Consciously decoupling the US economy

America needs a coherent strategy to compete in a world with ascendant state capitalism

Rana Foroohar

Anyone who still doubts that the US is economically decoupling from the rest of the world should take a look at a proposal the commerce department put forward last week. This would allow its secretary Wilbur Ross to prevent imports of any new technology deemed a “national security threat”. The broad language could apply not only to Huawei chips or Chinese dot-coms, but to European hardware, software and data services, too, if they are deemed to be linked to a “foreign adversary”.

Such a link is very possible now Europe is being pulled into China’s technology orbit via the 5G standards and technologies that make up part of the Belt and Road Initiative. I spoke recently to a senior executive at a strategically important US technology company who told me it is becoming legally tricky for him even to speak to his counterparts in Europe, because of the various restrictions that the Trump administration has put in place.

That’s scary, because one of the most important things the US could do right now to ensure both national security and its own position in the 21st-century digital economy would be to work with allies on transatlantic standards for emerging technologies like 5G, artificial intelligence and so on. In fact, that was a key recommendation in a recent Council on Foreign Relations task force report entitled “Innovation and National Security: Keeping Our Edge.”

The title indicates that decoupling is no longer a fringe idea. The CFR has traditionally been the seat of neoliberal economic thinking; most of its members are older, wealthy, business and policy types who have shaped and benefited from globalisation — in particular the free movement of capital across borders — over the past four decades. The fact that the CFR is now admitting that we are in a more fragmented world — one that won’t reset to the 1990s — and advocating what amounts to a US industrial policy, is a major shift in thinking.

They aren’t alone. When I first wrote that elites were missing the prospect of deglobalisation, the idea of the US and China decoupling economically was talked about mainly in eccentric company. Now, it’s become mainstream, advocated by politicians as seemingly ideologically opposed as Democratic presidential hopeful Elizabeth Warren and Republican Senator Marco Rubio.

A bipartisan congressional committee is investigating the relationship between national security and technology, with an eye to helping the defence department maintain its technical edge against China and Russia. The Coalition for a Prosperous America, a group that wants to rebuild the US industrial base and secure supply chains, recently won a prestigious award from the National Association of Business Economics, for a paper showing that a permanent tariff on China would benefit the US economy.

One can argue about the efficacy of tariffs. But it is becoming a given that the US needs a more coherent national economic strategy in a world in which state capitalism is in the ascendant. The question is how to get there. And that’s where the internal contradictions in America’s laissez-faire, free-market system start to become a problem.

The CFR committee that drafted the report on a national innovation strategy is made up mostly of private-sector folks from the finance, technology and consulting sectors (including top brass at Alphabet, Apple, Facebook as well as Breyer Capital, Greylock and McKinsey). There are academic participants, like Berkeley’s Laura Tyson, head of Bill Clinton’s Council of Economic Advisers, who has long argued for an industrial policy, and retired general William McRaven, now at University of Texas. But there are no public-sector members.

Yet the report is mostly about what government should do — recommendations include more federal support for research and development, shifts in immigration policy to attract skilled migrants, and a greater percentage of federal agency and military spending allocated to technology integration.

This reflects more than the ineptitude of our current administration. It reflects the divide between what the private sector wants from government, and what it is willing to give to support the public sector. Will Apple, Alphabet and Facebook stop offshoring profits or put whatever they bring back to the US into something aside from share buybacks? Will Silicon Valley and Wall Street volunteer to retrain the millions of underemployed millennials? How can we move from 40 years of supply-side thinking that has benefited multinational companies, towards something that better supports local economies and workers? These are the big, unanswered questions.

To be fair, some businesses and trade groups have given resources to joining the dots between the public and private sector, and in particular educators and job creators (IBM’s P-tech schools and the Business Roundtable’s efforts on vocational training stand out).

But if America is going to compete with a state-run economy like China in the digital era — one that seems to support a winner-takes-all dynamic — we are going to need bigger, public-sector directed shifts. To achieve those, we will also need changes in tax policy that allow the government to capture and deploy more of the wealth created by the private sector.

That’s a message that business doesn’t like to hear. But like decoupling itself, it is coming.

Migrant Workers

The Chinese Builders Behind Africa's Construction Boom

By Heike Klovert in Addis Ababa

Xu Dingqiang, the head of electrical and sanitation installations at the future Addis Ababa National Stadium.

Specialists from China are erecting massive buildings across Africa, including Ethiopia's new national soccer stadium. The workers must leave behind their families and move to faraway countries. But the money is hard to beat.

Xu Dingqiang's position at the top of the construction site hierarchy is apparent in the way he dresses. Work pants, steel-toed boots, hard hat, reflective vest. Not all the workers here have access to such equipment. But the 47-year-old has an important task.

Xu is in charge of installing electrical and sanitary equipment in the future stadium of Ethiopia's national soccer team. The building stands out from the maze of streets that surround it in Addis Ababa, as if a spaceship had landed in the center of the Ethopian capital.

Xu hurries up through the stands where up to 60,000 spectators will soon sit and cheer. At the uppermost level, he enters a dimly lit restroom where 10 of the stadium's 1,000 toilets have been installed. The lights don't yet work and the floor tiles are covered by a layer of construction dust. A colleague speaks to him in their native dialect from Jiangsu province in eastern China. Xu stands with his legs apart and his arms crossed in front of his chest.

Xu Dingqiang talks to a colleague about ongoing work at the construction site.

The two specialists work for the China State Construction Engineering Company, or CSCEC, one of the largest construction companies in the world. The Adey Abeba Stadium, the roof of which will ultimately look like the shell of some primeval lizard, is one of the Chinese state-owned company's showcase projects. It is also busy erecting glamorous new headquarters for the Commercial Bank of Ethiopia in Addis Ababa and Africa's tallest skyscraper in Egypt.

The CSCEC is just one of many Chinese companies, whether state-owned or private, that have been feverishly building new skyscrapers, roads, railways, stadiums and dams in Africa. The China Africa Research Initiative at Johns Hopkins University in the U.S. estimates that African countries borrowed in the neighborhood of $143 billion (130 billion euros) from China's government, banks and entrepreneurs between 2000 and 2017.

But who are the people behind this construction boom? And what is it like for them living in Africa?

'If This Were China'

Xu has finished inspecting the toilets and leans against one of the stadium's concrete balustrades, gazing out on a panorama of grass and bushes that will soon give way to sports fields and parking lots. Behind them are houses and buildings of various sizes and, in the distance, hazy hills. "If this were China," Xu says, "it would look much tidier here."

Xu has little opportunity to explore what the Ethiopian capital has to offer. He only leaves the fenced-in construction site two or three times a week to fetch snacks for his employees or items he needs for his job. Addis Ababa is considered extremely safe compared to other African cities, but Xu doesn't navigate the city on foot, and he doesn't go alone. He's heard of other Chinese people who were mugged. "I'm a little scared," he says.

Xu Dingqiang, the head of electrical and sanitation at the construction site, says he enjoys the mostly rainless Ethiopian weather.
Xu Dingqiang, the head of electrical and sanitation at the construction site, says he enjoys the mostly rainless Ethiopian weather.

