On the Role of the European Parliament: The Mercosur Treaty

With the European Council, which represents the E.U. states, having passed the Mercosur free-trade treaty by qualified-majority voting, the legislation went on to the European Parliament, which represents E.U. citizens, to vote on final passage before being sent to E.U. President Von der Leyen for her signature. From the standpoint of this standard legislative procedure, it is significant that immediately following the vote in the Council, which is roughly equivalent to the U.S. Senate, efforts were being made to essentially side-step the Parliament, which is equivalent to the U.S. House of Representatives. Von der Leyen’s plan to sign the treaty once it passed in the Council reflects both the disproportionate power of the state governments at the federal level in the E.U. and the fact that the U.S. House is excluded from voting on treaties, whereas the U.S. Senate votes to give its consent to them before the U.S. president ratifies them (or not).  

On 9 January, 2026, the European Council voted by a super majority representing 65% of the E.U.’s population and 55% of its states to approve the Mercosur free-trade treaty with four countries in South America. President Von der Leyen had completed the negotiations on the treaty two years earlier so E.U. companies could “gain access to a market of 280 million consumers . . . where some 30,000 E.U. firms” were already operating.[1] A massive free-trade area with a combined population of 700 million inhabitants would dwarf NAFTA (the North America Free Trade Agreement). It is no wonder that on the heels of the Council’s vote, President Von der Leyen wrote in an official statement, “I greatly look forward to signing this landmark deal . . .”[2] Not so fast. The approval procedure “also requires the consent of the European Parliament.”[3] In the Parliament, a contingent of the Renew party saw an opportunity to scuttle the proposed treaty because of the fears of European farmers, mostly in the state of France, that free trade in agriculture could harm the E.U.’s farmers financially if enough European consumers buy agricultural products from the Mercosur countries rather than domestically.

Admittedly, getting the consent of the Council by even just by qualified-majority voting had been viewed as the challenge. A contingent of the Renew party could presumably be easily outvoted in the Parliament. Nevertheless, the focus on the Council is in line with the inordinate power wielded by the states at the federal level in the European Council and the Council of Ministers. Put another way, being slighted doubtlessly came as no surprise to the representatives in the Parliament. The chamber of the people had typically played second fiddle to the chamber of the states.

Even in the U.S., where the two federal legislative chambers have been viewed as equals since their founding, the U.S. House of Representatives is excluded from the procedure in which treaties proposed by the federal president are sent to the U.S. Senate for advice and to be confirmed (or rejected). If confirmed, the president can either ratify or refuse to do so. Such ratification is required for a treaty to go into effect. The U.S. House of Representatives is excluded.

Resonating with the exclusion of the U.S. House, the E.U. state chairing the Council at the time “used a legal procedure” just after the vote “to enable the provisional implementation of the agreement without a parliamentary vote.”[4] Although the Parliament’s upcoming vote could derail the treaty, the provisional implementation would make it more difficult for representatives to vote against the treaty because it would already be underway. Even if President Von der Leyen would sign the treaty before the Parliament’s vote, the treaty would be rendered invalid, but in setting up a fait accompli, the Commission and the Council were making use of momentum such that voting against the treaty would be more difficult. Furthermore, that the U.S. House is excluded from the legislative consent and ratification of U.S. treaties implicitly implies that maybe the European Parliament, which also represents citizens rather than states, should not be involved in the passage of E.U. treaties with other countries. In federal unions in which governmental sovereignty is divided, regardless of the proportions, the legislative chamber in which the semi-sovereign states are represented can be argued to be more important in international treaties precisely because of the sovereignty still reserved by the states in their political union should have a say, even if by qualified majority voting (in the E.U. Council) or a two-thirds majority (in the U.S. Senate).  Put another way, both of these bars, being higher than a simple majority, reflect the fact that the states in the E.U. and U.S. are semi-sovereign.

In tension with the argument that the E.U. Parliament and the U.S. House should also be included so the respective federal citizens could also have a say, the states might object that a defeat in either of those chambers would nullify what the semi-sovereign state governments have agreed to, and that such sovereignty, together with the limited sovereignty of the respective unions, should not be denied domestically with respect to relations with other countries. The tension here reveals a judgment call, which is of such a magnitude and indeterminacy to be properly determined by popular sovereignty—that which is reserved to the people themselves as an electorate. Moreover, this comparison of the E.U. and U.S. works so well that the equivalency of the two unions, even with the very different proportions of governmental sovereignty delegated by basic law to the federal level, can be easily grasped even by Euroskeptics and anti-federalists.

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1, Peggy Corlin, “E.U. Member States Back Mercosur Deal, French MEPs Vow Fight in Parliament,” Euronews.com, 9 January, 2026.
2, "Statement by President Von der Leyen on the Council's Decision to Endorse the EU-Mercossur Trade Agreement," The European Comission, 8 January, 2026.
3. Peggy Corlin, “E.U. Member States Back Mercosur Deal, French MEPs Vow Fight in Parliament,” Euronews.com, 9 January, 2026.
4. Ibid.

Proliferating Blocs: The E.U. and Mercosur

Words matter; they may not break bones, but they can wreak havoc if they are used carelessly or ideologically. Political labels can stick, and, if inaccurate, they can result in people having an incorrect impression of what something or someone is, politically. The war that began in North America in 1861, for example, has typically been labeled as a civil war, but it may be more accurately labeled as the C.S.A.-U.S.A. War because the Confederate States of America did not want to take over the U.S.A.; it was not as if the C.S.A.’s goal was to conquer and government the U.S.A. Having established itself as a functioning political entity even though U.S. President Lincoln refused to acknowledge the political existence of the C.S.A., that union could be said to have existed and been at war with the U.S.A. from 1861-1865. Two unions of states were at war with each other; it was not as if the Union Army was at war with individual seceded states. The C.S.A. had a government apart from the state governments. So “the war between the states” is an inaccurate label because it denies the existence of the two unions. But the common label of a civil war is also problematic because two political factions were not fighting each other for control of the U.S.A. If this criticism seems unusual and even perhaps rather strange, the reason may be because the victor’s labeling of the war has been so overwhelming. My point is that this does not mean that the labeling is accurate just because it has been widely accepted. Similarly, the labeling by E.U. officials (including the E.U.’s ambassador to the U.S.) of the European Union as a bloc is not accurate. 

That the label has been meant to placate anti-federalist Euroskeptics, such as Hungary’s Viktor Orbán, so they don’t further weaken the Union renders the actual, self-inflicted weakening as a self-fulfilling prophecy. Furthermore, that the E.U.’s self-inflicted weakening-by-label has fit the militaristic agenda of Russia’s President Putin and the isolationist agenda of the American President Trump like a glove seems not to have disturbed the E.U.’s political elite. That the E.U. has never been an informal trading “bloc” of sovereign countries like the Mercosur trading bloc in South America is seems not to have bothered the European labelers, including the enabling media.

