Compass Money: The Rise of WeChat
Writing contributed by Katherine Zhuo.
THE FUTURE OF THE GLOBAL ECONOMY
Adam Tooze, an award-winning author and an esteemed professor; Gita Gopinath, the Economic Counsellor and Director of the Research Department at the IMF; and Robert Zoellick, former President of the World Bank, spoke about the future of the global economy on a panel on March 13 moderated by Caroline Atkinson as part of the Lloyd George Centennial Lectures.
Tooze kicked off the event by outlining three important eras that changed global order: the turn of the 19th century, the year 1945, and the 1990s. The 19th century stands as a time when countries confronted, for the first time, how to prevail over their enemies and keep up with modern economic globalization. The year 1945 marked the rise of American hegemonic leadership, and the 1990s posed the question of legitimacy: does the world need saving by the United States? Connecting history to the present, Tooze explained how these moments demonstrate the modern issue of hegemony and show that the problems we face today were similarly feared in the 19th century.
Gopinath discussed the economic implications of globalization. She explained that while global integration is a universal goal, with the increasing presence of technology and automation, there will always be winners and losers. Instead of focusing on this, we should recognize that globalization affects different communities differently and that we will never solve the problem of some countries benefiting over others. What we should do instead is improve multilateral agreements and domestic policies to address technology, automation, and trade.
Zoellick’s contributed a combination of policy and economics and were often responses to other panelists’ answers. In regards to U.S. leadership and hubris, Zoellick mentions that it may not be so bad for the U.S. to withdraw from multinational organizations or agreements. He added that inaction is a form of action, so the U.S. must make a choice. Moving forward, the country should move from “forms to norms and from structures to behaviors,” giving the example of penalizing China when necessary. He raised the point that there are people in China who want to change some policies, such as decreasing censorship, increasing transparency, and cracking down on corruption.
Overall, Tooze’s focus on history, Gopinath’s focus on economics, and Zoellick’s focus on policy gave the audience insight as to the direction the global economy was headed and where we ought to go from here.
WHAT IS MODERN MONETARY THEORY?
Recently, modern monetary theory (MMT), a new theory about money and the national debt which veers far from conventional economic precepts, has gained steam, in part as a reaction from the economic distress of the 2008 economic crash.
The main argument in MMT is that governments do not need to focus on or worry about the deficit because, in the era of fiat currency, they can simply print more money. Economists who disagree with this position cite that such a proposition would cause hyperinflation, as was the case in Germany under the Weimar Republic. MMT economists argue that fears of inflation have been exaggerated since the 1970s as the Federal Reserve has consistently undershot inflation targets during this period, indicating that the U.S. economy is far from a state of full demand. MMT theorists believe inflation is only possible in a state where there is full employment, which is not the case in the United States today. Moreover, raising taxes to pay for new programs does eliminate money that could be spent in the economy.
While MMT theorists see taxes on the wealthy as good for reducing inequality, they do not see them as necessary to pay for government spending. MMT focuses on spending as a key source of economic growth, leading many to compare it to demand-focused economics. Critics have dubbed it “reheated Keynesianism,” while supporters see it as the next development in that line of economic thinking. Critics also point to weaknesses in MMT theorists’ understanding of the day-to-day functioning of the Federal Reserve and the process of printing money.
U.S. Labor Force Participation Rate (1948-2011)
Most worrying to critics is the resemblance between 1970s economics in the U.K. and the idea of MMT, especially with regards to full employment. MMT theorists believe that the central weakness of the American economy is the lack of worker participation in the labor force and regular unemployment. MMT theorists like Stephanie Kelton of the University of Missouri-Kansas City focus entirely on the issue of individuals who are seeking jobs, but cannot find one. They believe that a federal jobs guarantee of the type proposed by Democrats Hubert Humphrey and Henry Scoop Jackson in the 1970s and enacted in various ways in the United Kingdom under both Labour and Tory governments before the Thatcher administration would solve what they consider a systemic issue.
Supporters propose a flexible jobs program that would guide the unemployed into meeting “various community tasks such as the classic New Deal types of building roads and digging ditches, but also in more service-oriented roles such as childcare and eldercare.” Beyond the 2020 presidential election, MMT might establish itself as a mainstay in the fields of economics, academia, and business.
THE RISE OF WECHAT
It is 2019. What does a day in the life of a person in China look like? Here is a glimpse:
It is 7:00 AM. You get up and, of course, grabbing your phone is the first thing to do. A little red dot on the top right corner of the WeChat app reminds you to respond to your friend’s message. While brushing your teeth, you also open WeChat Moments to check out all of the news links and spring break pictures from your neighbors.
Half an hour later, you click on the Didi extension from WeChat and share a car ride to work.
At noon, you use the Meituan Takeout option on WeChat to order some spicy Sichuan noodles. You can even track the delivery man’s progress on the map.
After work, you pass by a stand to buy some groceries. The owner takes out a QR code, and you scan it, using WeChat, again.
Then, before you know it, it is nighttime again. You video-chat with your sister on WeChat one last time, then, reluctantly, you put your phone down and go to sleep.
It is unthinkable to live in China today without the magical app. In January, Tencent announced that WeChat, its flagship all-in-one app familiar for its ubiquitous green-and-white logo, had officially passed one billion daily active users.
WeChat combines the functionalities of Facebook, iMessage, Uber, Instagram, Skype, PayPal, Amazon, and LimeBike for its users. Apart from the Chinese market, it has aimed to grow use in other Asian developing economies and with ethnically Chinese populations overseas. The platform provides many language options intended to make it attractive to the international user, though so far, the app’s main revenue source remains Chinese speakers. The popularity stems from practical conveniences as much as favorable regulation by the Chinese government, which has assisted Tencent’s messaging monopoly by banning apps owned by foreign corporations like Facebook’s WhatsApp and Messenger. The app notably censors sensitive contents that criticizes or opposes the Chinese government or its policies. While some have warned against its use over privacy concerns, its star continues to shine brightly in China.
WeChat’s success highlights the uniqueness of the Chinese market, which depends more on government policy than Western ones. As a mobile application that has revolutionized the lifestyle of many Chinese, WeChat is representative of the country’s effort to launch its online-to-offline (O2O) revolution, providing digital services that simplify the offline world for its citizens.