It is estimated that more than 200,000 Chinese are currently working for Chinese and foreign companies in Africa. Many, like Xu, move from country to country. Before coming to Addis Ababa, he helped build the new port in nearby Djibouti. Before that, he says, he was in Germany, Spain and Greenland.

These global Chinese migrant workers mostly keep to themselves. They live in temporary barracks or apartment blocks, communicate with native workers in an amalgam of Mandarin, English and the local language and generally have little contact with the general population of their host country.

Some Chinese, of course, have settled in Ethiopia, having found a wife and started a family or perhaps opened a shop or restaurant. Most, however, return home to their families in China sooner or later. They are primarily drawn to far-flung construction sites like the one in Addis Ababa by the money.

A Win-Win Situation

Xu took the job in Ethiopia two years ago because he was eager for something new -- and because he earns twice as much as back home. Plus, he gets free room and board. He left his wife and children in Jiangsu and moved into barracks next to the stadium in Addis Ababa. In the evenings, he surfs the web and watches Chinese movies before falling asleep in his metal bunk bed.

Xu's life consists of little more than work and he's hardly seen anything of his host country in the past two years. He does like the Ethiopian climate, though, because it hardly rains. Rain is impractical for construction workers.

His position as head of electrical and sanitation has at least earned Xu the right to live alone. Lower-ranking workers have to share, with eight of them packed into a single room. In Xu's space, there is enough room for a somewhat homespun-looking desk and for cable reels stacked on the bare concrete floor next to his bed. Xu has placed three pairs of shoes on the welded reels, next to a cardboard box of dried seaweed. There is no wardrobe.

     Dormitories for Chinese workers

For Xu and many of his colleagues, their work on the African continent is a clear win-win situation. "We are helping African countries to develop," he says. China brings skills, specialized workers and surplus material to Africa to expand its infrastructure and build new trade relations. All sides benefit. When Xu talks about it, he uses words like growth and business. Terms like colonization or debt trap are not part of his narrative.

Clear Hierarchies

One may find this way of thinking to be lacking in nuance, but its not entirely false. For three years, as many as 200 workers from CSCEC and other Chinese subcontractors have been working alongside at least three times as many Ethiopian workers. The men form teams, with one Chinese handing out assignments to several Ethiopians.

The roles are clearly distributed -- and the social divide is obvious: CSCEC employees wear hard hats, work boots and reflective vests with the company's logo. The Ethiopian workers and the employees of Chinese subcontractors, meanwhile, often wear only jeans, sweatshirts, light shoes and no head protection. Can such an unequal cooperation really work?

In one of the stadium's basements, 18-year-old Abdullah Abdulrahman is grouting tiles in a washroom. He's from the countryside, but a few months ago, he approached the stadium's steel gate and asked for work, as did most of the locals who work here. He's happy to be earning money and learning something new in the process. "I like working for the Chinese," he says.

The young Ethiopian women who prepare Chinese food in the kitchen for the foreign workers are similarly grateful. So too are the Ethiopians leveling the sand in the arena where the turf will ultimately be installed. They, too, have only positive things to say, even when no Chinese person is listening.

Only one of them complains, saying he'd like to earn more. But he's not about to go out and look for a new job. The job security is better here than at other construction sites in Ethiopia, he says. One of his Chinese superiors sometimes yells at him, he says, but that could just as well happen with a local boss.

Cultural Differences

Chen Yu manages the construction site and speaks openly about the difficulties that his job entails. "The biggest problem," the 37-year-old says, "is the Ethiopians' work ethic. Most of them don't like working overtime." While the Chinese work nine to 10 hours a day, the Ethiopians usually work only eight, he says. Plus, if they show up late to work and have their pay docked as a result, Chen says they'll show up in his office to complain.

Any Ethiopian who is ambitious in his job can earn a raise, the manager says. But very few do. Most of them have practically no technical qualifications and it's a laborious and costly process to train them for the job, he says. It's absolutely possible, Chen adds, that his Chinese colleagues might sometimes lose their temper.

The civil engineer has a rather critical opinion of the African country and its people. On one hand. On the other, Chen says he respects and admires the Ethiopian culture. "Ethiopians are much more spiritual and not as materialistic as the Chinese. They seem happy, even if they don't own much," he says.

       Chinese workers attend a regular security briefing inside the stadium.

Five translators work on the construction site to clear up misunderstandings that can arise due to different ways of thinking or doing things. Chen and his employees also do their best to stay out of the cultural and political wranglings of their host country.

It's around 6:30 a.m. on a recent morning and all of the Chinese specialists have gathered for one of the regular safety briefings at the stadium. They are lined up beneath the stands, hard hats on and hands in their pockets, as they listen to a superior.

He tells them that a few days ago, the head of the Ethiopian army and a provincial governor were shot dead. He goes on to say that ethnic groups in the country are at odds with one another, and that it is therefore important to act neutrally to all sides. The superior adds that it would be best to avoid giving tips altogether, lest one arouse envy or resentment among others.

A Stadium-Sized Life

This state-imposed neutrality is another reason why African heads of government are so fond of doing business with the Chinese. It's the stuff of dreams: A big-scale investor who helps poor countries without asking critical questions or making demands, like the Europeans are wont to do before releasing funds.

Xu, the installation manager, and Chen, the head of the construction site, would therefore rather not comment on the fact that the Ethiopian national soccer team is currently ranked 146th of 210 teams by FIFA, which makes the gigantic stadium they are building in the middle of the city seem like wasteful political symbolism.

And what might happen if Ethiopia and other developing countries can't pay back their loans to the Chinese? To what extent do countries' economic dependence spill over into a political dependence? Here, Chen's and Xu's answers are in lockstep with those of the Chinese government. Unlike the West, Chen says, China has never colonized another country. "We all want to grow together," he says.

     Dormitories like this one can accomodate four to eight Chinese workers.

It's time for lunch. Chen takes a seat in the wide leather armchair in his office and Xu retires to his room. He wants to take a nap in his bunk bed before returning to the unfinished toilets. Soon, Xu will return home for a few days -- to his children, his wife and the Chinese snacks that he misses. Afterward, he intends to return to Addis Ababa. The stadium isn't finished yet.

When he does return to Ethiopia, Xu's world will shrink back to the size of a little bit larger than a soccer field. But this doesn't bother him, he says. "We don't think much about our lifestyle here. We're just here to work."

Brexit After the Election: For the UK, the Political Risk Is Only Beginning

By: Ryan Bridges

The United Kingdom went to the polls Thursday and voted again for Brexit. The Conservative Party won 364 of 650 seats in parliament, giving it a strong majority to advance the EU withdrawal agreement negotiated by its leader and Prime Minister Boris Johnson and leave the European bloc at the end of January 2020. Passage of the agreement in theory resolves one of the most critical issues, the status of the Irish border, which significantly reduces the political risk for the EU side of Britain’s departure.

But for the United Kingdom, the political risk is only beginning.

The start of formal trade negotiations will draw farming and business lobby groups deeper into the negotiation and force both sides into difficult compromises. Moreover, any trade deal will require the approval of the European Parliament as well as the parliaments of constituent member states, subjecting to it political scrutiny that it has generally yet to experience.