For example, reporting on a speech by E.U. President Von der Leyen’s to the Parliament, European journalists referred to both the E.U. and the coordination on trade by four countries in South America as “blocs,” as if the two were of the same political type or genre. For instance, Euronews reported that with regard to the E.U. helping Ukraine withstand Putin’s continuing invasion and signing a trade deal with the four countries in America, at “stake is the 27-member bloc’s credibility to shape its foreign policy and trade agenda.”[1] But it is the E.U.’s foreign policy and its trade agenda, not the aggregate of all of the states’ foreign policies and trade agendas, and this difference is backed up by the E.U. having an executive, legislative, and judicial branch of its own, albeit with state participation in the European Council and the Council of Ministers. Blocs do not have governmental branches. The label of bloc does, however, fit “the South American Mercosur bloc” of four countries because that bloc is simply an alignment of trade policies.[2] There was not Mercosur executive, legislature, and supreme court, no Mercosur social policy, and not even a Mercosur federal system wherein governmental sovereignty is split between states and a federal level. The false equivalence of the European Union and Mercosur is a grave insult to Europe, and yet it has repeatedly been self-inflicted by the European political elite itself.

I contend that the E.U. has been a formidable accomplishment, not a perfect union, but far beyond what a bloc is and can muster, and that the potential of that union of states should therefore not be held back by a dominative label intended placate an anti-federalist minority. The costs of continuing to treat the E.U. as equivalent to a trading bloc of countries in South America may seem bearable, but President Von der Leyen’s point that the E.U. was then at a critical inflection-point concerning Europe’s security and independence, global image, and international standing means that the E.U. could no longer afford to label itself as a bloc as if were just another Mercosur group of countries.

For on the very same day as Von der Leyen was delivering a speech to the European Parliament, Russian President Putin was telling a gathering of his military brass, “European swine wanted to feast on the collapse of Russia” and—interestingly in echoing comments only recently made by the American President, Donald Trump—in referring to Europe and the E.U. in particular, “Today it turns out there is no civilisation there, only complete degradation.”[3] Swine degrading European civilization. Ouch! Unfortunately, Russian tanks, bombs, and troops in Ukraine combined with Putin’s rejection of the proposed American compromise because it does not give Russia all the territory is wants in Ukraine render the punch behind the insult more serious than mere words. It is ironic that words spoken outside of the E.U. have made the Europeans’ own use of their word, “bloc,” more costly because what bloc could expect itself to issue its own debt to help Ukraine militarily? What bloc can have a federal foreign policy? What bloc can do more than rely on state militias for a defense? Simply in degrading these expectations, the European political elite continued to shoot itself in its collective foot as Putin continued to apply his political theory that military might makes right in Europe.

The E.U. is neither a regional UN nor a trading bloc of sovereign countries, nor even an international organization. All of these claims are the result of ideological resentment and political expediency. These two vices in the E.U. are like water to a fish. That the member-states ceded some of their governmental sovereignty to be exclusive and even shared competencies of the European Union effectively relegates such false equivalencies to the dust bin, so it is strange that they persisted at least through 2025. In fact, the staying power of the principle of unanimity in place of qualified-majority voting on some major issues may stem from the continuing misunderstanding that the E.U. is merely a bloc.

So, labels do matter, and they can get in the way. This is especially problematic in hard times, for European integration in the E.U. has largely happened only times of crisis. The rhetoric of presidents Trump and Putin alone justifies President Von der Leyen’s statement, “Yesterday’s peace is gone. We have no time to indulge in nostalgia. What matters is how we confront today.”[4] Describing the E.U. as a bloc of member-states does not even qualify as nostalgia because the E.U. has never been a bloc; the self-defeating label sprang out of anti-Americanism (lest the E.U. be held to be equivalent to the U.S. as an empire-scale federal system characterized definitively by dual sovereignty) and the political fear of the domestic, yes, domestic, opposition of anti-federalist Euroskeptics that is ironically strengthened in its version of political reality by the label itself. Self-inflicted weakness in a partisan ideological battle hardly attracts support.

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1. Mared Gwyn Jones, “Von der Leyen Warns of EU’s ‘Dangerous’ Reality in Shifting World Order Ahead of Crunch Summit,” Euronews.com, 17 December 2025.
2. Ibid.
3. Sasha Vakulina, “’European Swine Wanted to Feast on Russia’s Collapse,’ Putin Says Bashing Europe,” Euronews.com, 17 December 2025.
4. Mared Gwyn Jones, “Von der Leyen Warns of EU’s ‘Dangerous’ Reality in Shifting World Order Ahead of Crunch Summit,” Euronews.com, 17 December 2025.

The E.U.’s Hungary Overreaching on Sovereignty: International Trade

Sovereignty is not a word to be casually used, especially if in overreaching. In both the E.U. and U.S., state governments have overreached at the expense of the delegated competencies or enumerated powers of the respective Unions of states. The Nullification Crisis in the U.S. and de facto unilateral refusal of the E.U. state of Hungary to observe E.U. law both demonstrate how the overreaching by state governments can compromise a federal system.[1] In the E.U. the refusal to do away with the principle of unanimity in the European Council and the Council of the E.U. enable and even invite such overreaches at the expense of the E.U. itself, and its distinctly federal officials. Even a state government’s pursuit of it’s state’s economic interests does not justify holding the E.U. hostage. The case of supporting Ukraine in the midst of the invasion by Russia is a case in point.

The full essay is at "The E.U.'s Hungary Overreaching on Sovereignty."

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1, In 1832-1833, the government of South Carolina held that the U.S. tariffs of 1828 and 1832 were null and void within the state. “The resolution of the Nullification Crisis in favor of the federal government helped to undermine the nullification doctrine,” which holds that states have the right “to nullify federal acts within their boundaries.” Britannica.com (accessed August 25, 2025). I submit that the European Court of Justice could do worse than declare the same with regard to state laws, including the refusal of a governor or state legislature to implement federal directives, that are in violation of E.U. law and regulations. Monetary sanctions by the European Commission have not been a sufficient deterrent. If either de facto or de jure nullification becomes the norm, then it would only be a matter of time before the Union dissolves and the states could once again take up arms against each other.

On the Ideological Illogic of European Federalism

Europe may have contributed immensely to philosophy but logic seems to have been in short supply at times, as Europe ties itself in ideological knots in service of nationalism itself, as if that ideology had not given rise to two world wars in the twentieth century. I am not referring to the incendiary, irrational fear of the word, federalism, being applied to the European Union, but, rather, to the role of nationalist ideology in distorting the application of comparative institutional politics by journalists.

