The push to revamp the Chinese Communist Party for the next 100 years

The world’s most powerful political party was founded a century ago. James Miles says it is projecting ever greater confidence, while fortifying itself against collapse

China in july 1921 was a poor country, racked by civil war. Most of its 400m people lived in the countryside. 

A famine had swept the north, killing hundreds of thousands. 

But foreigners in Shanghai led a charmed existence, living in self-governing enclaves of about 30 square kilometres. 

Their troops and police—turbaned Sikhs for the British and pith-helmeted Vietnamese for the French—kept order. 

The real China was far away.

That month the British staff of the North China Daily News had much to distract them. 

“The Old Lady of the Bund”, as expatriates called the newspaper, had just left the river-front strip from which it took its nickname. 

Its building was to be knocked down and reborn as the city’s tallest—nine American-designed storeys in a baroque and neoclassical style. 

Until then, Shanghai’s establishment newspaper would be in temporary quarters.

Those newsmen were missing one of the biggest stories of the century: a secret meeting that July of a communist political party in the French concession at 106 Rue Wantz, in one of Shanghai’s brick-walled houses known as shikumen. 

There were a dozen participants, including the home’s occupant and a tall activist from inland called Mao Zedong. 

Two foreign agents from the Comintern, a Soviet-controlled body dedicated to global communism, were present. 

The group had met for a few days when a suspicious-looking man walked in. 

Fearing he was a spy, they fled, though most reconvened in a tourist boat on a nearby lake. 

Their discussions marked the formal launch of the Chinese Communist Party. 

A century later not only would it be in control of every nook and cranny of this seemingly unmanageable country, but it, not Russia, would be the world’s pre-eminent flagbearer for communism.

The newspaper had in fact been paying much attention to the murky doings of Russian Bolsheviks in China. 

Foreign capital had turned Shanghai into a cotton-making powerhouse. 

Its mills were grim places; labour unrest was common. 

Strike leaders were suspected of communist sympathies. 

“It can no longer be ignored that here in Shanghai, efforts are being made to Bolshevise the industrial classes,” a sister paper warned three months before that first meeting. 

The communists in Moscow, fresh from winning their civil war, were stirring up trouble in China.

But “all manner of organisations and people” called themselves communist in China in 1920-21, writes Ishikawa Yoshihiro, a Japanese historian. 

The new party had only about 50 members. 

They had no weapons. 

Nobody could have predicted that a communist insurgency would later engulf the country, let alone that it would gather strength in the countryside, led by armies of peasants. 

It would have beggared belief that the same forces would, in 1949, topple a regime that had begun the war with an army of more than 4m troops, equipped by the Americans.

Mao had not studied much Marxism, as he later admitted. 

He cut his teeth as an activist in the May Fourth Movement of 1919, a wave of unrest triggered by the Western powers’ decision to hand Germany’s Chinese colonial territory to Japan after the first world war. 

That movement inspired both anti-Western nationalism and a search for the source of Western strength. 

Some saw it as liberal democracy. 

Others, inspired by Russia, turned to communism. 

In China, nationalism and quasi-Marxism became intertwined.

As China grows stronger, that mix causes anxiety in the West. 

But at home, many feel pride. 

Any Chinese will tell you that their country was scorned as “the sick man of the east” (in 1896 an article in the North China Daily News helped turn this into a household term in China). 

Today China bestrides the world. 

Surely there is a lesson in China’s rise, many Chinese argue. 

Sinified Marxism works, as does one-party rule. 

In 2018 China’s leader, Xi Jinping, said his country had produced a “new political-party system”—a combination of one-party rule with mechanisms for consulting the public. 

State media said the rest of the world should learn from it.

On July 1st the party will officially celebrate its 100th birthday. 

(The founding date was chosen in 1941 when the party was holed up in caves in Yan’an, and retained even after investigations found that the actual date was July 23rd.) 

It has much to crow about. 

The party controls the world’s second-largest economy and largest armed forces. 

A quarter of a century ago America showed little concern about China’s power. 

Now it is openly worried. 

Not only is China an authoritarian state, but it is also a communist one wedded to an anti-Western ideology.

Party games

And the party’s grip at home is getting stronger. 

Digital technology helps. 