Hopelessly optimistic pledges aside, the chances of resolution on the future relationship by the end of 2020 are slim. A deal would require significant concessions by one or both sides in a very short time frame, while no deal would greatly increase the risk of the breakup of the United Kingdom.

Much more important than what is happening between London and Brussels will be how London manages its relationship with the governments of Scotland, Northern Ireland and, to a far lesser extent, Wales. The pro-Scottish independence Scottish National Party (SNP) secured 45 percent of the vote in Scotland, a gain of more than 8 percentage points over the 2017 election and good enough for 48 of 59 seats in the regional parliament.

The SNP campaigned on holding another independence referendum – which would be the second since 2014 – and party leader Nicola Sturgeon was quick to declare that the results gave her a mandate to follow through on that pledge. Meanwhile, Johnson – whose party lost more than half its seats in Scotland, falling to six seats from 13 – vowed during the campaign not to permit another Scottish independence referendum. Technically, the SNP needs the consent of the government via a Section 30 order to hold another referendum, though some constitutional experts believe there may be leeway.

Regardless, were Downing Street to refuse, it would likely strengthen the Scottish independence movement and create even more problems down the line. Opinion polls still show a roughly even split on Scottish independence. The three most recent surveys – conducted by YouGov, Panelbase and Survation, all in December – find the anti-independence side ahead by 10, 6 or 1 percentage points, respectively.

The “No” side won the 2014 referendum by 10 percentage points, so these margins suggest a closer vote this time. A hard line by London could boost the Scottish nationalist cause, especially if combined with a hard Brexit; 62 percent of Scots voted to remain in the EU, and polls suggest that a harder Brexit increases support for independence.

At the same time, London might be facing unrest by unionists in Northern Ireland in the coming year. To secure the EU withdrawal agreement, Johnson agreed to apply customs checks on goods moving across the Irish Sea from Britain to Northern Ireland. This outraged unionists, for whom the agreement is tantamount to the forced economic reunification of Ireland, or at least the partitioning of Northern Ireland from Britain.

Unionist groups are already warning that they will blockade ports and take other unspecified measures to disrupt trade with the Irish Republic in the event that checks are instituted. Such checks would occur only if no trade deal were worked out at the end of the U.K.-EU transition period, which will terminate at the end of 2020 but as it stands can be extended until the end of 2022. At the same time, nationalist parties in Northern Ireland won more seats in Thursday’s election than did unionists, a first since Ireland’s partition in 1921. This prompted nationalist calls for a border poll on a united Ireland, though such an event is likely years away.

The Conservative Party’s election manifesto ruled out any extension, but given that the party has opposed every Brexit extension to date only to acquiesce at the last minute, there are doubts about its sincerity. And importantly, delay in this case would work to London’s advantage – not necessarily in the negotiations with Brussels, but in its dealings with Edinburgh and Belfast.

The SNP wants to hold a referendum quickly – Sturgeon has said she will seek approval for a vote before Christmas – but the case for independence may be weakened if the vote is held while negotiations are ongoing, an extension has been secured (a request for extension must be made by the end of June) and a softer Brexit looks possible.

The SNP’s best chance for independence may be to wage a protracted battle over the legality of another referendum or otherwise drag its feet while hoping that the Johnson government agrees to either the hardest possible Brexit deal or no deal at all – though in that case it runs the risk of a soft Brexit that deprives it of its momentum. Similarly, delay means no customs checks in the Irish Sea, which for England puts off the problem of unionist unrest in Northern Ireland.

All signs suggest that the U.K. and EU will need all the time they can get for the next phase of the negotiation. Both sides obviously want a trade agreement, but after the way the withdrawal agreement talks went, Brussels believes Johnson is a pragmatist who can get away with making concessions that other politicians can’t. Brussels will also need to proceed cautiously to better account for the wishes of individual member states in the next phase, since any deal will require national approval. And the EU is fully aware of the Scottish situation, which it can use to its advantage so long as Scotland’s status is unresolved.

The British government needs a favorable trade agreement with its largest trade partner, but more than that it needs to keep its own union together – especially when it comes to Scotland, which is larger, wealthier and more populous than Northern Ireland and, importantly, shares an island with England. For at least the next year, the phase of Brexit that ostensibly covers the trade relationship between the U.K. and EU will hardly be about trade.

A Common Theme of Global Unrest

By: George Friedman

From Hong Kong to Tehran to Buenos Aires, the world appears to be destabilizing. The question that has been raised is whether there is an underlying cause triggering this global unrest. On the surface, the answer to that ought to be no. There is so much unrest throughout the world at any point that it would appear to be merely the normal chaos. Unrest, moreover, is unique to every country and usually has multiple causes. Hong Kong, Tehran and Buenos Aires are very different places, each with its own geopolitical circumstances.

Still, there is in this instance one element that is common to them all: 2008. In 2008, the international economic system shifted dramatically, and the changes it wrought have not been fully metabolized.

The weakness in the global economy is magnified by the unsolved problems left over from 2008. As a result, there are economic problems that have transformed into political ones. Add to this the shift in U.S. strategy away from military interventions and toward economic confrontations, and the problems are magnified further still. The U.S. is the world’s largest economy and importer and a shift in strategy to economics necessarily affects the economic system.

Consider the riots in Hong Kong. In 2008, China was a powerful exporter, dependent as it was on exports for social stability. The financial collapse created a profound crisis. An economy built on efficient exporting staggers when its customers are unable to buy its goods. The export crisis compounded an incipient financial crisis as cash flow from exports contracted. What followed was a series of purges designed officially to weed out corruption and unofficially to find scapegoats for
China’s problems and to intimidate potential opposition. After all, the government had promised prosperity and was now facing the need for austerity. The purges were the beginning of a systematic repression in China that sought to retain Chinese economic dynamism without an equivalent political dynamism.

Things got worse when the U.S., China’s biggest customer, imposed punishing tariffs on Chinese goods and demanded access to China’s markets. (Political concessions were implied.) The pressure from the United States increased the pressure still present from 2008. It in turn intensified suppression. Chinese insecurity compelled the Communist Party to seek increased control over Hong Kong, with an extradition law that would permit China to extract Hong Kong citizens. And that in turn triggered the instability in Hong Kong.

Iran is obviously very different from China. But its experience has a core similarity. The 2008 crisis triggered a slowdown in consumption and therefore in production. In the long run, this inevitably caused major declines in commodities such as oil. Iran was an oil producer and continued to export despite political pressure. But the world price of oil weighed on Iran, causing pressure on the economy, and, eventually, restlessness in the society. As with China, the U.S. imposed economic penalties on Iran for reasons that have little to do with the economy. Regardless, the effect of the global shift in oil pricing, coupled with intense economic pressure from the United States, over time generated intense unrest and government repression.

There has been unrest in countries in which the U.S. played no role. Lebanon, Argentina, Chile and others all went into crisis for idiosyncratic reasons – including an emerging global economic slowdown – that, on top of structural issues, have not been addressed since 2008. In all these countries, there are political problems that do not derive from 2008 or U.S. pressure. In some, such as Lebanon, there are economic problems but they are mostly generated by internal forces.