Take, for example, the following paragraph from Euronews: “Italian Prime Minister Giorgia Meloni hosted three-way transatlantic talks in Rome on Sunday, which European Commission President Ursula von der Leyen highlighted as a possible ‘new beginning in international relations between the two blocs.”[1] Scant reasoning is needed to conclude that the two blocs being referred to are the E.U. and U.S., and that the Italian prime minister represents the third party, Italy.

The logic begins to fray, however, because the E.U. state of Italy is not separate from the E.U., so the talks were not actually three-way. To treat a state in a union of states as equivalent to that or any other like union is to commit a category mistake. Politically, the other E.U. states might get jealous were the E.U. state of Italy to be reckoned both as a state of the E.U. and as a third party in the talks, as if an umpire between the two “blocs.”

Typically, European journalists refer to only the E.U. as a “bloc” in order to differentiate that union from the other empire-scale union across the proverbial pond. To refer to both unions as blocs defeats that purpose. In actuality, neither union is a bloc because neither union is temporary nor oriented around one issue, or pillar. Furthermore, the federal, yes, federal governmental institutions of both unions are more than merely a playground for intergovernmental relations among state governments. In other words, both the E.U. and the U.S. have the sort of federal system wherein governmental sovereignty is split between the federal and state systems. In Federal Government, Ken Wheare uses “systems” instead of levels to make the point that where sovereignty is divided up, one locus is not “above” the other. In fact, the system of state governments can act as a check on over-reaches at the federal level, and vice versa.

Therefore, the E.U.-U.S. talks were actually bilateral between two empire-scale federal unions comprised of federal and state governmental institutions. The same powers need not be federalized in both unions for the latter to evince what Wheare calls modern federalism to distinguish it from confederalism, wherein the states hold all governmental sovereignty. Nor need there be a balance of power between that of the “feds” and the states, although I contend that balance is important in both loci being able to serve as a check on the other. Neither the E.U. nor the U.S. has, at least as of 2025, achieved balance, and it may not be an altogether stable property of federalism. This does not relegate either union to being a “bloc,” and the E.U. ambassador to the U.S. agreed with me on this point when we met on May 1, 2025, when we met at Yale, whose European Studies Council takes the E.U. as being more substantial than does the counterpart at Harvard. The E.U. is neither mainly intergovernmental relations nor an alliance.

So in Rome on May 18, 2025, Meloni was simply playing host to the Vice President of the U.S. and the President of the E.U., both unions (not blocs) having distinct roles in foreign policy. The governor of Italy was not present to negotiate on behalf of the E.U. on tariffs pertaining to the U.S.; in regard to them, von der Leyen and Vance had their work cut out for them in dealing with both tariff and non-tariff barriers to E.U.-U.S. trade.

If the E.U. were a bloc, then the U.S. would be one too, but actually both claims would be counter-productive at a time when strength at the respective federal levels was needed. This is not to imply that any two empire-scale modern-federal unions are or even should be identical for them the be classifiable in the same political genus: modern federalism as distinct as a political “species” from confederalism, and also from instances of modern federalism at the “kingdom” (i.e., member-state) rather than empire-level. The inter-state heterogeneity in an empire-scale polity is a leap, or step, rather than degree, more than that which exists within a state, and this difference gives modern federalism at the empire-scale distinct properties, and in fact federalism itself is geared to such heterogeneity. This is not to say that regional differences do not exist at the state, or “kingdom” level, and a federal system can be useful there as well. Hence, California, for example, could benefit by adopting a federal system for itself. New York and Illinois could benefit too, as could the former E.U. state of Britain, which, like Switzerland, is (early modern) kingdom-level too. Hence UK-US or EU-UK is misleading in a way that E.U.-U.S. is not, even if nationalism goes down hard.

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1. “Italian PM Meloni Hosts EU-US Talks on Trade, Ukraine and Defence,” Euronews.com, May 18, 2025.

Tariffs as a Negotiating Tactic: Undercut by Wall Street Expediency

With all the economic and political turmoil from the anticipated American tariffs, it may be tempting, especially for financially-oriented CEOs and billionaires looking at quarterly reports, to call the whole thing off even though doing so would deflate the American attempt to renegotiate trade bilaterally with other countries. The concerns of the wealthy, whether corporations or individuals, have their place, but arguably should not be allowed to "lead the proverbial dog from behind, lest the dog run in circles and get nowhere." Moreover, the notion that any goal that is difficult and takes some time to materialize can or even should be vetoed by momentary passions at the outset is problematic and short-sighted. That U.S. President Trump's announcement of bilateral tariffs quickly brought fifty countries to the negotiating table is significant as a good sign for the United States, as long as that country's powerful business plutocracy (i.e., private concentrations of wealth that seek to govern) can be kept from vetoing the emergent trade policy, which at least in part is oriented to trade negotiation and ultimately to the notion that fair trade is conducive to increased free trade. 

The full essay is at "Tariffs as a Negotiating Tactic."

Euro-skeptic Anti-Federalism: An Institutional Obstacle in the E.U.

On December 6, 2024, the E.U. finally—meaning more than twenty years after negotiations had begun—reached a free-trade agreement with Argentina, Brazil, Paraguay, and Uruguay. The deal would cover 780 million people, but the completion of the negotiations between the E.U. president and those of the South American countries was “just a first stage before a long process”[1] that would require passage by a qualified majority vote—meaning 55% of the E.U. states and 55% of the E.U. population—in the E.U. Council and in the European Parliament and in enough state legislatures. Presumably if enough state ministers for trade in the E.U. Council vote yes, their respective state governments would go along and also be sufficient for final passage. I contend that the requirement that enough state legislatures also vote yes on the deal is excessive.

The most obvious point to be made concerning the excessiveness is that the state governments were directly represented in the E.U. Council, so for those governments then to need to approve the E.U.’s treaty is at best duplicative, and, at worse, enabling opposition yet another means of thwarting final passage. Moreover, the treaty is that of the E.U., rather than any of the state governments because the E.U.’s executive branch negotiated the trade deal. To be sure, the presence of non-trade terms in the deal, including binding commitments by the South American countries to stop illegal deforestation, explains why the Commission did not have exclusive competency, which the Commission had as of 2024 in commercial policy as when President Van der Leyen had the Commission enact tariffs on imports from China.  Even though the trade deal with four South American countries did not fall under the Commission’s exclusive competency (i.e., domain of authority), this only means that the E.U. Council and the Parliament had to approve the treaty too; non-exclusive competency does not mean that the state governments must or even should approve federal legislation (and E.U. treaties with other countries).