Ask residents of Xinjiang, where data scooped up by police using artificial intelligence, scans of mobile phones, surveillance cameras and an army of internet monitors are being used to round up hundreds of thousands of ethnic Uyghurs and put them in camps for “deradicalisation”. 

Technology, says Kerry Brown of King’s College, London, has been a “game-changer” for the party.

What is this organisation and how does it operate? In his 2010 book, “The Party: The Secret World of China’s Communist Rulers”, Richard McGregor, an Australian journalist now at the Lowy Institute, a think-tank, wrote that communism had been “airbrushed out of the rise of the world’s greatest communist state”. 

He described how the party made strenuous efforts “to keep the sinews of its enduring power off the front stage of public life in China and out of the sight of the rest of the world”. 

But that was before Mr Xi became party leader in 2012. 

He flexes those sinews openly, at home and abroad.

His predecessor, Hu Jintao, had already begun this process. 

As party leaders saw it, the global financial crisis of 2007-09 had laid bare the weakness of Western-style capitalism. 

China’s turn had come. 

Mr Xi sees it as his mission to make the West accept this. 

China is “moving to the global centre-stage”, he said in 2017. 

The West worries that China will bring with it the party and its political values, too.

As Mr McGregor put it: “Peek under the hood of the Chinese model...and China looks much more communist than it does on the open road.” 

This special report will describe how Mr Xi is souping up the old model. 

It will argue that this is a cause for concern, for people in both China and the West. 

Mr Xi is not trying to revive Maoist Utopianism. 

Like his post-Mao predecessors, he is a pragmatist whose policies bear little relation to Maoist or Marxist ideals. 

But he stresses the importance of ideology, hoping that ritual incantation of communist classics will keep party members in lockstep. 

Mr Xi’s revamped party has trappings that communism’s most brutal dictators, including Mao, would recognise.

Yet he also betrays anxiety. 

His warnings about threats to the party are more open than those of any Chinese leader since the crushing of the Tiananmen protests in 1989. 

In 2023 China’s party will have ruled for the same length of time as the Soviet one did before it fell in 1991: 74 years. 

Mr Xi frets that the engine has flaws: corrosion by Western political ideas, corruption, factionalism and disloyalty. 

Nearly a decade into his rule he is still conducting purges to keep the party in line, as if he does not fully trust it.

History weighs heavily on Mr Xi, who keeps mentioning the Soviet collapse. 

He is waging a campaign against what he calls “historical nihilism”—that is, any grumbling about communism’s past. 

One Soviet leader, Nikita Khrushchev, is held up as the archetypal nihilist for denouncing Stalin’s brutality in 1956. 

That event haunts Mr Xi. 

Party literature says it led to the Soviet Union’s demise. 

Much of Mr Xi’s energy is focused on making sure the party learns the Soviet lesson. 

Mao must remain a saint.

The party has 92m members, or about 8% of the adult population. 

It is not an easy group to join, and admission is getting harder. 

Mr Xi wants to fashion it into a super-loyal elite, capable of taking on any task at the drop of a hat. 

Deng Xiaoping, who launched China’s “reform and opening” in 1978, spoke of separating the roles of party and government. 

Mr Xi has fused them, putting the party more firmly in charge. 

Ordinary members are now first responders to disasters such as covid-19, as well as eyes and ears in workplaces, neighbourhoods and campuses, alerting officials to potential trouble.

In Xinjiang Mr Xi has used party committees to build gulags where more than 1m Muslims from ethnic minorities have been detained. 

It is party secretaries, not courts or legal panels, that have the final say over who is imprisoned and when they are released. 

Police and prison officials run the facilities, but they are the party’s camps, beyond the purview of the law.

Often the word “party” is used as shorthand for China’s government. But the party also has its own, separate identity. 

As Mr Xi boasts: “The party-government, the armed forces, society and academia; east, west, south, north and centre; the party leads everything.” 

That is why understanding how Mr Xi is changing it is more important than ever.

New horizons

Investors can no longer take low interest rates for granted

The Federal Reserve is responding to higher inflation. More is on the way

During most of the pandemic, exceptional uncertainty about the future of America’s economy has been met with exceptional certainty that monetary policy would stay very loose. 

No longer. 