No general theory of unrest is impossible. But a special theory is possible. Those countries most dependent on either industrial exports or the sale of industrial commodities were harmed and few recovered after 2008. The addition of U.S. economic pressure as a tool of foreign policy has compounded this problem, generating unrest. U.S. pressure would not have been nearly as effective without 2008, which reshaped the global system and has been reverberating through it ever since. It is now triggering internal political consequences that are threatening the ability of regimes to cope.

What’s Wrong With Warren Buffett’s Berkshire Hathaway? A Failed Buyout Tells the Story.

By Andrew Bary

Warren Buffett, CEO of Berkshire Hathaway Photograph by Johannes Eisele/AFP via Getty Images

Why is Berkshire Hathawaystock nearly 20 percentage points behind the S&P 500 index this year?

The company’s recent unsuccessful attempt to buy Tech Data(TECD), a distributor of technology products, offers a partial explanation, as it illustrates Berkshire’s current challenges and CEO Warren Buffett’s stubborn approach to capital allocation.

Buffett, who turned 89 in August, continues to search in vain for what he has called “an elephant-sized acquisition” that could total $50 billion or more. Berkshire recently lost a bidding war for a much smaller target, Tech Data, which agreed to be purchased for $145 a share, or $5.1 billion, by Apollo Global Management(APO), the private-equity firm. That followed a Berkshire bid of $140 a share.

Berkshire is sitting on too much cash, has bought back only a modest amount of stock this year despite an attractive valuation on its own shares, has been subdued buyer of equities and can’t find suitable acquisition targets because of Buffett’s price sensitivity and unwillingness to participate in corporate auctions.

The latter appears to have come into play in the Tech Data situation, as the company accepted a Berkshire offer only to turn it down when Apollo raised its bid.
On MarketBrief, Marc Levine, former chairman of the Illinois State Board of Investment, says that the federal government may need to step in to help save U.S. pension systems.

Berkshire’s class A shares (BRKA), which are up $505, to $331,000 Monday, have gained 8% this year, against a total return of 27% for the S&P 500. This is one of the worst years of relative performance for Berkshire since Buffett took the reins in 1965. Berkshire’s class B shares are up 65 cents at $220.95 Monday.

There is some frustration among Berkshire holders that Buffett has allowed so much cash — $128 billion at the end of the third quarter—to build on Berkshire’s balance sheet. Despite an expanded authority to buy back stock since the summer of 2018, Berkshire has repurchased relatively little. In the first three quarters of 2019, Berkshire bought $2.8 billion of stock. At that rate, Berkshire will buy back less than 1% of its stock this year—its market value is about $540 billion.

Buffett loves to invest in companies like Apple(AAPL), Bank of America(BAC), and Wells Fargo(WFC) that repurchase lots of stock, but he has long been cool to buybacks at Berkshire. Some big banks are buying back 5% to 10% of their stock, while Apple has retired about 6% of its stock in the past year through the largest buyback program in the world.

Berkshire also has scaled back its equity purchases this year, buying $15 billion in the first three quarters, against $38.6 billion in the same period of 2018.

As one longtime Berkshire watcher tells Barron’s, Buffett and Vice Chairman Charlie Munger are disadvantaged in the acquisition game. Buffett refuses to participate in corporate auctions, which makes it tough for boards of public companies like Tech Data, which have a fiduciary obligation to get the best price.

And it is debatable whether Tech Data, which operates in the slow-growth, low-margin distribution business, would be a better use of Berkshire’s cash than its own stock. Apollo is paying 11.5 times projected earnings in Tech Data’s current fiscal year for the company.

Berkshire trades for 21 times estimated 2019 profits, but the company’s effective price/earnings ratio is lower because Berkshire can reflect only the dividends of the companies in its $220 billion equity portfolio in its earnings. Berkshire is also sitting on an enormous amount of cash -- it is earning just 2% on that cash. And Berkshire owns a higher quality group of businesses than Tech Data.

Berkshire now trades for 1.35 times its Sept. 30 book value of about $244,000 per class A share—near the low end of its range in recent years. And book will likely be up smartly in the current quarter thanks to the company’s $25 billion of annual earnings power and gains in the stock market.

Berkshire’s largest equity holding, Apple, has appreciated by about $10 billion since Sept. 30. Bank stocks, where Berkshire has broad holdings, are up about 10% on average since the third quarter ended. Berkshire’s book could hit $254,000 per class A share at year-end, according to a client note from Barclays analyst Jay Gelb. That means the stock may be trading for just 1.3 times year-end book value, just above the old cap on Berkshire buybacks at 1.2 times book.

One longtime Berkshire holder says that Buffett should look for bigger acquisition targets, where the company has more of an edge because of the difficulty of private equity to do deals that are more than $50 billion. Potential targets include Walgreens Boots Alliance(WBA), which already has had an approach from private equity, or a major airline like Delta Air Lines(DAL) or Southwest Airlines(LUV). Berkshire likes the airline sector and already owns about 10% of both Delta and Southwest.

A lagging Berkshire looks appealing with Gelb carrying an Overweight rating and a price target of $375,000 on the class A shares, about 14% above the current price.

Investors, however, may want to see a greater commitment from Buffett on stock buybacks or an attractive big acquisition before getting more excited about the shares.

Who shot the sheriff?

It’s the end of the World Trade Organisation as we know it

And America feels fine

“Winter is coming,” warned a Norwegian representative on November 22nd, at a meeting of the World Trade Organisation (wto). The multilateral trading system that the wto has overseen since 1995 is about to freeze up.

On December 10th two of the judges on its appellate body, which hears appeals in trade disputes and authorises sanctions against rule-breakers, will retire—and an American block on new appointments means they will not be replaced. With just one judge remaining, it will no longer be able to hear new cases.

The wto underpins 96% of global trade. By one recent estimate, membership of the wto or General Agreement on Tariffs and Trade (gatt), its predecessor, has boosted trade among members by 171%. When iPhones move from China to America, or bottles of Scotch whisky from the European Union to India, it is the wto’s rules that keep tariff and non-tariff barriers low and give companies the certainty they need to plan and invest.

The system is supposed to be self-reinforcing. Mostly, countries follow the wto’s rules. But if one feels another has transgressed, then instead of starting a one-on-one trade spat it can file a formal dispute. If the wto’s ruling displeases either party, it can appeal. The appellate body’s judgments pack a punch.

If the loser fails to bring its trade rules into compliance, the winner can impose tariffs up to the amount the judges think the rule-breaking cost it. It is that punishment that deters rule breaking in the first place.

It is no surprise that President Donald Trump has axed these foreign arbiters, given his general distaste for internationally agreed rules. On November 12th he declared himself “very tentative” on the wto. But the problems run far deeper than dislike of multilateral institutions.

They stem from a breakdown in trust over the way international law should work, and the more general failure of the wto’s negotiating arm. Had the Americans felt that they could negotiate away their grievances, resentment towards the appellate body might not have built up. But with so many members reluctant to liberalise, including smaller countries fearful of opening up to China, that has been impossible.

America has had some wins at the wto: against the European Union for subsidies to Airbus, an aircraft-maker; and against China for its domestic subsidies; theft of intellectual property; controls on the export of rare earths, which are used to make mobile phones; and even its tariffs on American chicken feet.

But it has also been dragged before the appellate body repeatedly, in particular by countries objecting to its heavy-handed use of “trade remedies”: tariffs supposed to defend its producers from unfair imports. Time after time, it has lost. In such cases, it has generally sought to become compliant with the rules rather than buy the complainant off.

