) economic power since the nineties. First, this loss of hard power means that the rest of the world looks up to America less and the country is losing some of its natural appeal (“when you win, you have friends”). Second, the division in American society can also be understood to derive from the loss of American dominance and, linked to that, a loss of self-confidence. Since the 9/11 attacks and the ensuing protracted wars in Iraq and Afghanistan, and of course the rise of China, the average American doesn’t feel as if they’re living in an unassailable country anymore. The idea of “American decline” has thus become more widespread and forms, along with considerable socioeconomic inequality, a breeding ground for (right-wing and left-wing) populism and is causing a high degree of polarization and societal unrest. The fierce counterreaction of part of (white, male) America to the BLM movement (and before that, to #metoo) could possibly also be understood from this loss of American self-confidence; both abroad and within the U.S., the old image of America is under pressure and people feel as if their culture and values have become unimportant (or even banned in the perceived “cancel culture”). It seems in President Trump’s best interest to stir up these tensions, and to deepen the fear and uncertainty among his voters. Although this might increase his chances of being reelected, it won’t help the U.S. to once again become a paragon to the rest of the world.


  • The (relative) waning of American soft power is enabling the worldwide emergence of other ideas about the Good Life, citizenship, public administration and international relations. Europe now has the opportunity to take on moral leadership, but there will also be more room for “the Chinese story” and Chinese ideas about democracy.

  • A victory for Biden would likely benefit the U.S.’ reputation in the liberal and multilateral world order and may lead to less domestic unrest due to Biden’s more conciliatory tone. However, it will not change the fact that American society is under pressure and “culture wars” between progressive and conservative Americans will endure.

  • In a world where multiple nuclear powers compete, but “mutually assured destruction” makes armed conflict unlikely, the U.S. will have to continue to actively advertise the American Dream. To do this credibly, enormous domestic investments may be necessary to reinforce the social-moral infrastructure and make the U.S. alluring to other countries again. It can also be expected that the entertainment industry and big tech will be heavily involved in such a project.