Return to Transcripts main page

Fareed Zakaria GPS

How Decisions Get Made in the Kremlin; Can Rishi Sunak Save Britain?; The Potential Dangers of Bidenomics. Aired 10-11a ET

Aired October 30, 2022 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[10:00:28]

FAREED ZAKARIA, CNN ANCHOR: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

(BEGIN VIDEOTAPE)

ZAKARIA (voice-over): Today on the program, Vladimir Putin says the world faces the most dangerous decade since World War II. Will he make it more dangerous by using nuclear weapons? Can he compromise and make a deal? I will ask Boris Bondarev, one of the highest level defectors from Putin's own government.

Then, Britain has its third prime minister in less than two months. We will tell you what you need to know about Rishi Sunak and his plans.

RISHI SUNAK, BRITISH PRIME MINISTER: Trust is earned, and I will earn yours.

ZAKARIA: Can they save the economy and the reputation of that storied nation?

And as a divided America heads to the polls, what can we learn from the most divided period in American history? The Civil War years. I sit down with Jon Meacham who has just published a new biography of Abraham Lincoln.

(END VIDEOTAPE)

ZAKARIA: But first, here's my take. History and current polling both tell us that the House of Representatives will likely flip over to Republican control in the November midterms. What happens then? Actual governance will come to a standstill. There will be a flurry of investigations on everything from the Justice Department to Hunter Biden to the border crisis. The January 6th Committee will almost certainly be disbanded, and it is not implausible to imagine that President Biden will be impeached.

How did we get here? There are of course many reasons, but the central facilitating factor is surely the way that American politics has over the last few decades increasingly empowered the extremes of political parties at the expense of the mainstream. The primary system used by American parties to choose their candidates is extremely unusual. No other major democracy has one quite like it. Primaries ensure that candidates chosen are selected by a sliver of

the party. Around 20 percent of voters. And this election is not at all representative. These are the most intense, agitated activists, often far more extreme in their views than run-of-the-mill registered Republicans or Democrats. Add to this decades of sophisticated, computer enabled gerrymandering, and you get extreme candidates who run in safe districts where the only threat to them is a primary candidate who is even more extreme.

"The Washington Post" has analyzed Republicans running for Senate, House, and certain state-wide offices and found that a majority could be classified as election deniers. People who have in some way questioned, challenged, or refused to accept the outcome of the 2020 presidential election. Of these 291 candidates, 171 are running in safe Republican districts. So what began as a fringe theory, promoted by Donald Trump but initially rejected by most of the Republican Party's leaders, has now become the majority view of the party.

Election denial is not a majority view in the United States. In an NBC poll, 57 percent of those asked said they would be less likely to vote for someone who claims Trump won the 2020 election, while only 21 percent said they would be more likely to support an election denier. But between primaries and gerrymandering, the majority view gets drowned out.

Catering to the right wing base also means constantly ratcheting up the rhetoric. Nancy Pelosi is a would-be dictator. Biden is a communist. Democrats are pro-criminals. Marjorie Taylor Greene has said, quote, "Democrats want Republicans dead. And they have already started the killings," end quote.

The alternative system of candidate selection used in America before the age of primaries and in most other major democracies is what is often called the smoke-filled room. A pejorative description even before we knew that smoking killed you. In this system, candidates are selected by party bosses.

[10:05:01]

But consider who these bosses have traditionally been. Alderman, mayors, governors and legislators at all levels. These are people who have won general elections by appealing to the entire electorate. People who have a feel for the broader public. No group of party elders, for example, would ever choose a candidate like Herschel Walker. Primaries, by contrast, entrust candidate selection to the most radical section of the party.

And social media has added fuel to the fire by amplifying the noisiest and angriest voices within the party, who are themselves an even smaller group than primary voters. While the problem is far worse and much more dangerous on the Republican side, these pressures do also affect Democrats. Many of the issues where Joe Biden is constrained in his actions, in particular immigration and energy, are ones where the activist base of the party has much more extreme views than the mainstream. And pivoting to the center as Pennsylvania Senate candidate John

Fetterman did on fracking in recent months is increasingly difficult in today's world where you can instantly and easily play old clips of a politician before he changed his mind.