A subtle reason can also be cited for why the E.U. is too fettered by the excessive role of the state legislatures in being required to pass a federal trade treaty. Specifically, the ongoing Euroskeptic, or states-rights (or “nationalist”), ideology, which had been so unproductive for the E.U. precisely because of the extent of sovereignty that the states retained (i.e., had not already delegated to the federal union), relishes the duplication of the state governments’ power in passing federal trade treaties as indicating that the E.U. had remained merely an alliance of sovereign countries. Before Britain seceded from the Union, Prime Minister David Cameron referred to the E.U. as just one of the networks to which Britain happened to belong. With such a jarringly unreal notion of what the E.U. was politically, it was best that that state seceded. The state of France had not been wrong in halting Britain’s accession in the early 1970s.

In short, a bottom-heavy federal system awash in an anti-federalist ideology can really be paralyzing at the federal level. At the very least, having an excessive number of institutional hurdles for a bill (or trade treaty) to become law undermines the legislative process. Moreover, even dissolution is more likely to occur when the state governments wield a lot of power over federal legislation.  

This may seem trivial or even silly, but words matter because language can feed (and starve) an ideology. Let’s unpack the following passage from Euronews on the proposed trade deal: “Negotiators from the Latin American bloc were assembled . . . with the EU trade negotiation team to iron out the deal, that will cover 780 million people between both zones. But the deal will need a sign off (sic) from EU 27 member states.”[2] That European and American journalism often referred to the E.U. as a “bloc,” even though an informal grouping of sovereign countries does not have a constitutional (i.e., basic law) court, an executive branch, and a bi-cameral legislature whereas the European Union contains the governmental European Court of Justice, the E.U. Commission, the E.U. Council (like the U.S. Senate, representing the states), and a (lower) Parliament, implies that in using the word “bloc” to describe four South American countries as the Mercosur group, and we might think too of the BRICS countries, those trade groups are of the same genre as a federal union. That both the E.U. and U.S. cases of “modern federalism” include dual sovereignty, wherein two governments have domains in which they are sovereign for a given territory, nullifies the appellation of “bloc” or “zone” to either union, even if anti-federalists on both sides of the Atlantic Ocean have been in denial concerning this point.

At an academic talk at Harvard’s Center for European Studies in which the dean of Boston University’s School of Global Studies said that the E.U. does indeed have a federal system, a Harvard graduate student dismissed this point and, in “asking” a question, insisted that the E.U. is only an alliance of countries. I then asked the dean to confirm her judgment that the E.U. is not an alliance, which she did. Yet I doubt whether the Harvard graduate student had enough intellectual humility to let this point sink in. In fact, at another talk at the Center, another graduate student, who had been present at the visiting dean’s talk, insisted that economically, a Swiss (county-sized) canton could be compared to “a red or a blue state,” including Texas and California. That speaker, from MIT, had said that in looking at the economic inequality between rural regions and a metropolitan city, E.U. states should be compared with U.S. states rather than with the U.S. overall (as there is no focal city of the U.S.). That the European graduate student ignored this and implied that Switzerland is a United States of Europe (and thus as equivalent to the E.U. even though the latter treats Switzerland akin to a state in trade matters and free movement sans borders) stunned me. I had been thinking of applying to be a visiting scholar at Harvard’s Center for European Studies, but the stubborn, jejune disrespectful attitude of the two graduate students, as well as their abject ignorance and yet presumption concerning federalism theory, convinced me to cancel my application, for I was already too old for the grief (and passive aggression). Also, I was not about to buy an airline ticket to the E.U. only to be dismissed as a stupid American for claiming that the E.U. has a federal system of government and is thus not a “bloc” or “zone” equivalent to four countries in South America that have a trading relationship.

Given the excessive ability of state governments in the E.U. to styme federal legislation and treaties, misconceiving the E.U. as a “bloc” or “zone” can cement the anti-federalist systemic bias and thus render the E.U. itself as too paralyzed even with respect to federal policy, regulations, law, and treaties that are at the level of the E.U. and thus proper to it, with the state governments having direct federal access through not only the E.U. Council (of Ministers), but also the European Council, which sets the overall political priorities for the Union. Officials of the state governments sit on both councils, and may even have excessive influence over the political parties (not groups!) in the European Parliament. That one of those parties, the European People’s Party, has nonetheless been labeled as a “group” rather than a party from a state-level perspective is yet another instance of how federal law-making must brace against a head-wind of federal illegitimacy.

Lastly, it bears remembering that thirty years from the U.S. having instituted a federal system characterized chiefly by dual sovereignty in 1789 (before which the U.S. was an alliance, or confederation, unlike the E.U.!), the American state governments had too much sovereignty for the good of that union, given the multiple “Brexits” in 1861. To be sure, Lincoln was better off than General Washington had been in fighting a war, for Lincoln’s Union had dual-sovereignty whereas Washington had a confederation (i.e., the state governments were sovereign until 1789).  Connecting the dots for my European friends (and those Americans who are awake concerning the E.U. even existing), the E.U. in 2024 was of the same federal genre or type as the U.S. had been since 1789 but not since 1776! Now this should get several Harvard graduate students from Europe scratching their heads.

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1. Peggy Corlin, “Von der Leyen Clinches E.U.-Mercosur Trade Deal, in Face of French Opposition,” Euronews.com, December 6, 2024.
2. Ibid, italics added.

Britain's Obsession with Sovereignty Threatens Trade Treaty with the E.U.

Months after Britain seceded from the E.U., the government of the former state went rogue in intending to pass a law that would unilaterally change, and thus violate, the terms of the post-secession trading agreement between the UK and its former union. The bill proposed no new checks on goods going from the Northern Ireland region to the other regions of the UK. Whereas the British prime minister was claiming that the full sovereignty of the former state meant that Parliament could unilaterally change the terms of a treaty, the European Commission was saying, in effect, that an agreement is an agreement. I contend that the Commission was correct. Moreover, even before the UK seceded from the European Union, an obsession on sovereignty (then, states' rights) rendered Britain vulnerable to failing to grasp the costs.  

I submit that a treaty is no longer valid if one party uses its governmental sovereignty to unilaterally alter the terms. The E.U. could have replied that if the former state passes its bill, then the trading treaty would be null and void. The UK wanted a trade treaty, so that government would have to start from nothing in negotiating a new one should that government violate the one already agreed to prior to the secession. Fortunately, the secession itself was not contingent on the post-secession trading treaty going into effect, for Britain's insistence on its full sovereignty even as the state was semi-sovereign as a state in the E.U. was problematic. 