Though previous administrations had grumbled, and occasionally intervened in judges’ appointments, the Trump administration went further. Its officials complained that disputes often dragged on much longer than the supposed maximum of 90 days, and—more seriously—that the appellate body made rulings that went beyond what wto members had signed up to. They made it clear that unless such concerns were dealt with, no new judges would be confirmed.

Judicial overreach is in the eye of the beholder. Losers will always feel hard done by, and America has been quick to celebrate the wto’s rulings when it wins. But plenty of others think that the appellate body had overstepped its remit. A recent survey of individuals engaged with the wto, including national representatives, found that 58% agreed with that verdict.

Getting so many countries to sign up to the wto was a remarkable achievement. One way negotiators managed this was by leaving the rules vague, and papering over their differences with ambiguous language. Take “zeroing”, for example: using dubious mathematics to calculate defensive tariffs on unfairly traded imports. The Americans claim that the rules do not say they cannot do it. But others counter that the rules do not say they can. It is such long-running differences that have set the scene for the latest showdown.

Offer me solutions

The American trade lawyers happy to kill the appellate body see a fundamental difference between their attitude to international law, and that of Europeans. Their position is that only clear contractual terms can be enforced, and they see Europeans as more comfortable with resolving ambiguities by going beyond what is written.

Essentially, they regard the appellate body as too European. Moreover, in its eagerness to rule where terms are unclear, and in the American government’s willingness to change its laws in response, they feel an affront to America’s sovereignty.

Under the gatt, which lacked a proper enforcement system, ambiguities were hashed out in smoke-filled rooms. But the wto was supposed to make naked power politics over trade obsolete. Had it worked as intended, there would have been a balance between settling disputes and writing new rules.

Policy is best made with a vibrant judiciary interpreting the law, and a functioning legislative arm to fix any mistakes. Whenever the appellate body made decisions that annoyed members, they could have resolved their differences at the negotiating table. Perhaps America could have got others to agree to higher tariffs on imported steel, or been granted some flexibility in its defensive duties.

But the wto’s negotiating arm has been broken for years. With the current count of members at 164, it has become more inclusive, but is unable to get much agreed. Each member has a veto over any further multilateral trade liberalisation. And without new negotiations, resentment towards the appellate body has built up.

If you think this has a happy ending…

Had the multilateral system been more effective at dealing with the rise of China, perhaps the single biggest issue of its times, then calls to save it might be louder in Washington. Although various American administrations pursued and won several cases, the process was slow and occasionally frustrating.

America can justly claim that, when it tried to hold China to account for its breaches of trade rules, it got little support. America has been responsible for more than half of all complaints against China. And other wto members’ complaints were generally copycat, filed in America’s wake.

Now that the Trump administration has bypassed the wto and taken the fight straight to China, there is nothing remaining that it particularly wants from the wto. And so the chances that it will relent and allow nominations to the appellate body by December 10th are slim to none. In response to proposals from other members to change the body’s rules, an American representative said that they were not persuaded that the rules would be stuck to.

On November 26th the Trump administration suggested slashing the pay of members of the appellate body. In October Chuck Grassley and Ron Wyden, the top Republican and Democrat politicians on the Senate Finance Committee, published an editorial saying that while they saw the value of an appellate body, it “needs to operate as the members agreed”.

Of the wto’s 163 other members, 117 have signed a joint letter calling upon America to end the impasse. Although America has been the heaviest user of the dispute-settlement system, others will miss it too (see chart). Some have already begun preparing, for example by agreeing at the start of any disputes to forgo the right to appeal.

The eu, Canada and Norway have agreed on an interim arbitration mechanism that will use retired members of the appellate body as judges. And the eu is considering beefing up its own enforcement mechanism to fill the hole left by the appellate body, though it would probably cleave more closely to the outcomes of first-stage rulings in wto disputes.

But some members are likely to shun such alternatives—especially those that expect to be sued a lot. And it is unclear how robust they will be if disputes turn nasty. Some wto members may try to choose their dispute-settlement mechanism case by case. An organisation as ambitious as the wto, for all its faults, will be easier to break than replace.

All this means that global trade is about to become a lot less predictable and a lot more contentious. Without the appellate body to act as honest broker, disputes between the biggest members may escalate. Under the gatt America acted as global trade sheriff, launching investigations at will and bullying disputatious countries into submission. It is not impossible that it will resume this role.

On November 27th the Trump administration announced that it had nearly finished an investigation into a French tax on digital services, which America reckons discriminates against its tech giants. That could lead to tariffs.

You’ll miss it when it’s gone

In the 1980s American unilateralism was no fun for countries on the receiving end. But at least back then Uncle Sam could point to the lack of any other power even theoretically capable of doing the job.

Now the absence of independent referees is America’s own doing.

And of all Mr Trump’s trade policies, it may prove the hardest to reverse and have the longest-lasting effects.

The death of Chile’s pension promise

Protesters urge overhaul of system once lauded as the ‘Mercedes-Benz’ of retirement provision

Benedict Mander in Santiago

A demonstrator gestures in front of a burning barricade next to a looted shop during a protest against Chile's government in Valparaiso, Chile November 26, 2019. REUTERS/Goran Tomasevic     TPX IMAGES OF THE DAY
© Reuters

Ten years after retiring, Patricia Azagra considers herself to be one of Chile’s lucky ones. Unlike many, she held a steady job for almost her entire working life and made regular contributions to her pension for more than 30 years.

Even so, her monthly pension of about $600 is scarcely one-third of her final salary, and about half what she was promised when she first started paying into Chile’s pioneering pensions system in the 1980s. Getting by without help from her children was “impossible”, she said.

“Thank God I also have my health,” said the 75-year-old former municipal social worker, who fears having to rely on Chile’s expensive privatised health system. “Of course I can’t afford holidays or anything but the most basic costs. If the slightest thing happens to me — bang! — I will fall into poverty.”

Her situation, precarious though it is, is at least better than that of the 44 per cent of Chilean pensioners who receive less than the minimum wage of about $400.

As Chileans of all ages take to the streets in protest at persistent poverty and social injustices, the irony for many is that the pensions system they want President Sebastián Piñera to overhaul was once globally hailed as an engine for economic prosperity — the “Mercedes-Benz” of retirement provision.

Chile was the first country in the world to privatise its pensions system. Established almost 40 years ago during General Augusto Pinochet’s military dictatorship, the defined contribution model was widely praised by institutions such as the World Bank and seen as a key part of the Chilean economic success story.

Reliant solely on a mandatory 10 per cent contribution from employees, it was copied by more than 30 countries across Latin America, south-east Asia and eastern Europe. Buoyed by regular payments, the Chilean pensions system grew and the country’s embryonic capital market roared to life: pension funds now exceed $200bn, or 80 per cent of gross domestic product. This played a crucial role in turning Chile into the richest country in the region, lifting millions out of poverty.

But the system is designed to benefit those who remain in formal employment for much of their working lives and are thus able to make regular payments. Chile’s large informal sector — as many as one-third of the population are in irregular employment — means that many people pay little or nothing over their lives.