At the Federal Reserve’s meeting in June policymakers signalled that they may raise interest rates in 2023, sooner than they previously thought, and upgraded their inflation forecasts for this year. 

Investors have spent a week struggling to digest the news. 

Long-term bond yields, which move inversely to prices, first rose and then fell beneath their initial level. 

Shares fell steeply and then recovered. 

Emerging-market currencies, which suffer when American monetary policy tightens, have fallen against the dollar.

The Fed’s future interest-rate decisions can suddenly be counted among the many unknowns hanging over the economy as it recovers from the pandemic. 

Already on the list were the impact of new variants of the virus, the fate of President Joe Biden’s infrastructure plan, the pace at which consumers will spend the savings they have accumulated during the crisis, and the persistence of the bottlenecks that are disrupting supply chains and labour markets. 

When Fed policy seemed to be set in stone, investors’ evolving views on these puzzles were straightforwardly reflected in their expectations for growth and inflation. 

Now they must also weigh the possibility that the Fed may step in to forestall overheating by raising rates sooner.

The Fed’s shift appears to have been prompted by the realisation that inflation next year will be higher than it had expected. 

In the three months to May core consumer prices, which exclude food and energy, rose at an annualised rate of 8.3%, the highest since Paul Volcker was waging war on inflation in the early 1980s. 

The central bank expects price pressures to subside rapidly. 

They will leave a mark on future monetary policy even so.

The Fed targets inflation that averages 2% over the whole economic cycle, and higher inflation today is already offsetting the slump in prices in the depths of the crisis. 

The central bank expects its preferred measure of prices to be 3.4% higher at the end of 2021 than a year earlier—or 0.6% higher than it would have been had inflation been on target since the end of 2019. 

Count from August 2020, when average-inflation targeting was introduced, and the price overshoot will be 1.2%.

The Fed’s change of tune is therefore welcome. 

Because inflation expectations can be self-fulfilling, a public reminder that the Fed does not want the price surge to get out of hand reduces the chance that it will. 

A gradual adjustment today also reduces the probability of a panicky spike in bond yields tomorrow, helping avoid a “taper tantrum” like the one in 2013 after the Fed said it would buy fewer bonds.

Jerome Powell, the Fed’s chairman, is striking the right balance between avoiding such a mistake and recognising that the central bank’s job is to hit its economic targets, not to guarantee the tranquillity of financial markets. 

He could do better still by making the Fed’s frustratingly vague average-inflation target clearer.

More disturbing is the poor quality of the central bank’s forecasts. 

The Fed has dropped clangers for two straight years, underestimating the jobs rebound in 2020 and being caught out by inflation now. 

Further surprises are likely. 

The risk of higher inflation looms particularly large. 

True, the prices of some commodities, such as copper, have fallen from the peaks seen in May—and they have fallen further since the Fed meeting. 

But uncertainty in bond markets has risen, oil prices are still going up and many forecasters, including Fed officials, worry that higher inflation may persist into 2022.

It has become clearer that monetary policy will respond to higher inflation, as it should. 

But that means interest rates—and therefore asset prices—will reflect more of the uncertainty that bedevils the economic outlook. 

The Fed risks reacting too slowly if inflation keeps rising

And that will be bad news for the rest of the world economy as it recovers from the pandemic

Martin Wolf

    © James Ferguson

The world economy is enjoying a vigorous, but divergent, recovery. 

This is what the World Bank’s June Global Economic Prospects is telling us. 

The main reason for the recovery is the successes of the vaccine programme. 

The main reason for the divergence is the limitations of the vaccine programme. 

Some parts of the world economy may become too hot, while others are too cold. 

So, stay alert.

This time is indeed different: the recession was caused not by the need to curb excessive inflation, nor by an oil shock, nor by a financial crisis, but by a virus. 

Now, with the success of the vaccine programmes, the world is enjoying among the strongest recoveries from recession since 1945.

That is the good news. 

The bad news is how uneven the recovery will be. 

According to Global Economic Prospects, 94 per cent of high-income countries will regain pre-recession gross domestic product per head within two years. 

This would be the highest share in so brief a period after any recession since the second world war. 

But the proportion of emerging and developing countries expected to achieve such an outcome this time is forecast to be 40 per cent. 