While the UK government's insistence on its full governmental sovereignty was correct at the time the proposed bill was proposed in 2020 (i.e., after secession), the claim of full sovereign of any E.U. state, including the UK before it seceded, would be false. The rational flaw that resides in the contention that the trade treaty would still hold even if one of the parties unilaterally changes the terms is also in the contention that a state of a union can unilaterally change the terms of federal law, as South Carolina had done in the U.S. in the early 1830's. 

Put another way, whereas the British government was correct that a trading agreement going into effect after secession counts as a treaty, which a government's legislature can change because it is sovereign, to make the same claim regarding federal law in a political union would not hold. So when David Cameron claimed when Britain was an E.U. state that the E.U. was just another network of (sovereign) countries to which Britain happened to belong, he was wrong in implying that the British Parliament held full sovereignty. He was conveniently ignoring the fact that the states had delegated some sovereignty to the E.U., and that laws passed on the federal level were not treaties relative to the sovereignty retained by the state governments. 

Even though Britain was no longer a state of the E.U. in 2020 when the Parliament was considering a bill to unilaterally change what was in fact a treaty, it seems that the need to continue to emphasize sovereignty was a bit overdrawn, and not in the former state's economic interest. For just as one party to a treaty can change it unilaterally, the other party can walk away, tearing up the treaty and legitimately claim that no agreement exists. 

E.U. Trade Negotiations with a Former State: The Paradigm of Britain

The paradigm used by a former state can undermine any negotiations between it and a federal government. Even the reference to a federal government, if contrary to such a paradigm, can subtly undercut relations. The typical focus on the matters to be negotiated, such as new trade relations, easily miss the negative impact of a biased paradigm that is more based in Euroskeptic states’ rights (i.e., anti-federalism) that on the actual relation being between a former state and the European Union.

In 1964, even before the E.U. came into effect in 1993, the European Court of Justice (ECJ) handed down a landmark decision in Costa v. ENEL declaring E.U. law superior over state law, and the ECJ supreme in interpreting E.U. law, including its basic law (which acts as a constitution). The E.U. saw the federal-level sovereignty expand into two “pillars” besides the renamed EEC. Even so, while in office as prime minister of the British state, David Cameron referred to the E.U. federal system as instead one of the networks to which Britain happens to belong. A network, such as NATO, does not hold any sovereignty. A network is not a federal system, and yet the E.U. is a federal system of dual sovereignty (i.e., held both by the state governments and the federal government, or “institutions”). Nor is a “bloc” a federal system, and yet even after secession British government officials (and their media) steadfastly used the loose term in spite of the fact that the E.U. covers more than trade and even economic policy and has legislative, executive, and judicial branches, as is typical for a government. Even remaining states have perpetuated the misleading term. Deutsche Welle, based in the state of Germany, notes in one article that without a trade deal, “the UK could face a so-called cliff-edge scenario which would effectively cut trade with the bloc.”[1] Cambridge Dictionary defines bloc as “a group of countries or people that have similar political interests.” Incredibly, even though the E.U. even at its inception included two non-economic “pillars,” the dictionary lists as one example, “The European Union is a powerful trading/trade bloc.” So too, were the former Eastern/Communist bloc countries even though they had not formed a federal government and they were not even republics (i.e., states) in the former U.S.S.R.

So the Truman Doctrine of the U.S., which pledged that the U.S. would help any country in the Americas resist the encroachments of communism rendered all the countries in the Americas a bloc due to the common political interest. So too, Western European countries constituted a bloc in having a shared political interest opposing the communist bloc in Eastern Europe (as well as the U.S.S.R.).  To apply the term bloc to a federal system undermines it because the term reduces it (of any sovereignty) into a mere common political interest.

Even just in thinking of the E.U. as a bloc, the British trade negotiators in 2020 were understating the status of the political union and ignoring its portion of sovereignty over its remaining states and in relations with governments around the world, including that of the UK. Even while it was an E.U. state, the UK government bristled at the reality that the federal institutions held some sovereignty in the federal system (the states holding the rest, as is the case in the U.S.)—yes, as in the case of the United States. Perhaps this comparison is precisely why the British government has intractably held onto the fiction that the E.U. is a mere bloc rather than a federal system with, yes, a federal government.

In the Deutsche Welle article, Michael Clauss, an official with the German government, warns that it is not possible for Britain to have “full sovereignty and at the same time full access to the EU’s internal market” in a trade deal with the European Union.[2] I submit that as a state, the UK wanted just that, and thus butted heads with the political/governmental reality that E.U. states were semi-sovereign as they had ceded some governmental sovereignty to the federal governmental institutions (i.e., government). Even in refusing to refer to a federal government, using institutions instead, officials of state governments generally have tried to deny that the E.U.’s executive, legislative, and judicial branches together constitute a government, as if basic law had not been established and judicially interpreted by the E.U.’s highest court. No federal government, no federal governmental sovereignty. Of course, even a collection of institutions at the E.U. level could have sovereignty; even the voting system of qualified majority voting means that a state government could find itself having to implement an E.U. directive.  

The refusal to admit that the E.U. has some governmental sovereignty even in carrying on trade negotiations has left it open for Euroskeptics to refer to the E.U. as an international organization akin to NATO or the UN, neither of which have a government or sovereignty. The British government officials can say that the former state can enjoy full sovereignty yet still have full trading benefits. 

Yet in spite of the qualitative differences between the UK and international organizations, the world, including former and current E.U. states, accepted the convenient analogy of “Brexit” to a divorce. The Deutsche Welle article, for example, observes, “Brexit supporters in the UK have grown frustrated with delays that have been plaguing the divorce proceedings since the Brexit referendum in June 2016.”[3] A divorce implies to commensurate parties, but it breaches logic to say that a state in a federal system is equivalent to the whole instead of the other parts thereof. Don’t tell Kant, but ideology can warp even logic and facts of reason. 

Does secession render a state equivalent to a union of states? 

We are supposed to believe that an international organization without its own sovereignty and a nation-state got a divorce, and, furthermore, that the nation-state can nonetheless expect to continue to get trading benefits that members get. A sovereign government can expect to get such results in negotiating with a mere international organization, and yet the divorce analogy implies that the two parties are equivalent (even though a state is not equivalent to a union of such states, or even former states). That the media in Europe and elsewhere (e.g., The New York Times) have allowed themselves to be manipulated by such twisted, self-serving ideological “logic,” which belies the strength of the E.U., suggests that the stamp of officialdom can be without a viable foundation.

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1. “Germany Urges UK to Be ‘More Realistic’ on Brexit,” DW.com, June 4, 2020 (accessed same day).