In a recent piece in "The New York Times," Max Fisher describes how the recent dysfunctions of British politics can be attributed to the two main parties choosing over the last two decades to adopt more of a primary type system to select their leader. The Labour Party ended up with the totally unelectable far-left leader like Jeremy Corbin and rejected a charismatic moderate like David Miliband.

The recent Conservative Party travails illustrate the problem perfectly. Liz Truss, with her totally impractical warmed-over Thatcherism, almost always came third in votes from elected members of parliament, the old system of party bosses. But she was the darling of the broader party membership, which is highly unrepresentative of the British public, and they were the ones who made the final decision.

It is not an accident that Germany and France have both been run largely by solid centrists in a time of populism. They have chosen to keep to old system of democracy, based on the principle of majority rule. In America and to an extent in Britain, democracy has actually become minority rule, and the minority holding power is unrepresentative, angry, and increasingly radical.

Go to CNN.com/fareed for a link to my "Washington Post" column this week. And let's get started.

On Wednesday, Russia's President Vladimir Putin claimed that Ukraine was planning to use a so-called dirty bomb, a claim that his underlings had been peddling for days. The accusations were roundly denounced by Ukraine and its Western allies. They say this rhetoric is nothing more than a Russian attempt to ratchet up tensions and escalate the conflict.

So how far will Putin go to turn the tide of a war that has not gone his way?

Joining me now is Boris Bondarev, who spent 20 years as a Russian official. He was a diplomat based at the United Nations in Geneva before resigning in May over the war in Ukraine. He is one of the highest level officials to publicly defect over the war, and he joins us now from Switzerland.

Welcome, Boris. I want to start by asking you to describe why you think Russia's decision making and decision making apparatus got to the point it did in the invasion of Ukraine because you have this fascinating "Foreign Affairs" essay, where you lay out really how Russia has evolved as a kind of ruling elite in Russia has gotten narrower, more and more insulated, more and more kind of divorced from the outside world.

What do you think -- you know, what happened that got us to where we are? BORIS BONDAREV, FORMER RUSSIAN DIPLOMAT: First of all, it is the

result or outcome of this evolution of the Russian state, which we have witnessed for the last 20 years and even longer. It has been getting more and more isolated from society, and this is very dangerous because people who work in government, they get this misinformation from their colleagues. And they make the decision based on this miscalculation and misinformation. And we see it in the result of which we see it in this invasion in Ukraine.

ZAKARIA: In the kind of decision making structure you're describing, Boris, I assume bad news does not travel up the chain. In other words, people are not likely to tell Putin, Mr. President, the war is going badly.

[10:10:06]

The idea of trying to take Kyiv was bad. All that kind of thing probably doesn't go up the chain as much as one would hope it would.

BONDAREV: I believe it is very close to truth, and I also believe that when you report some information high -- to the high command, to the leadership of the country, you have -- I mean in Russia today, you have to make it as pleasant as possible. And of course, you don't want to displease or upset your bosses and the government itself because it would -- it would jeopardize your career prospects.

ZAKARIA: So when we hear this talk about a dirty bomb, first by Putin's aides, Lavrov, now Putin himself, what do you think is going on inside? Is this -- are they feeling a certain pressure and coming up with new threats?

BONDAREV: I think that today Russian leadership is actually at a loss. They are trying to adjust themselves to this new reality. And the reality says that Russia may well lose this war. And, you know, it looks quite chaotic, really, because there is no strategy under this. It is only some kind of random ways of looking for some opportunities to get themselves out of this very, very peculiar and very dangerous situation.

ZAKARIA: What about the threat of a nuclear weapon being used? In your career as a diplomat, have you ever heard of the Russian top leadership talking about the possible use of a tactical nuclear weapon? Do you think Putin is bluffing, or is this real?

BONDAREV: I don't think that these nuclear weapon threats are very real for now, and I think that they will not be real if Putin gets a very clear signal from the international community that any use of nuclear weapons will have the most gravest consequences for Russia and him personally.

ZAKARIA: And what about negotiations? So imagine, what you described is if Putin feels like he's losing and that fear continues, that fear continues, he could end up using a tactical nuclear weapon. What if the battlefield ends up, you know, in a stalemate? Let's say the Ukrainians take more territory, Kherson, maybe Kharkiv, but then it bogs down. At that point, could you imagine Putin being willing to arrive at some kind of negotiated settlement, which would be a compromise for everyone?