That would be the lowest share after any postwar recession.

The relative success of the high-income countries is due to the scale of their fiscal and monetary responses and their vaccine rollouts. 

Emerging and developing countries are far behind in all these respects. 

Quantitative easing averaged 15 per cent of GDP in high-income countries, against 3 per cent in emerging and developing countries. 

Fiscal support averaged 17 per cent in high-income countries, against 5 per cent in emerging and developing countries. 

Even so, half of all low-income countries are in debt distress. 

According to World Bank president David Malpass, the “pandemic not only reversed gains in global poverty reduction for the first time in a generation but also deepened the challenges of food insecurity and rising food prices for many millions of people”. 

The UK’s decision to cut its foreign aid budget is breathtakingly ill-timed.

Given all this, the most important decision for leaders of the G7 high-income countries to take this week is to fund a sharp acceleration in the supply and distribution of vaccines. 

This will also benefit donors. 

The pandemic must be stopped everywhere if people are to be truly safe anywhere.

Among high-income economies, the most important locomotive of growth is the US, with its highly aggressive monetary and fiscal policies. 

The budget proposal of Joe Biden forecasts federal deficits of 16.7 per cent of GDP this fiscal year (to end-September) and 7.8 per cent next year. 

Meanwhile, most members of the Federal Reserve’s board expect interest rates to stay near zero even until the end of 2023. 

These policies are bringing big benefits. 

But how risky are they?

This has become much debated. It is also not a purely local matter. 

If the Fed has to raise rates sharply, it is likely to cause another sharp recession in the US. 

That would not only be bad for America, but also be bad for the world, including vulnerable developing countries.

It is this context that makes the debate on inflation particularly significant. 

Stephen Roach, who worked at the Fed in the 1970s, has recalled Arthur Burns, the Fed chair who let the inflation genie out of the bottle in the early 1970s. 

If that were to be repeated, it would be costly for almost everyone. 

But is that outcome actually likely? 

The answer is “yes” — not because of what has already happened, but because of the Fed’s commitments.

The rise in inflation we are now seeing might be both modest and temporary and not affect inflationary expectations, as the Fed believes. 

But the Fed has locked itself into responding too slowly, especially given the fiscal expansion. 

This is because, in the words of Richard Clarida, vice-chair, “we expect it will be appropriate to keep the federal funds rate in the current 0 to 25 basis point target range until inflation has reached 2 per cent (on an annual basis) and labour market conditions have reached levels consistent with the [Federal Open market] Committee’s assessment of maximum employment”.

This is “outcome-based” as opposed to “forecast-based” policy. 

What in layman’s language does it mean? 

It means that the Fed will persist with ultra-loose monetary policy until employment has already reached its (unknowable) “maximum”. 

Given the lags between policy and outcomes, this guarantees overshooting. 

By the time the economy finally reaches the point when the Fed starts to tighten, it will be smoking hot (at “maximum employment”) and, inevitably, getting hotter.

That is what happened in the 1970s. 

In that case, the necessary disinflation was postponed until Paul Volcker took over in 1979. 

The experience was brutal. 

Given the inevitable lags between tightening and bringing inflation under control, the costs are again likely to be severe. 

That would not matter to the US alone. Remember: the Volcker shock triggered the Latin American debt crisis. 

This time, there is much more debt around almost everywhere. 

A severe monetary tightening would create even more devastation than then.

Getting the world as a whole out of the pandemic crisis is far from a done deal. 

Much more still needs to be done on that. 

Furthermore, the new approach to monetary policy of the world’s most important central bank risks serious overshooting. 

By responding only to outcomes, it is nigh on certain to react too slowly. 

It is possible that this will not matter, because expectations remain well anchored, whatever happens. 

I pray this will be case. 

The alternative does not bear much thinking about.

When it comes to inflation, the Fed must consider inequality

The US central bank has misread both the data and its mandate

Karen Petrou 

Fed chair Jay Powell. The central bank’s data are misleading because they assume the US is the middle-class nation it has ceased to be © Daniel Acker/Bloomberg

Like most central banks, the US Federal Reserve has been forced to ask why more than a decade of ultra-loose monetary policy has had such lacklustre economic results. 

The answer is that bad data lead to bad policy.