2. Ibid.

3. Ibid.

A Strong State vs.The Market Mechanism in China

Under Marxist ideology, the Chinese economy was a command-and-control economy eschewing the market mechanism. Mao's collective farms provide us with a good example. The economy of the U.S.S.R., also Marxist, was based on production quotas and fixed prices. They changed by fiat rather than by changes in demand. State owned, or socialist, productive enterprises were given quotas based on the prior year's production (plus more). This push replaced that of producing more to sell more. Any hint of a market brought with it the stench of Capitalism. So one would suppose that China marked a significant departure when the government announced in 2013 that it would expand the range in which the yuan currency would float. Yet in 2019 in the midst of a trade tussle with the United States, the Chinese state demonstrated just how dominant the state still was relative to any market system.  

The reforms incorporating the market mechanism had begun under Deng Xiaoping. Although publicly-owned and state-owned-enterprises still dominated, they were set within a market economy. The mix of government-owned (i.e., socialist) businesses and a market mechanism has been uneasy in practice. Private or partially-privately owned enterprises could find it difficult to compete with competitors subsidized by the state. Widen the circle to international trade and foreign private enterprises could be found having the same complaint. Of course, the domestic and foreign consumers stood to benefit by the subsidized lower prices, so assessing the existence of state-owned enterprises is more complex than first meets the eye. In part, this is so because governments tend to emphasize the interests of business rather than consumers.  

The United States, for example, has protested against the Chinese government devaluing its currency. A low currency means that exports are less expensive in exported markets.  The complaint has been that "a weak yuan gives Chinese exporters an unfair price edge in foreign markets and helps swell the massive U.S. trade deficit with China."[1] In the face of the trade dispute with the U.S. in 2019, China promised in August "to avoid 'competitive devaluation' to hold down export prices in the face of of Trump's tariff hikes."[2] However, the yuan's low point of 7.0927 on August 23, 2019 was the currency's weakest rate since January 2008.[3] The heavy hand of the central bank could easily dominant market forces because the bank set the exchange rate every morning and let the yuan fluctuate only 2% against the dollar during the day. 

Interestingly, the Chinese government had announced in 2013, "The exchange rate is going to be more market-oriented" [4] People's Bank of China Vice Governor Yi Gang made this statement on a panel at the International Monetary Fund’s 2013 spring meeting in Washington. In other words, “China's central bank plans to widen the yuan's trading band in the near future," he said.[5] This meant that China's leaders would "press ahead with change despite the surprise slowing of the economy."[6] On the surface, this shows that the "Communists" were really serious about moving closer to a market economy. At a deeper level, this shows just how much power the government still had over its economy--power that could be used to restrict the market in service to state objectives. In the literature of international political economy, the Chinese government would be classified as a strong state because it could resist external pressure. By contrast, six years later, the U.S. Federal Reserve would lower a key interest rate due to political pressure from the White House, where concerns of a possible recession in 2020 were intensifying. The weak state classification could also explain the accumulating federal public debt (i.e., the failure to resist pressures to tax less and spend more). 

From a big-picture perspective, balance or equilibrium in the global economy is in everyone’s financial interest. Keeping a currency artificially low is like a dam keeping waters from reaching a balance. The pressure from the held-up water can be expected to destabilize the global economy. China’s policy to gradually let the yuan’s value be market-determined was thus taken to be a prudent step. However, American frustrations on state subsidies and a low yuan in 2019 suggest that the Chinese government rather than the market mechanism was still very much in control of the Chinese economy. 

1. Joe McDonald, "China Let Its Currency Sink to an 11-Year Low After Trump's Trade Threats," Time Magazine, August 26, 2019. 

2. Ibid.

3. Ibid.

4. Natasha Brereton-Fukui and Bob Davis, “China Vows Wider Yuan Movement,” The Wall Street Journal, April 17, 2013.

5. Ibid.

6. Ibid.

The 2012 U.S.Trade Deficit: An Analysis

Coming in at 2.7% of GDP, the U.S. trade deficit fell to $107.5 billion in the third quarter of 2012—down 9 percent from the second quarter’s $118.1 billion, which was 3% of the economy at the time. The current account includes merchandise, services, and investment flows. The surpluses in services and investment were out-done by the deficit in merchandise to produce the overall trade deficit. According to the New York Times, the “improvement in the current account in the third quarter reflected a decline in the deficit on goods and a small increase in the surplus on services, led by a gain in foreign earnings made by financial services, insurance and professional services provided by companies in the United States. The surplus on investment earnings narrowed to $50.8 billion, down from $52.1 billion in the second quarter.” Most of the decline in the deficit on goods reflected a decline in the foreign oil bill, according to Paul Ashworth at Capital Economics.

Analysis:

Lest we get bogged down in the purportedly significant differences between 2.7% and 3.0%, $107.5 billion and $118.1 billion, and $50.8 billion and $52.1 billion, respectively, we might take note of the rather stark difference between goods on the one hand (i.e., sustained deficits) and services and investment (i.e., sustained surpluses). Although it was no doubt true that the economic slow-down in China and the debt/austerity-induced recession in the E.U. were reducing demand for American exports, a basic imbalance between exports of American-made and imports of foreign goods is clear from the numbers year after year. Indeed, in 2006 the current account deficit had reached a record $800.6 billion—suggesting that something fundamental was “out of whack.”

                                               This graph isolates the deficits in goods imported/exported.   source: thismatters.com 

The question may be whether Americans were importing too many foreign goods or were too uncompetitive in making goods. Regarding the former, being able to buy a relatively inexpensive television made in China is not in itself a bad thing, particularly to the consumer. The question is perhaps whether the price was artificially low, due for instance to a relative lack of environmental regulations, lower labor costs, or government/bank subsidies. However, even if due to these factors, a low price is undoubtedly welcome to any consumer.

Regarding American competitiveness, was it hampered by labor and environmental standards or simply by unmotivated workers and bad management? Whereas American consumers benefit from cheap imported products, no such benefit can be found in the U.S. to any sector from a relative inferiority in competitiveness.

There is, however, the argument that an “advanced” economy oriented to professional, business and financial services rather than manufacturing can enjoy a higher standard of living if the services are more premium than the goods would be. The pristine notion of the “knowledge economy” captures this point very well. That not all Americans are willing or even able to participate at this level suggests that the term could never completely cover an entire economy. Hence, it is necessary even in an “advanced,” or “high tech” and “professional,” economy to tackle the problem of competitiveness in manufacturing.  Does it come from high regulatory costs (which can be viewed as part of a demand by Americans for a certain “standard of living” writ large), a lack of product development, or an inefficient labor or management force?  Whereas wanting a decent wage-floor or environment as a condition of manufacturing has merit—the cost being that society may have to support people who would otherwise be working in manufacturing—a dearth of ingenuity, bad employee attitudes, and inept management have no such positive aspect.