BONDAREV: All the parties have absolutely different and antagonizing priorities and goals in these negotiations. So for now, I don't see any prospects for any real negotiations.

ZAKARIA: So if what you say is true and we are in for just a long, protracted war, what happens inside Russia? Does Putin's hold on Russia so strong that even a long war, even maybe more mobilization, would not weaken it?

BONDAREV: First, I don't think that Putin is really ready for a long, protracted war. I think that his strength, his regime is a little bit overestimated now. And now we see in Russia that there is a lot of confusion in the conduct of mobilization, for instance. And there is some kind of unrest and discontent within the population. So I believe that Ukraine may not go on this path of long and protracted war.

But they are capable, the Ukrainian army is capable of defeating Russian troops and of liberating their own lands. But for that they need continued and enhanced assistance and support from the West. But with that, I believe they can win this war in quite short terms, maybe in a few months. So because they have already shown a very significant progress in this.

ZAKARIA: Boris, fascinating insights. We really appreciate you coming on. Very, very useful.

BONDAREV: Thank you. Thank you very much.

ZAKARIA: Next on GPS, can the new British Prime Minister Rishi Sunak quash the chaos that has been plaguing his nation? That question when we come back.

(COMMERCIAL BREAK)

[10:19:07]

ZAKARIA: On Tuesday, Britain traded its shortest serving prime minister for its youngest, at least since William Pitt in 1783. Rishi Sunak is the third person to hold this office in the past seven weeks. He is also the first person of color to be the chief resident of Number 10 Downing Street, and the wealthiest. And now he's charged with fixing his country's economy and its reputation.

Is he up to the task? Will he fair better than his predecessors?

Zanny Minton Beddoes, the editor in chief of "The Economist," she joins me now.

So, Zanny, you know, he's now in this job, but as you have written many times in "The Economist," this is a tough position. Britain is in trouble. Can he fix it?

ZANNY MINTON BEDDOES, EDITOR IN CHIEF, THE ECONOMIST: Well, we have someone at least who is competent. And, you know, we can no longer take that for granted in Britain. Rishi Sunak is a man of integrity. He is a technocrat. He was a very competent chancellor.

[10:20:02]

He is someone who has a Bloomberg terminal on his desk, and it's now a level -- it's frankly a testament to the level that Britain has sunk to, that being competent is sort of -- you know, everyone is massively celebrating that we have a competent prime minister. But he is competent. He has a huge task, however. He has a country that is financially much riskier than it was. The aftermath of Liz Truss' mistakes is still there.

We now have, however, gilt yields coming down. It's the dullness dividend is what people are calling it. You know now it's the markets have greater faith in Rishi Sunak. But nonetheless Britain's problems are real. It's the only G7 economy whose output is still lower than it was pre-COVID. We are an economy that is weaker and more risky thanks to Brexit. You and I have talked about this a lot in the past. I think Brexit has left us weaker.

And he also has a Tory Party that is tremendously divided. Now Rishi Sunak has come in, he's created a Cabinet of all the talents, he's, you know, reached out to the other factions in the Tory Party. That's all great, and he will bring stability. But the question is, can he really tackle the big challenges that Britain has? It's a slow-growing economy. It's got big problems. I'm not yet sure that he's going to be able to tackle those. But my goodness, it's much, much better than where we were.

ZAKARIA: But as you say in your editorial this week, he was wrong on Brexit. He was very enthusiastic about Brexit. I think the evidence is now pretty clear. It's logical, you are cutting off preferential relations with your largest market. How can that be a good thing economically, right? And so in a weird way Liz Truss did have -- you know, at least she was trying to respond to that problem by saying we're going to be the Singapore, you know, the low trade, low regulation. Now that is well. But he needs an answer to this problem.

BEDDOES: That's completely true. People forget now that Rishi Sunak, you know, very early on was an enthusiastic Brexiteer. He thought it would make the country more prosperous. He was, from the beginning. He wasn't one of those people which Liz Truss was. She was a remainer who became a Brexiteer because she realized that's the only way she can succeed in her party. He was always enthusiastic.