The Fed’s data are misleading because they assume the US is the middle-class nation it has ceased to be. 

Until it uses data that reflect the nation as it is, the Fed will no more get America back to shared prosperity than someone using a map of New Amsterdam will find the pond in Central Park.

Its inflation measures have three significant shortcomings. 

First, they omit costs such as food, energy and housing. 

Doing so is tidier, but fails to capture what households actually need and thus what they are likely to do as monetary policy changes.

The second problem is that Fed data are gross — even if its preferred cost-of-living indices accurately measured the cost of a basic basket of goods and services, they do not tell us whether families have the debt-free purchasing power to afford it.

Apparently small inflation in a gross index can easily translate into painful penny-pinching or risky household leverage, each of which has an adverse macroeconomic impact.

Finally, the indices do not measure discretionary spending or financial resilience in ways that forecast how price increases actually affect consumption — for whom and in what way. 

High-wealth households can trim their sails and stay on financial course; the rest of the nation must dip into scant reserves or go without.

Much in current monetary policy is premised on what economists call the marginal propensity to consume — the engine of want that powers demand that then promotes employment and growth or, if unduly overheated, sparks inflation. 

The Fed still assumes that interest rates drive decisions about how to use discretionary income. 

But income and wealth inequality is such that now only upper-income households have this marginal propensity, and most of them have more than enough already, so their propensity is small even if their margin is large.

In sharp contrast, low, moderate and middle-income families do the consuming even though their ability to respond to interest rates is negligible. 

These households have little capacity to increase or shrink consumption in response to changing rates because most of them live from one pay cheque to the next. 

By one recent estimate, 64 per cent of American households are either financially vulnerable or just coping.

Year on year, the real cost of living in the US has skyrocketed — homes are up more than 12 per cent, a used car is up 21 per cent, and food costs have risen over 2 per cent. 

The Fed has recognised a few of these cost increases, but chalks them up to “transitory” factors that do not contribute to the sustained inflation it wants to see before it normalises policy. 

But it is hard to see which structural factors will reverse far enough and fast enough to erase these cost obstacles to family financial security.

In the absence of another deep recession, even a glut of semiconductors or lumber will not lead to deep discounts on any of these essential goods bringing them back to 2019 levels, let alone to levels a family with below median wealth can afford without continuing debt.

The US central bank has played a direct, if wholly unintended, role in driving income and wealth inequality to astonishing heights. 

It did so not only by misreading the data, but also by misunderstanding its mandate.

The Fed’s governing law requires it to seek full employment measured by those who want to work, achieve price stability based on purchasing power and set “moderate” interest rates.

This is a triple mandate, not the “dual” one the Fed frequently cites, and demands more of the Fed than its preferred version: “maximum” employment and “price stability” measured by the central bank’s own gauge.

Inflation is already a painful tax on low, moderate and middle-income households.

Released at the end of May, the latest official US number showed an annual inflation rate of 3.6 per cent based on April prices.

If the Fed permits this tax to go up, it will let the economy run dangerously hot at a time when ultra-low rates, the Fed’s huge asset portfolio and federal government spending are throwing trillions into the economy without any sign of sustained recovery for those who need it the most.

This will not end well unless the Fed recognises the profound impact inequality has on the US economy and recalibrates policy quickly to address it.

The writer is author of ‘Engine of Inequality: The Fed and the Future of Wealth in America’ 

Brazil’s dire decade

Jair Bolsonaro is not the only reason his country is in a ditch

The political system that helped him win office needs deep reform

Hospitals are full, favelas echo with gunfire and a record 14.7% of workers are unemployed. 

Incredibly, Brazil’s economy is smaller now than it was in 2011—and it will take a lot of strong quarters like the one reported on June 1st to repair its reputation. 

Brazil’s death toll from covid-19 is one of the worst in the world. 

The president, Jair Bolsonaro, jokes that vaccines might turn people into crocodiles.

Brazil’s decline was shockingly fast. After the military dictatorship in 1964-85, the country got a new constitution that returned the army to barracks, a new currency that ended hyperinflation and social programmes that, with a commodity boom, began to ease poverty and inequality. 

A decade ago the country was flush with oil money and had been awarded the 2014 World Cup and the 2016 Olympics. 