I was born and raised in a medium-sized industrial city in the “rust belt.” Furniture was the first industry, following which machine tools were the dominant manufacture until competition from Europe took out most of the factories. Speaking a few years ago with a European who had been sent over to oversee a factory that had been taken over by a European company, I was not surprised when he admitted, “the workers here just are not good. They are not motivated and they don’t pick up on the training very good.” Years before that, I had watched a program on the American public broadcasting network about a man’s effort to prepare inner-city black people for job interviews. Midway through his talk, the man admitted to the folks attending, “from your attitude even here, I have to admit I can’t see how anyone would hire you, so I don’t see any reason to continue here.” The man ended the workshop at that point. Doubtless his decision prompted little if any self-criticism from the participants. A bad attitude is perhaps almost impossible to correct from the outside—even with the inducement of money!—given the nature of a bad attitude. Regarding people under thirty, perhaps a year or two at a military “boot-camp” might break down the attitude’s intransience and build up self-confidence and self-respect, not to mention basic civility. Absent such a strategy, perhaps the segment of the American population unwilling (or able) to become part of the “knowledge economy” is inevitably lost—not being able to compete even on a factory floor. The cost to the rest of society goes well beyond money.

While visiting Miami, I witnessed repeated incidents on the buses from the mainland to Miami Beach of black men shouting and even hitting each other, as well as bumping into (and even falling on!) tourists. The black drivers ignored the shouts (including a drunk black man loudly and repeatedly calling a pregnant white woman a “fucking bitch”) and even fist-fights. Even with tourists begging the drivers that the aggressive passenger be dismissed from the bus, the drivers just drove on. In two cases, the drivers asked the men being hit if they wanted to press charges. They replied that they did not, so rather than get the aggressor off the buses or call the police, the drivers simply started driving again. This happened twice in the last 24 hours of my visit!  Near the beginning of my visit, I myself was pushed against the open bus door of a bus at a rail station while I was attempting to board a bus because I had not allowed all of the black passengers to enter first. The black driver refused to call the police or even tell the aggressive black man who had squeezed me to leave the bus. The driver simply replied to me—as I was pinned to the open front-door—“no, I won’t call the police. You shouldn’t have gotten on then. That’s how it is here.” I should have called the police! I was so stunned at the violence and systemic cover-up that I simply wanted to get to my destination. Just after I took my seat, a nice older black woman asked me where I was from. I told her that I had grown up in Illinois. “It must be worse in Chicago,” she remarked. “No,” I countered, “it is worse here. The blacks there are better.” In spite of being the only white person on the bus, I went on. “Even with the blacks killing each other in south Chicago, the people are better there.” She asked if north Chicago was white and the south part black. “No, the north part of the city itself is integrated, while I think the south is black. I was referring to the north—the blacks there are much better than the ones here. Here—I can’t leave soon enough.” Silence . . . complete silence. It then occurred to me that the entire bus—which still had not left the tri-county rail station—had been listening to this white guy talk about blacks very directly.

As it happened, a month or so later I was in Chicago taking a bus when a black man tried to enter the bus by pushing three old white women in line in front of him. The driver, who was also black, saw the attempt and quickly said, “Hey, what do you think you are doing? Get back out of the bus and let those women on first. Who do you think you are?” Then the driver turned to us in the bus and remarked, “It’s all about him, isn’t it?” The offender must have been startled, for he merely replied, “But it is cold out.” The driver pointed out that it was cold for the women too. The three women ended up sitting near me, and I told them (and the front half of the bus) about what I had witnessed in Miami on the buses there—and that it really was better in Chicago and even warmer despite the cold—even in terms of people moving past each other in the isle. “In Miami, the driver would not have intervened and you all would have been pushed out of the way of the guy who was behind you in line. Even complaining to the driver would have had no effect, and the man would have gotten away with it—whereas here that attitude is an exception. It was therefore countered, or pushed back, and therefore not allowed to become the default.” I don’t know whether the driver heard my compliment.

While it is easy to point to the bad attitude of many of the black passengers in Miami, I contend that the incompetence and attitude of the bus drivers there were just as problematic, and my anecdote from a bus in Chicago demonstrates that the attitude need not be enabled rather than challenged. The fact that the drivers in Miami all reacted the virtually the same way suggests that the decadence is systemic there. Put another way, the rudeness and aggression had become the norm and thus could not be checked. Perhaps this is why the drivers simply ignored even the violence—though this is hardly a viable excuse.

In terms of passive aggression, I witnessed drivers of buses going between downtown and Miami Beach regularly and knowingly cram too many passengers (even tourists!) on the buses and then demand that the extra passengers (who had already paid) shout back into the bus for others to step back so the extras could “get behind the yellow line.” To allow passengers known to be beyond capacity on board and then put them in an impossible situation while refusing to take control of the bus by making an announcement for people standing to move back evinces not only incompetence, but also an almost-sadistic mindset. On several occasions, I saw order itself fall apart on buses there as frustrated passengers—even tourists!—openly challenged the unjust and incompetent drivers on this very point.

Leaving Miami, my overall conclusion was that that county should not be part of the United States of America because of the rudeness, aggression and even the break-down in order—all tacitly sanctioned by county managers and employees. The rudeness, by the way, was nearly everywhere, rather than just on buses. I could not imagine any of the aggressive passengers or enabling drivers lasting more than a few days working in a factory, and the bus company managers (who knew of the incidents, according to local passengers) were doubtless virtually unemployable in the private sector too.

In short, the serial merchandise trade-deficits may point to an America that even many Americans do not know exists. That is, the structural imbalance may reflect a decline in American society—both in terms of labor and management—that manifests in a significant number of Americans compromising manufacturing or even being virtually unemployable. Put another way, I suspect that the condition in the American factory was at least as of 2012 part of a much more serious problem wherein even the social contract itself was under threat, or at the very least the American empire was in decline.

Source:

The Associated Press, “US Shirks Trade Deficit As Oil Falls,” The New York Times, December 19, 2012.

East Asia and Latin America: Economy & State

In the fall of 2011, the economic troubles in the developed countries were starting to hit fast-growing developing economies like China, Brazil and Indonesia. The governments of the developing countries were “girding themselves,” according to the Wall Street Journal, “to offset any economic and financial damage.” China’s government, for example, increased the investment of its sovereign wealth fund in Chinese banks. In September, China’s exports to the E.U. grew at 10 percent, compared with 22% in August. China’s increase in imports was also weaker, which did not bode well for emerging markets in Latin America and elsewhere that supply commodities for China’s construction industry.  Yet IMF projections depicted an interesting distinction between the projected increase of real GNP in Latin America and the developing Asian economies. The projections for 2011 were 4.7% and 7.9 percent, respectively. For 2012, the projections were 4.0% and 7.7 percent, again respectively. What can explain this pattern wherein Asian newly industrialized economies (NICs) were expected to fare better?