He was wrong about that. And that's not the only thing he's been wrong about. He was an early enthusiastic Boris Johnson as prime minister. Again not exactly a great thing for Britain. So he has been wrong. And in many ways the problem that Britain faces today is a function of the decisions the country took that rishi Sunak enthusiastically supported. And it's easy -- we're now so desperate to have some who's competent that we forget all of that.

ZAKARIA: You know, I'm struck by the fact that Liz Truss announced essentially $40 billion in tax cuts and the markets went haywire. They're like, oh, my god, Britain's deficit and debt are out of control. Around the same time, the estimate for Biden's student debt forgiveness plan came out and it was not $40 billion. It was $400 billion. I mean, America can run up the biggest deficits. Is the reserve currency such an advantage that economic policy doesn't matter? Because you guys have a big editorial, your cover is on Bidenomics.

BEDDOES: Well, to answer the first question, yes, it is the exorbitant privilege that the U.S. has, and having the reserve currency means that you can do a lot more that other countries can't do. I don't think it's infinite but it certainly gives the U.S. a much, much easier time of that. You're right, we got some big look at Bidenomics this week and the cover says that inflation isn't the only problem.

Everyone is focused on inflation, and rightly so. And if Biden does badly in the midterms one reason will be that. But what's going on is a much, much broader activist, interventionist industrial policy. The combination of the CHIPS Act, the Infrastructure Act, the extraordinarily inaptly named Inflation Reduction Act, is a huge amount of subsidies. For two goals that in and of itself are sensible. One is to tackle climate change, the other is to have an approach towards an increasingly competitive and concerns about China.

So those focuses are right. But it's ribboned with protectionism. Ribboned with buy America clauses. Ribboned with clauses about how all these benefits and subsidies are only for things produced here. And that protectionism, you know, you and I, Fareed, are probably one of the few -- some of the few free traders out there. But we really worry about that protectionism because we think it will make it a much less effective at achieving its goals of boosting climate change and indeed strengthening the U.S. economy.

So in the short term, inflation is the big question around here. That's what everyone is focused on. But look under the hood. And the U.S. is in the midst of this really, really ambitious, activist industrial policy. And I'm not at all sure it's being designed in the way it's going to be good for the U.S. in the medium and long run.

ZAKARIA: It will be great for subsidies for certain industries, but you point out that the total amount of subsidies the U.S. is now giving out is well more than France. And the U.S. has always, you know, mocked France for having this protectionist, industrialized policy, and by the way French policies have always failed. And your fear is that the American ones will go the same route.

[10:25:04]

BEDDOES: Absolutely. Absolutely. Dirigiste America is being born.

ZAKARIA: Zanny Minton Beddoes, always a pleasure.

BEDDOES: Thank you.

ZAKARIA: Coming up next on GPS, America got a dismal report card this week, perhaps unsurprisingly, kids have suffered and struggled greatly at school in the last three years. We will talk about that report card and a solution to the problem when we come back.

(COMMERCIAL BREAK)

ZAKARIA: This week, the United States released its first national education report card in three years. And the country's performance was worthy of a long stint in detention. Fourth and eighth graders recorded the largest drop in math scores ever. Reading scores fell to levels last

recorded in 1992. And inequalities between rich students and their poorer peers deepened. It's the latest, most representative evidence of the pandemic induced education crisis in the U.S. The question is, how do we fix it?

My next guest says he has the answer. Sal Khan is the CEO of Khan Academy, a nonprofit that provides lessons to students online. Sal, welcome. So when you saw this evidence to begin with, what was your reaction?

SAL KHAN, FOUNDER AND CEO, KHAN ACADEMY: It wasn't surprising. I don't think I was alone there. But I think what is maybe a little bit surprising even before this is why people weren't viewing this as an emergency even before the pandemic. Just to reframe some of the numbers you've just cited, things went down both in math and reading. The worst results were in eighth grade math, where pre-pandemic about a third of students in the U.S. were proficient in math. So, that was pretty horrible. And now it's a fourth.

So even though things just got dramatically worse, it was pretty bad before. And it -- so it wasn't just the pandemic, although the pandemic definitely made things worse.