It seemed destined to flourish.

Brazil failed to seize the opportunity. 

As our special report this week argues, consecutive governments made three mistakes. 

First, they gave in to short-termism and put off liberal economic reforms. 

Blame for this belongs chiefly with the left-wing Workers’ Party, in office in 2003-16. It oversaw growth of 4% a year but did not invest to raise productivity. 

When commodity prices fell, Brazil faced one of its worst-ever recessions. 

The governments of Michel Temer and Mr Bolsonaro made some progress on reform, but stopped far short of what is needed.

Second, in their efforts to shield themselves from the fallout of Lava Jato, a huge anti-corruption probe, politicians have resisted reforms that would curb graft. 

The prosecutors and judges behind Lava Jato are partly to blame. 

After some were shown to have had a political agenda, their probe became bogged down in Congress and the courts.

Finally, Brazil’s political system is a millstone. 

State-sized districts and 30 parties in Congress make elections expensive. 

Even more than in other countries, politicians tend to back splashy vote-winning projects rather than worthy long-term reform. 

Once in office, they stick with the flawed rules that got them elected. 

They enjoy legal privileges that make them hard to prosecute, and a huge pot of money to help them keep power. 

As a result, Brazilians despise them. In 2018 only 3% said they trusted Congress “a lot”.

Disillusion paved the way for Mr Bolsonaro. 

A former army captain with a soft spot for the dictatorship, he persuaded voters to see his political incorrectness as a mark of authenticity. 

He vowed to purge corrupt politicians, crack down on crime and turbocharge the economy. 

He has failed on all three counts.

After passing a pensions revamp in 2019, he abandoned the agenda of his liberal economy minister, fearing that it would cost votes. 

Tax and public-sector reform and privatisations have stalled. 

Cash hand-outs helped stave off poverty early in the pandemic, but were slashed at the end of 2020 owing to rising debt. 

The rate of deforestation in the Amazon has soared by over 40% since he took office. 

He has taken a chainsaw to the environment ministry, cutting its budget and forcing out staff. 

His environment minister is under investigation for wood-trafficking.

On covid-19, Mr Bolsonaro has backed anti-lockdown rallies and quack cures. 

He sent planeloads of hydroxychloroquine to indigenous tribes. 

For six months he ignored offers of vaccines. 

One study found the delay may have cost 95,000 lives.

Rather than tackle graft, he has protected his allies. 

In April 2020 he fired the head of the federal police, which is investigating his sons for corruption. 

His justice minister quit, accusing him of obstruction of justice. 

Days earlier, Mr Bolsonaro had threatened the independence of the Supreme Court. 

In February his attorney-general shut down the Lava Jato task-force.

Brazilian democracy is more fragile than at any time since the end of the dictatorship. 

In March Mr Bolsonaro fired the defence minister, who reportedly refused to send the army into the streets to force businesses to reopen. 

If he loses re-election in 2022, some think he may not accept the result. 

He has cast doubt on electronic voting, passed decrees to “arm the public” and boasted that “only God” will remove him.

Actually, Brazil’s Congress could do the job without divine intervention. 

His conduct probably qualifies as impeachable, including “crimes of responsibility” such as urging people to defy lockdowns, ignoring vaccine offers and firing officials to shield his sons. 

Congress has received 118 impeachment petitions. 

Tens of thousands rallied on May 29th to demand his ejection.

For now, he has enough support in Congress to block impeachment. 

Besides, the vice-president, who would take over, is a general who is also nostalgic for military rule. 

The last time Congress impeached a president, Dilma Rousseff in 2016 for hiding the size of the budget deficit, it split the country. 

Mr Bolsonaro would cast himself as a martyr. Many of his supporters are armed.

In the long run, as well as replacing Mr Bolsonaro, Brazil must deal with the cynicism and despair that got him elected, by tackling chronic low growth and inequality. 

That will require dramatic reform. 

Yet the very resilience that has protected Brazil’s institutions from the predations of a populist also makes them resistant to beneficial change.

The actions required are daunting. 

Above all, the government needs to serve the public rather than itself. 

That means reducing the privileges of public-sector workers, which eat up an unsustainable share of government spending. 

Politicians must not spare themselves either. 