Economists might point to the regions having different mixes of industries as behind the difference in projected growth—some industries more affected by the global downturn than others. Economists might also point out that domestic markets are more mature, and thus resistant to external shock, in the Asian NICs. Political economists would likely bring up the strong/weak state variable, hence bringing in the element of government to explain the difference in the projected economic growth rates.

In their democratic incarnations, Latin American governments have been less resistant to popular pressure for increased government spending on consumption. This has come at the expense of government investment such as infrastructure projects attractive to foreign direct investment. In other words, the governments of the Asian NICs have had a stronger state in the sense that the governments have been better able to resist the demand by people for increased entitlement spending at the expense of investment oriented to industrializing. Such investment can include education/training and transportation networks. Managers at a corporation looking for a country in which to locate a factory, for instance, are apt to size up the local and regional transportation infrastructure with an eye to being able to bring in supplies in a timely manner and send off products—both to the domestic market and other markets. Also, the government of a poor country hoping to develop economically via attracting foreign direct investment invests in training facilities and attempts to reduce corruption, as foreign companies appreciate locally-trained labor and not having to pay bribes to government officials in return for being able to conduct business. Officials of strong states are less capricious, and thus less corrupt.

Asian NICs were able to industrialize in the last two decades of the twentieth century more so than Latin American countries in part because of a strong state—meaning more resistant to spending tax revenue away on immediate consumption at the expense of infrastructure investment. This “state” variable was salient in the scholarship of international political economy when the Asian tigers were pulling away from the Latin American economies in the 1980s.

Lest it be presumed that a strong state is necessarily better simply because it can be useful in industrializing a “LDC” (low developed country) into a NIC through foreign direct investment, it is also possible that a government that is more resistant to popular pressure can also be more resistant to democracy. If republics are susceptible to profligacy in spending on consumption while dictatorships can resist such pressure and attract foreign direct investment, then a sad tradeoff could exist between liberty and wealth. Of course, as many dictatorships have shown, the wealth garnered from licensing commodity extraction (e.g., oil drilling) can be quite concentrated domestically. The tradeoff may not reach the people.

Perhaps ideally, the state is weak, or pliant, at election time, when governmental sovereignty bows to popular sovereignty. As the government turns to governing, the state hardens up in resisting the passions of the masses for immediate gratification. The resistance entailed in governing can be oriented to a people’s best interests rather than to oppressing the masses. The IMF projections may indicate that the Asian NICs came out of the twentieth century better constituted than the Latin American countries in this regard.

Source:

Alex Frangos and Patrick McGroarty, “Troubles of West Take Toll on Emerging Economies,” The Wall Street Journal, October 14, 2011. 

Wen and Obama: Breaking Up the Banks

Chinese Premier Wen Jiabao told a radio audience on April 3, 2012 “that China’s state-controlled banks are a ‘monopoly’ that must be broken up.”[1] He also urged other businesses to get into the financial sector. “Let me be frank,” he said. “Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly. To break the monopoly, we must allow private capital to flow into the financial sector.”[2] This included raising the total amount foreigners can bring into China under the Qualified Foreign Institutional Investor program to $80 billion.

Besides combined earnings of a bit over 632 billion yuan ($99 billion) in a slowing economy, the largest banks—Industrial & Commercial Bank of China, Bank of China, Agricultural Bank of China, and China Construction Bank—were able to raise fees indiscriminately, sparking the popular resentment that Wen was able to tap on the radio. Beyond the unfairness of the windfall profits, the artificially low cost to the banks in borrowing from domestic savings accounts meant that investment has proceeded at the expense of consumption. Given that the current account surplus stood at just 2.7% of GDP in 2011 due to slackening demand in Europe and North America, the imbalance regarding consumption could already be seen as a potential constraint to economic growth.

Therefore, Wen’s strategy in going after the unpopular banking oligopoly was wise both politically and economically. The question at the time was whether anything would come of his remarks. “The major question is whether increasing rhetoric and new initiatives toward economic revisions will lead to broader reform. Prior efforts have faltered amid Beijing’s drive to keep a tight rein on the economy and opposition from interest groups.”[3] That Wen made his remarks as he was preparing to leave office may mean that they should be regarded as akin to President Eisenhower’s “Beware the military-industrial complex” farewell speech. A swan song is not apt to be followed by still another act.

In terms of lessons from a comparative approach, it would be ironic, to say the least, were the Chinese government willing and able to break up the four largest banks while the Dodd Frank Act of 2010 in the U.S. let the banks too big to fail remain intact in spite of the plights of Bear Stearns and Lehman Brothers in 2008. That is to say, if the Chinese government could have taken on its powerful banks, the U.S. government would have looked comparatively weak as against the American banking sector.

Lest it not be forgotten, however, President Andrew Jackson’s defunding of the Second Bank of the United States at around 1830 was daring even bank then when the financial sector was smaller relative to the U.S. economy as a whole. Five or six years later, Congress finally got around to ending the bank’s charter altogether. Jackson’s argument was that having a bank would make Congress, and thus the U.S. Government, too powerful in the American federal system. The dangers to the American republics in having a powerful moneyed interest were also not lost on the nineteenth-century president.

Therefore, we can view the Dodd Frank Financial Reform Act of 2010 through the lenses both of China, assuming something comes of Wen’s remarks, and of American history. President Obama barely broached the subject of breaking up Wall Street banks even though they had been culpable in the derivative mess. Congress would hear nothing of it.  The Chinese government may not be so constrained by the self-serving interests of its banking oligarchy.

Similarly, claims that President Obama’s reliance on private health-insurance companies rather than a state-owned entity in his Affordable Healthcare Act of 2010 was somehow socialism (i.e., ownership by the state of means of production) can also be viewed relative to a Wen’s criticism of the state-owned banks (which favor state-owned enterprises in terms of lending). Obama caved to the private health-insurance company lobby on even a public option, whereas Wen suggests that the Chinese government might break up the four biggest banks. Is the Chinese state stronger than the U.S. Government relative to the interests of private capital?

Relative to the “socialist” leader’s distancing himself from a bias toward state-owned banks (and enterprises in general) in China, President Obama’s support of both the Dodd-Frank and Health-care Affordability laws can be seen in retrospect as anything but advocating U.S. Government ownership of means of production/services. Wen’s remarks show a movement away from socialism, toward Obama’s stance, though perhaps with government rather than banks in the driver’s seat.

1. Dinny McMahon, Lingling Wei, and Andrew Galbraith, “Chinese Premier Blasts Banks,” The Wall Street Journal, April 4, 2012.

2. Ibid.

3. Ibid.