ZAKARIA: So in some ways, the kind of central question, and I think you're the perfect person to ask this to is, during the pandemic large amounts of the education that people were getting in person went online. And it seems like that online experience was terrible for educational outcomes. Now, you're the king of online education. So why did online education not work during the pandemic?

KHAN: It's a great question. And I always like to differentiate between online versus remote. What did happen during the pandemic, and you can't blame anyone, they didn't have a lot of time to plan this, is that the same traditional academic model where you have 20, 30 students in a classroom for the most part listening to lectures, that just got transferred to Zoom somewhat overnight where now students are sitting in -- on Zoom calls for four, five hours a day. And you can imagine those were very, very disengaging. And so what happened during the pandemic, it wasn't necessarily the technology it was just that -- it just became even more disengaging, a lot of kids just fell off of the radar and weren't able to engage in their education.

On the other hand, you can do online learning. And when Khan Academy is used best it is used inside of a classroom with people next to each other. Students are able to work at their own pace on things that are relevant to them. The teacher is able to walk around and have more personal one-on-one interaction, actually more human-to-human interaction than they would get in a traditional lecture based classroom. The students are encouraged not to put their fingers on their lips but are actually encouraged to talk to each other and help each other.

So it's not about online versus not online. It's about, are you leveraging human connection? Are there ways to engage students and have them work on what matters for them versus things that are less engaging? And the less engaging is what happened during the pandemic.

ZAKARIA: It does seems to me, Sal, that a lot of what makes people learn is the social setting, that they're with friends, that they are trying to impress their peers or they're competing with them, or their -- you know, that there's a social element to it, which almost makes it comfortable for the education for them to receive the education. But to just sit in front of a Zoom for five, six hours, all you're getting is the education, but none of that social dynamic, seems very, very suboptimal.

KHAN: No one agrees more than myself with that statement. But, I think, what's interesting right now is, the solution isn't to just say, hey, we're never going to use a computer again. The solution is say, OK, we have the students back on campus. They can engage with each other. What is the optimal engagement? And that is don't just keep shepherding them lockstep, half the kids are bored, half the kids are lost. Let them get as much practice and feedback as possible on things that are actually going to be useful for them.

ZAKARIA: And the online part allows for that tailoring of, you know, each student matching up to the level and the problems that they can deal with, right?

KHAN: That's right. You know, before -- if you go back -- 2,300 years back intentionally, if you go back to the time of Alexander the Great, he had a personal tutor named Aristotle. That's about as good as an education can get.

Two hundred years ago, we had a very utopian idea of let's have free math public education. But we said, we can't give everyone and Aristotle, so we borrowed tools from the industrial revolution. Let's move students lockstep. Let's apply some lectures to them. Every few weeks we will get assessment.

The kids were doing all right. We'll track them into the top of the labor pyramid, some kids in the middle, some kids in the bottom. That's not acceptable any more. It wasn't acceptable pre-pandemic and then the pandemic just put a bigger spotlight on, we can't do the same as usual and hope to get a better result.

[10:35:05]

You know, as you know, that's often times the definition of insanity, expecting a different outcome by doing the same thing. We have to move to this level of personalization. Try to get -- approximate what Alexander the Great had but obviously we can't have one-on-one for everybody. So this is where online personalized learning is important.

And, you know, I'm not selling anything. People might -- this is all free. It's not for profit. Everyone listening can use it. They can tell their school about it. And the more people that use it, I have to go out there and raise more money for it.

ZAKARIA: All right. Well, I always get smarter listening to you. Sal Khan, always a pleasure.

KHAN: Thanks, Fareed.

ZAKARIA: Next on GPS, at a time of deepening division, even talk of a civil war in the United States, what lessons can we all take from the age of Abraham Lincoln? Find out in a moment.

(COMMERCIAL BREAK)

[10:40:15]

ZAKARIA: With U.S. midterm elections just over a week away, half the country's voters believe America is too politically divided to solve its own problems. That's according to a poll which also showed 70 percent of voters believe U.S. democracy is under threat.

Let's remember the past to help us understand the present. Today, I want to look back more than a century and a half to the most divided moment in American history, when Abraham Lincoln was president. The Pulitzer Prize-winning historian Jon Meacham last week released a biography on Lincoln that was called "And There Was Light." Meacham occasionally advises President Biden and he now joins me. Occasionally advises me, as well.