Office holders should have fewer legal protections. 

They should shake up the electoral and party systems to let new blood into Congress.

The next government must fight corruption without bias, restrain wasteful spending, and boost competitiveness. 

A crackdown in the Amazon should go hand-in-hand with economic alternatives to deforestation. 

Otherwise, sooner or later, new Bolsonaros will emerge.

A long journey ahead

Barring Mr Bolsonaro’s impeachment, Brazil’s fate will probably be decided by voters next year. 

His rivals should offer solutions rather than peddle nostalgia. 

His successor will inherit a damaged and divided country. 

Unfortunately, the rot goes much deeper than a single man. 

The ‘Great Reshuffling’ Is Shifting Wealth to the Exurbs

The flow of white-collar workers to fringe outlying communities could reshape everything from transportation to real estate

By Laura Forman


White collar workers are trading their expensive lives in the nation’s most densely populated areas for cheaper, greener pastures. 

Online real estate company Zillow Group ZG -1.72% calls it the “Great Reshuffling.”

These moves will reshape transportation, real estate and an emerging fixture of American life: the exurb.

Fringe outlying communities of major metropolitan regions were prized for their extreme privacy or more affordable housing before the pandemic, but were typically much less wealthy than the denser cities and affluent suburbs they surrounded.

The Great Reshuffling will likely make these far-flung exurbs richer and denser. 

The median household income across U.S. exurbs was $74,573 as of 2019, according to data from The American Communities Project. 

That likely ticked up over the last year as city dwellers in major job centers such as San Francisco and New York relocated to exurbs for the same or similar salaries. 

In 2019 the median household income in the San Francisco Bay Area was nearly $115,000 and in the New York metro area it was more than $83,000.

A shift to the exurbs started years before the pandemic hit, according to data from the Brookings Institution, and the population of these more-remote places continued to swell with more white-collar workers even as the pandemic weakened. 


These regions allow employees to be within commuting distance of cities as many firms ask workers to be back in the office for at least part of the work week. 

U.S. Postal Service data showed that between March and November of last year, 72% of those who filed for address changes in the Bay Area only moved as far as another Bay Area county.

The money stockpiled from leaving pricier areas, coupled with stimulus checks and enforced saving over the last year, are padding the bank accounts of these new movers. 

Rising credit scores are, in turn, enabling other major purchases such as cars. 

The new arrivals in the exurbs are finding they need their first or second automobile now that they are located in a more remote part of a metropolitan area. 

A January survey conducted by Engine Insights on behalf of Xperi DTS found 55% of millennials surveyed said car ownership was more important than ever.

The trend toward car ownership could very well outlast the pandemic as exurbs sprawl. 

Less public transportation outside of major metro areas means that even without a work commute people will continue to need a personal vehicle for daily activities like going grocery shopping or to the gym, said Deutsche Bank analyst Chris Woronka.

As new residents settle down with their bigger homes, cars and savings accounts, they are bound to cause a shake up.

America Remains Indispensable

The latest resurgence of violence in the Israeli-Palestinian conflict has also laid bare a crucial geopolitical reality. While many countries aspire to be global power brokers, only America has the ability to do so.

Joschka Fischer

BERLIN – In addition to a pandemic, this decade has already been overshadowed by the return of great power rivalries. 

Few developments could be more threatening to world peace. 

Three world wars – two of them hot, one cold – during the twentieth century highlighted the danger of high-stakes geopolitical competition.

To many observers, the era of great power rivalry appeared to end once and for all with the dissolution of the Soviet Union. 

But this assumption proved to be one of the gravest errors of the post-Cold War period (a time that abounded with momentous blunders and misconceptions). 

US political elites’ presumption of global empire – of a truly unilateral moment in world history – could not be sustained. 

Nor could the “eternal peace” anticipated by Europeans following the “end of History” in 1989, when Western liberal democracy and the market economy supposedly triumphed over all the alternatives.

On the contrary, the decades since the end of the Cold War have been marked by a loss of international order. 

As the last remaining global power, the United States exhausted itself in pointless wars in Mesopotamia and the Hindu Kush, and has since become increasingly self-absorbed.