“It’s a system that doesn’t work for the reality of Latin America,” said Andras Uthoff, a pensions expert in Santiago. The privatised system “works fine for about a fifth of the population, but not for the vast majority. They were forgotten about,” he added.

“Chile never left behind the [neoliberal] model installed by Pinochet and now it is paying the price,” said Andrés Solimano, an economist and former World Bank country director in Santiago. “That model is exhausted in its current form, and needs a serious upgrade. There is no social safety net in Chile.”

An elderly man holds a sign bearing the message 'Thanks, brave youth' during protests against the government in Santiago © Johan Ordonez/Getty

Analysts argue that a saving rate of 10 per cent — almost half the level of contributions in developed countries — is too low to deliver retirees a decent income. Retirement ages, at 65 for men and 60 for women, also remain low, given that life expectancy has risen by a decade since the early 1980s.

Much of the debate — and the anger on the streets — has focused on the private pension funds that critics say have outsized profits while paying out sometimes derisory pensions. A ubiquitous slogan on protesters’ banners and graffiti around Santiago is “No more AFPs”, referring to Chile’s private pension fund managers.

Fernando Larraín, director-general of the pension administrators’ association, said that even if all of their profits were given to pensioners, that would amount to less than $13 per person. “That’s all very well, but it doesn’t solve anything,” he said, arguing that ultimately what is needed is better pensions, which would need to be at least partly government-funded. “There is a solution, but it is expensive. Where is the money going to come from?”

Previous governments have tried to tweak the system, to allow some state support for those on the lowest incomes. Since 2008, the government has paid a basic pension to the poorest workers, amounting to scarcely $150 a month. That costs the government about 0.8 per cent of GDP, and compares with a 6 per cent average in OECD countries.

Further changes were under discussion even as protesters remained on the street this month. A 50 per cent rise in the basic state pension has been agreed in congress, which would cost the state an extra $1.3bn annually, and there are proposals for employers to make an extra contribution of 5 per cent to a new state agency.

“It’s the cost of doing business,” said Jonathan Callund, a pensions policy consultant based in Santiago, pointing out that while employers have not until now made direct contributions to pensions, the Pinochet reforms forced them to compensate by paying higher wages. “When it comes down to it, as everywhere else in the world, all social security contributions are paid by the employer. This is clear as day.”

Rodrigo Valdés, a former finance minister, fears a populist solution to Chile’s pension problem could compromise fiscal equilibrium. “The elastic has already been stretched, and I don’t know at what point it will snap. It depends how irresponsible the government wants to be.”

Whoever Wins in Britain’s Election, Big Government Spending Is Back

Conservative Boris Johnson has plans costing billions; Labour’s Jeremy Corbyn has even bigger ideas

By Jason Douglas

BARNSLEY, England—The fiscal brakes are coming off.

Prime MinisterBoris Johnsonis promising voters in Thursday’s U.K. election £100 billion ($128 billion) of investment in infrastructure and billions more for policing and health care.

His main rival, the Labour Party’sJeremy Corbyn,is offering an even greater bounty, with hundreds of billions in spending and borrowing to remake Britain as a 21st-century state-run economy, complete with free broadband in every home.

With these pledges, the U.K. joins the ranks of advanced economies where politicians are signaling an end to years of constrained fiscal policy. Public spending is back in vogue, even among some parties on the right with a traditional zeal for balanced budgets and a mistrust of big government.

In the U.S., President Trump’s tax cuts and military spending pushed the federal budget deficit to $1 trillion in the 12 months through October. France and Spain are relaxing budget goals to pay for tax cuts and extra social benefits to soothe disaffected voters.

Normally abstemious countries including the Netherlands, Finland and Germany are boosting outlays on welfare, defense and infrastructure. In Japan, Prime MinisterShinzo Abe’scabinet has approved a $120 billion stimulus program to revive flagging growth and help regions hit by an October typhoon.

The move toward greater fiscal activism comes after years of heavy lifting by monetary authorities that have left central banks depleted, and even maligned for exacerbating inequality by turbocharging asset prices.

Labour Party leader Jeremy Corbyn at a campaign event in Carlisle in northwest England. Photo: oli scarff/Agence France-Presse/Getty Images 

Populist movements of the left and right, meantime, have found fertile soil in regions left behind by patchy economic growth, leading mainstream parties to rewrite the economic playbook to keep voters sweet. Citizens grumble about creaking infrastructure and many fret that the private sector isn’t up to daunting challenges such as climate change.

The shift is coming at a time when economic clouds are darkening, with a U.S.-China confrontation over trade pinching growth and spooking investors.

Greater public investment could help lighten the gloom, with spending in areas such as infrastructure and education contributing to a healthier, more balanced expansion, say policy makers such as International Monetary Fund chief Kristalina Georgieva and outgoing European Central Bank President Mario Draghi.

The IMF and the European Commission—the European Union’s executive arm—are urging countries with fiscal room to spare to spend even more to keep the global economy humming.

“There’s a whole litany of reasons why this is the right thing to do,” said Adam Posen, a former Bank of England official who heads the Peterson Institute for International Economics, a think tank in Washington, D.C. Private investment is low and in many places infrastructure needs updating, he said, adding that low interest rates support borrowing for productive investment.

A fiscal shift isn’t without risk. Recent history is littered with instances, from Latin America to the eurozone, where investors have soured on administrations they viewed as profligate, prompting painful reversals when borrowing costs spiraled. A year ago, Italy’s then-populist government watered down its plan for greater borrowing in response to rising interest rates that were pushing the economy toward recession.

With unemployment low in many jurisdictions contemplating a fiscal splurge, extra spending could cause economies to overheat, requiring central banks to step on the brakes. Voters may balk at higher taxes, or grow more disillusioned still with mainstream politics if promises aren’t kept.

If spending promises are financed by borrowing, governments need to remember that today’s low interest rates may not last forever, saidKenneth Rogoff,professor of economics at Harvard University. The bill may fall due on taxpayers or pensioners when economic conditions are less benign, he said.

“The notion that it’s just free, that we can just spend more money and no one’s going to pay for it, is very naive,” he said.

In the U.K., such risks are heightened by the country’s planned departure from the European Union, which is clouding the economic outlook, unsettling investors and absorbing huge amounts of government time and energy. Faced with such uncertainty, investors might be unwilling to pony up for Britain at current low rates, said Mr. Posen of the Peterson Institute.

“Now, the regime shift is real. The U.K. may not be becoming Greece, but it might be becoming 1970s U.K.,” Mr. Posen said, a reference to the boom-and-bust cycles that dogged the economy in the past during spells of political and economic mismanagement.

In the turbulent period after 2009, many countries took steps to rein in ballooning budget deficits. The U.K.’s drive toward austerity stood out. Unlike Greece or Ireland, it wasn’t forced by creditors. And unlike the U.S., the U.K. eschewed tax increases, with successive Conservative-led governments since 2010 straining for budget discipline solely by shrinking state spending.

Conservative Prime MinisterMargaret Thatcherhad railed against big government when in the 1980s she made the U.K. into the crucible of a free-market revolution that swept the globe.

Now, ahead of the election, Mr. Johnson has rewritten his party’s fiscal rules to permit £100 billion of extra borrowing over the next five years to plow into capital projects.