JON MEACHAM, PULITZER PRIZE-WINNING HISTORIAN: To the same effect.

ZAKARIA: Do you think there is a parallel between, you know, when you look at the data, it shows that we are the only time we were similarly divided was actually right after the Civil War, in that period. Do you think there are comparisons, analogies to be made here?

MEACHAM: I do. I was hoping for years for the last five years, that this was more like 1933 or 1968, where there were clashing visions, but a fundamental acceptance of the protocols of politics. I don't think that's true. I think that the persistence of the big lie, Trump's insistence that the election was stolen, and its ancillary impacts has created an 1850s feel.

It's a clash of visions that has almost everything to do with power and identity. And democracies do not long endure, as Lincoln would say, if we do not mutually respect the rules of the road. And we can argue about whether the constitution should do this or should do that. But in that case, in the 1850s, there was an entire breaking of that compact. And I worry that we're within hailing distance of that today.

ZAKARIA: You said it was centered around identity. Of course, it did -- you know, the south sense of it is distinctive identity, the peculiar institution as it was called. Is it like that today? You know, because when you talk -- some of Trump's supporters, they'll say, no, no, no, it's not about race or culture. But it does have the feel. The issues that animate tend to be immigration or, you know, this -- you know, how you teach American history, critical race theory. MEACHAM: It's power. And democracies only work if power is marshaled and managed, not if it is seized. And that's what the White south was doing, my native region.

They chose to define human rights in a very limited way. They exalted property rights over individual rights and decided to secede from the union. Thereby, ending an experiment which however imperfect did create a world which gave us the 13th, 14th and 15th Amendments, and ultimately an egalitarian future.

This is not to lionize Abraham Lincoln at all. But he fundamentally believed that the Declaration of Independence had to be the national lodestar and that the application of the meaning of those words was, in fact, what the country was about. The White south decided, no, that all men were not created equal. And Lincoln, I think, to the benefit of humankind, decided that, in fact, if we could not bend the arc of a moral universe toward justice, the great Theodore Parker phrase, if the declaration could not be made real, then we're in a Hobbesian state of nature.

ZAKARIA: And Lincoln was saying this in a global context in which democracy was weakened. He talked very famously about the last best hope, and people often focus on the "best" part. But he's also signaling that, look, if we go down, things look bad, and we have been living through a decade of Democratic backsliding and decay almost everywhere in the world.

MEACHAM: There is no question that Lincoln saw democracy and liberty and the American experiment as entwined. That if popular government failed here, then the divine right of kings would reassert itself or the divine right of aristocracies. And in this case, it was an aristocracy of race and of property. And had that crisis not been resolved the way it was, then yes, he believed that the revolutions of 1776, 1789, of 1848, the of, for and by the people was a phrase that he got from Theodore Parker.

[10:45:09]

He also got it from Lajos Kossuth from Hungary --

ZAKARIA: The Hungarian, yes.

MEACHAM: -- who was a vital figure toward here, sort of like Lafayette did late in life.

ZAKARIA: You know, you can find statues to Kossuth all over -- like New York, I think, the Riverside Park.

MEACHAM: And that was this -- we forget this, but it was a global story. A global story that, in fact, society should not be organized vertically, popes and princes and prelates and kings, but had to be horizontal.

And, again, not to lionize him beyond his measure, but I wanted to do the book because I wanted to understand not just how he did it, but why. And he grew up in a theological atmosphere that was antislavery. He believed in a kind of universalist fatherhood of god, brotherhood of man, in no way a conventional Christian. But there were these moments where he could have decided to do something else.

ZAKARIA: Now, the tragic element of the comparison you're making is that the way we resolved our differences that last time around was through a bitter civil war in which 600,000 Americans died.

MEACHAM: Absolutely.

ZAKARIA: How do we resolve it this time?

MEACHAM: It's a terrible analogy, because of the way the 1860s ended. And I don't think we're going to have mass armies in civil war. We are having civil chaos, punctuated by violence, at a level, as you say, statistically it's clear this is rising.