The international system that America built after World War II began to disintegrate, leaving power vacuums that other powers – Russia, China, Turkey, Iran, and Saudi Arabia – sought to fill. 

Worse, the risk of nuclear proliferation suddenly returned to the fore as smaller regional powers began to pursue arsenals of their own.

Moreover, it was during the past decade that China emerged as a global power capable of challenging the incumbent hegemon. 

The new rivalry materialized fully following Donald Trump’s election to the US presidency in 2016. 

America started pursuing a narrowly nationalist agenda, and chaos within the global system increasingly emanated from the top.

Nowhere was the resulting power vacuum more palpable than in the Middle East. 

The US had ended its expensive and absurd war in Iraq and then gone on to defeat the Islamic State in Syria. 

Having become self-reliant in energy terms tapping domestic shale oil and gas, America set its sights on a fuller military withdrawal from the region. 

Iran, meanwhile, was standing ready to exploit the US departure. 

It soon ended up in an escalating struggle with Saudi Arabia, the Gulf emirates, and Israel for regional hegemony, fueling a horrific proxy war in Yemen.

In addition to openly signaling its intent to withdraw the US from the region, the Trump administration also abandoned America’s traditional role in the Israeli-Palestinian conflict. 

For decades, successive US administrations had pushed for a two-state solution and a fair compromise between Israel and the Palestinians, even while remaining wholly committed to protecting Israel. 

But the Trump administration backed Israel fully and unconditionally, creating the impression that the Palestinians no longer had any role to play.

The Trump administration’s approach to the issue, together with the danger emanating from Iran, did lead to the establishment of diplomatic relations between Israel and four Arab states, including two – the United Arab Emirates and Bahrain – in the Gulf. 

But with the latest armed confrontation between Hamas and Israel, the fantasy in which the Palestinians could simply be sidelined forever has been dispelled.

The latest conflict has included violent clashes on the Temple Mount around the al-Aqsa mosque, and, unlike in previous episodes, between Jewish and Arab citizens in mixed cities across the Israeli heartland. 

Four lessons should be drawn while the current cease-fire holds.

First, even if a two-state solution hardly seems realistic anymore, its political renunciation will lead more or less directly to a highly charged confrontation. 

Second, Palestinians and Arab Israelis will not simply stand by and allow themselves to be ignored in regional political settlements. 

Third, the Israeli occupation cannot be continued indefinitely. 

And, lastly, the US cannot simply abandon the region out of a lack of interest, at least not if it wants to maintain its role as the leading global power.

The return of the Israeli-Palestinian conflict has exposed the real distribution of power in the Middle East. 

Notwithstanding all of the changes of the past few decades, the fact remains that stability depends on the US. 

Though America no longer wishes to engage with the region, it has no choice but to keep doing so, lest a regional brushfire escalate into a global conflagration with nuclear risks.

In other words, the Middle East is proving to be this century’s Balkans. 

As in ex-Yugoslavia in the 1990s, America is the only global or regional power capable of guaranteeing regional peace – or at least of suppressing all-out war. 

Russia would like to assume this role, but it cannot. (It was able to intervene in Syria to the extent that it did only because the US refused to do so.)

As for China, it has no interest in assuming America’s Middle East role, nor could it do so if it wanted to. 

The Chinese regime simply does not have the mindset to become a guarantor of a global order far beyond its borders.

What about Europe? 

Although it would be one of the main victims of regional destabilization, it is no longer a force to be reckoned with, and thus has reduced its involvement to that of providing financial resources in response to the latest crisis. 

Still, Europe plays an important supporting role.

Finally, among regional players, Turkey would like to step up, but it is hampered by its own weaknesses and the fraught history of the Ottoman Empire’s role in the Middle East. 

Iran and Saudi Arabia are confined to pursuing their own claims to hegemony within the Islamic world. 

And Israel is and will remain focused on its own defense.

That leaves only the US. Despite its past foreign-policy blunders, it is the only country with both the necessary political mindset and the technological, economic, and military power to exert a moderating influence in the region. 

The worst outcome for the international order would be a continuing US inclination toward self-isolation. 

Trump’s presidency already proved how dangerous that can be.

Joschka Fischer, Germany’s foreign minister and vice chancellor from 1998 to 2005, was a leader of the German Green Party for almost 20 years.