Already the Conservatives have penciled in £22 billion of that for revamping schools, building new flood defenses and greening the economy. They have earmarked £500 million a year to fix potholes. Mr. Johnson’s plans include spending on transport, high-speed broadband and house building, as well as extra cash for voters’ cherished National Health Service.

Voters are also being promised some personal tax cuts, paid for largely through scrapping a planned reduction in corporation tax.

Behind Mr. Johnson’s pitch are political imperatives. He needs to sweep up opposition-held districts to win big enough to meet his goal of taking the U.K. out of the European Union by the current target date of Jan. 31.
Boarded-up houses in the town of Barnsley in the north of England Photo: Fabio De Paola for The Wall Street Journal 

In promising a fiscal boost, he is aiming to sharpen his appeal among traditional Labour voters in areas that support Brexit. Research suggests the British electorate is growing more concerned about poverty and eager for more public spending after years of government restraint, saidTorsten Bell,director of the Resolution Foundation, a nonpartisan London think tank focused on living standards.

“Austerity fatigue has definitely set in,” he said.

The economic and political forces fueling the shift toward greater spending are at play in places such as Barnsley, a former coal-mining town in northern England.

Voters complain of dilapidated transport links and worsening homelessness, and plead for relief after years of belt-tightening. Between 2010 and 2018, public spending in Barnsley and surrounding districts, an urban area of 250,000, shrank by 40% after adjusting for changes in prices, according to an analysis by the Centre for Cities, a think tank focused on boosting urban economies.
“The town has suffered greatly over the last 10 years,” saidAndrew Mayo,an administrator with a charity. “There’s no money anymore.”

One manifestation is the local rail service. Visitors arriving by rail from neighboring Sheffield do so on twin-carriage “Pacer” trains converted from buses in the 1980s.

“Pacer trains should have been consigned to the railway museum many years ago,” saidDan Jarvis,a Labour lawmaker who is seeking re-election on Thursday.

Barnsley has for years been a Labour stronghold, but it also voted heavily in favor of leaving the EU in 2016, putting it in Mr. Johnson’s sights. The Conservatives are projected to win at least one of the area’s four districts Thursday, according to an analysis by pollster YouGovpublished Tuesday.

A challenge both main parties face is from the Brexit Party, an upstart group with a populist bent that advocates an abrupt split with the EU.
Andrew Mayo, administrator for a Barnsley charity, intends to vote Labour. A Brexit Party advertisement near Barnsley. Photos: Fabio De Paola for The Wall Street Journal(2)

As the campaign has moved along, the party’s popularity has weakened sharply. But it is still siphoning pro-Brexit voters from the Conservatives and Labour in a handful of areas, which could make the difference between an outright victory or another hung Parliament.

In the race for votes, fiscal policy is center-stage. Mr. Johnson has laid out plans for a “leveling up” of the British economy to narrow the gap between northern regions and the affluent south around London.

To further extend the party’s appeal, he also has diluted the Thatcherite vision that has long dominated Conservative thinking. His party’s manifesto, for example, contains a pledge to hand government ministers the power to aid struggling businesses with taxpayer cash—a policy popular with voters but anathema to free-marketeers. The government’s ability to bail out failing companies is also constrained by membership of the EU.

“People voted to take back control,” Mr. Johnson said at a recent stump speech, referring to the 2016 referendum on exiting the EU.

Mr. Corbyn’s calculation is that Britons are ready to swing behind his vision for a Britain steered by a more interventionist state, where the government owns or controls companies providing banking, postal services, mass transit, generic drugs and telecommunications.

'Pacer Trains'—converted buses—still appear at the Barnsley rail station. Photo: Fabio De Paola for The Wall Street Journal 

Labour’s manifesto calls for an £80 billion-a-year increase in day-to-day spending—paid for through higher taxes on corporations and high-earners—and hundreds of billions of pounds of borrowing to finance nationalizations, public works and investment in low-carbon technologies.

His plans for a greener Britain echo the Green New Deal proposal in the U.S. that prescribes huge public spending to wean the country off fossil fuels and create jobs.

Opinion polls suggest Mr. Johnson has the edge. The Conservatives are projected to emerge as the largest party in Thursday’s vote, though opposition parties may yet deprive Mr. Johnson of the comfortable majority needed to govern freely.

Under Conservative plans, state spending as a share of gross domestic product would rise modestly, to 41% by 2024, from just under 40%, according to the Resolution Foundation. Labour’s plans imply a bigger uplift, to 45%. Under both parties’ plans, public investment would rise to levels not seen in the U.K. since the 1970s.

On average, government spending in rich nations will rise to 41% of national income by 2021, from 40% in 2018, the Organization for Economic Cooperation and Development projects.

That would mark the first turnabout since 2009.

Silvia Dall’Angelo,senior economist at Hermes Investment Management in London, said many investors would welcome higher government spending, especially if targeted at solving economic problems such as feeble productivity growth.
After a long spell of monetary stimulus, “it’s time to try something different,” she said.

A major challenge for governments, say former policy makers and officials, will be following through. In the U.S., political bickering has scotched efforts to get bipartisan approval for a $2 trillion package of infrastructure spending.

Countries pledging new outlays on roads, railways and bridges, or promising extra services such as child care, will have to deal with the time-consuming nitty-gritty of securing permissions, drawing up plans and finding workers.

“Just announcing telephone numbers of extra spending does not necessarily translate into good-value investments or better services,” saidJill Rutter,a former U.K. Treasury official who’s now a senior fellow at the Institute for Government, a London think tank focused on improving policy-making.

The Barnsley Churches Drop-in Project serves hot food to the needy. Photo: Fabio De Paola for The Wall Street Journal 

Whoever wins, voters in Barnsley are skeptical much will change. “Most people think those promises have been made before and they never happened,” saidPeter Mulrooney,vice chairman of Barnsley Churches Drop-in Project, a charity that helps drug addicts and the homeless.

Andrew Shaw, a record-store owner, said he would probably vote Labour, but he fears a new burst of spending from either party could prove fleeting, leading to an eventual reckoning.

“I’m worried that my daughter will just get another raft of austerity in 10 years,” he said.

Andrew Shaw, owner of Vinyl Underground Records in Barnsley Photo: Fabio De Paola for The Wall Street Journal

Meet the Leftish Economist With a New Story About Capitalism

Mariana Mazzucato wants liberals to talk less about the redistribution of wealth and more about its creation. Politicians around the world are listening.

By Katy Lederer

Mariana Mazzucato in Bellagio, Italy. She argues against the long-accepted binary of an agile private sector and a lumbering, inefficient state.Credit...Isabella de Maddalena for The New York Times

Mariana Mazzucato was freezing. Outside, it was a humid late-September day in Manhattan, but inside — in a Columbia University conference space full of scientists, academics and businesspeople advising the United Nations on sustainability — the air conditioning was on full blast.

For a room full of experts discussing the world’s most urgent social and environmental problems, this was not just uncomfortable but off-message. Whatever their dress — suit, sari, head scarf — people looked huddled and hunkered down. At a break, Dr. Mazzucato dispatched an assistant to get the A.C. turned off. How will we change anything, she wondered aloud, “if we don’t rebel in the everyday?”