I don't think we're going to be at that scale of mass warfare. But the scale of the argument, who are we? Are we willing to give as well as to take? That argument is as fundamental.

ZAKARIA: Jon Meacham, always a pleasure. Write more books so we can get (INAUDIBLE).

MEACHAM: Thank you, Fareed.

ZAKARIA: Next on GPS, under Xi Jinping, China's once roaring economy has lost steam. Yet he showed no signs of changing course in last week's party congress. I'll dig into these missteps in a moment.

(COMMERCIAL BREAK)

[10:51:09]

ZAKARIA: And now for the last look. China's communist party unveiled its new inner circle last weekend, and it is stuffed with Xi Jinping loyalists. Pro-market liberalizers are gone. Gone are the heady days of reform and opening that characterized China since Deng Xiaoping's era. Gone also is China's growth miracle.

Its economy, which grew by 10 percent a year for decades, has slowed dramatically on Xi's watch, and will likely grow by low single digits this year. In fact, in a striking piece of analysis, Ruchir Sharma writes in the "Financial Times" that China's economy is likely to grow at a measly 2.5 percent in the coming decades. He notes that commentators thought China would overtake the U.S.'s economy by 2020. Now it seems unlikely that will occur until 2060, if it ever does.

What happened? Well, there are basically two ways that economies grow. Adding more workers and pushing productivity higher. Meaning each worker produces more goods and services. As far as total workers goes, China faces a serious shortage. Its working age population has peaked and is projected to fall steeply in the next few decades.

This was set in motion long ago under the one-child policy. Xi has ended that policy and tried to encourage people to have more children without any success. China now has one of the lowest fertility rates in the world, with fewer and fewer workers, and more and more retirees. That means the country's future depends on productivity.

China's boom since the 1980s was fundamentally about moving away from a state directed economy toward a more free market economy. Productivity growth jumped, but it has slowed considerably since then. Of course, it was easier to take a backwards economy and make it more productive. By the time Xi took over, the low hanging fruit had been picked. But whatever the hand he was dealt Xi has played it very badly.

He's favored inefficient state-owned enterprises that he ultimately controls over nimble private companies. For instance, he has made it difficult for the private sector to get loans but not for state-owned companies. Xi has particularly clamped down on private tech companies wary of their growing power. Regulators slapped a record fine on Alibaba for monopoly behavior and scrapped the IPO for Ant Group, Alibaba's innovative financial arm. Another example, officials banned the country's main ride hailing app Didi from app stores over its handling of customer data.

There was one area where Xi's predecessors used state levers to drive productivity, massive spending on infrastructure, which facilitated commerce and travel and generous lending that allowed new housing to be built for workers who are moving to cities. But these approaches are petering out. Sharma notes that it used to take about $4.00 of capital to produce $1.00 in GDP growth. By 2019, it took almost $8.00 of capital to produce that same $1.00 of GDP growth.

Part of the reason as the Lowy Institute points out is China now has more infrastructure than many developed countries. Adding more doesn't really make sense. Meanwhile, the real estate sector, turned into a speculative and wasteful bubble. Xi deserves some credit for popping that bubble by reigning in lending but he's been slow to repair the damage.

On infrastructure, he's sticking with the old playbook. This year China has embarked on a $1.1 trillion infrastructure spree. Another focus of Xi is to make China more self-sufficient and get domestic companies to develop key technologies.

[10:55:01]

This state-directed industrial policy may well flop. But it has unnerved other countries, as has Xi's more aggressive approach on the world stage. So the U.S. and others have now taken steps to block China from acquiring their companies and buying technologies such as microchips. A major source of Chinese productivity growth used to come from learning foreign techniques or embedding foreign technologies into their products. Now China is losing access to foreign innovation.

And according to the Lowy Institute that could reduce its GDP by up to eight percent in 2050 compared to what it would have been. And we haven't even mentioned Xi's strict zero COVID policy, which has shut down economic activity in various places and choked off business, travel, and tourism for almost three years now, with little prospect Xi will reverse course in the near future. The last few decades have been shaped by the economic rise of China. What will the next few decades look like if China stagnates? That's the question we should all be thinking about.

And thanks to all of you for being part of my program this week. I will see you next week.

(COMMERCIAL BREAK)

[11:00:00]