Dr. Mazzucato, an economist based at University College London, is trying to change something fundamental: the way society thinks about economic value. While many of her colleagues have been scolding capitalism lately, she has been reimagining its basic premises.

Where does growth come from? What is the source of innovation? How can the state and private sector work together to create the dynamic economies we want? She asks questions about capitalism we long ago stopped asking. Her answers might rise to the most difficult challenges of our time.

In two books of modern political economic theory — “The Entrepreneurial State” (2013) and “The Value of Everything” (2018) — Dr. Mazzucato argues against the long-accepted binary of an agile private sector and a lumbering, inefficient state. Citing markets and technologies like the internet, the iPhone and clean energy — all of which were funded at crucial stages by public dollars — she says the state has been an underappreciated driver of growth and innovation. “Personally, I think the left is losing around the world,” she said in an interview, “because they focus too much on redistribution and not enough on the creation of wealth.”

Her message has appealed to an array of American politicians. Senator Elizabeth Warren, Democrat of Massachusetts and a presidential contender, has incorporated Dr. Mazzucato’s thinking into several policy rollouts, including one that would use “federal R & D to create domestic jobs and sustainable investments in the future” and another that would authorize the government to receive a return on its investments in the pharmaceutical industry. Dr. Mazzucato has also consulted with Representative Alexandria Ocasio-Cortez, Democrat of New York, and her team on the ways a more active industrial policy might catalyze a Green New Deal.

Even Republicans have found something to like. In May, Senator Marco Rubio of Florida credited Dr. Mazzucato’s work several times in “American Investment in the 21st Century,” his proposal to jump-start economic growth. “We need to build an economy that can see past the pressure to understand value-creation in narrow and short-run financial terms,” he wrote in the introduction, “and instead envision a future worth investing in for the long-term.”

Formally, the United Nations event in September was a meeting of the leadership council of the Sustainable Development Solutions Network, or S.D.S.N. It’s a body of about 90 experts who advise on topics like gender equality, poverty and global warming. Most of the attendees had specific technical expertise — Dr. Mazzucato greeted a contact at one point with, “You’re the ocean guy!” — but she offers something both broad and scarce: a compelling new story about how to create a desirable future.

‘Investor of first resort’

Originally from Italy — her family left when she was 5 — Dr. Mazzucato is the daughter of a Princeton nuclear physicist and a stay-at-home mother who couldn’t speak English when she moved to the United States. She got her Ph.D. in 1999 from the New School for Social Research and began working on “The Entrepreneurial State” after the 2008 financial crisis. Governments across Europe began to institute austerity policies in the name of fostering innovation — a rationale she found not only dubious but economically destructive.

“There’s a whole neoliberal agenda,” she said, referencing the received free-market wisdom that cutting public budgets spurs economic growth. “And then the way that traditional theory has fomented it or not contested it — there’s been kind of a strange symbiosis between mainstream economic thinking and stupid policies.”

Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory taught in most academic departments: its assumption that the forces of supply and demand lead to market equilibrium, its equation of price with value and — perhaps most of all — its relegation of the state to the investor of last resort, tasked with fixing market failure. She has originated and popularized the description of the state as an “investor of first resort,” envisioning new markets and providing long-term, or “patient,” capital at early stages of development.

In important ways, Dr. Mazzucato’s work resembles that of a literary critic or rhetorician as much as an economist. She has written of waging what the historian Tony Judt called a “discursive battle,” and scrutinizes descriptive terms — words like “fix” or “spend” as opposed to “create” and “invest” — that have been used to undermine the state’s appeal as a dynamic economic actor. “If we continue to depict the state as only a facilitator and administrator, and tell it to stop dreaming,” she writes, “in the end that is what we get.”

As a charismatic figure in a contentious field that does not generate many stars — she was recently profiled in Wired magazine’s United Kingdom edition — Dr. Mazzucato has her critics. She is a regular guest on nightly news shows in Britain, where she is pitted against proponents of Brexit or skeptics of a market-savvy state.

Alberto Mingardi, an adjunct scholar at the libertarian Cato Institute and director general of Istituto Bruno Leoni, a free-market think tank, has repeatedly criticized Dr. Mazzucato for, in his view, cherry-picking her case studies, underestimating economic trade-offs and defining industrial policy too broadly. In January, in an academic piece written with one of his Cato colleagues, Terence Kealey, he called her “the world’s greatest exponent today of public prodigality.”

Her ideas, though, are finding a receptive audience around the world. In the United Kingdom, Dr. Mazzucato’s work has influenced Jeremy Corbyn, leader of the Labour Party, and Theresa May, a former Prime Minister, and she has counseled the Scottish leader Nicola Sturgeon on designing and putting in place a national investment bank. She also advises government entities in Germany, South Africa and elsewhere. “In getting my hands dirty,” she said, “I learn and I bring it back to the theory.”

The ‘Mission Muse’

During a break at the United Nations gathering, Dr. Mazzucato escaped the air conditioning to confer with two colleagues in Italian on a patio. Tall, with a muscular physique, she wore a brightly colored glass necklace that has become something of a trademark on the economics circuit. Having traveled to five countries in eight days, she was fighting off a cough.

“In theory, I’m the ‘Mission Muse,’” she joked, lapsing into English. Her signature reference is to the original mission to the moon — a state-spurred technological revolution consisting of hundreds of individual feeder projects, many of them collaborations between the public and private sectors. Some were successes, some failures, but the sum of them contributed to economic growth and explosive innovation.

Dr. Mazzucato’s platform is more complex — and for some, controversial — than simply encouraging government investment, however. She has written that governments and state-backed investment entities should “socialize both the risks and rewards.” She has suggested the state obtain a return on public investments through royalties or equity stakes, or by including conditions on reinvestment — for example, a mandate to limit share buybacks.

Emphasizing to policymakers not only the importance of investment, but also the direction of that investment — “What are we investing in?” she often asks — Dr. Mazzucato has influenced the way American politicians speak about the state’s potential as an economic engine. In her vision, governments would do what so many traditional economists have long told them to avoid: create and shape new markets, embrace uncertainty and take big risks.

Inside the conference, the news was uniformly bleak. Pavel Kabat, the chief scientist of the World Meteorological Organization, lamented the breaking of global temperature records and said that countries would have to triple their current Paris-accord commitments by 2030 to have any hope of staying below a critical warming threshold.

A panel on land use and food waste noted that nine species account for two-thirds of the world’s crop production, a dangerous lack of agricultural diversity. All the experts appeared dismayed by what Jeffrey Sachs, the S.D.S.N.’s director, described as the “crude nationalism” and “aggressive anti-globalization” ascendant around the world.

“We absolutely need to change both the narrative, but also the theory and the practice on the ground,” Dr. Mazzucato told the crowd when she spoke on the final expert panel of the day. “What does it mean, actually, to create markets where you create the demand, and really start directing the investment and the innovation in ways that can help us achieve these goals?”

Earlier in the day, she pointed at an announcement on her laptop. She had been nominated for the first Not the Nobel Prize, a commendation intended to promote “fresh economic thinking.” “Governments have woken up to the fact the mainstream way of thinking isn’t helping them,” she said, explaining her appeal to politicians and policymakers. A few days later, she won.