Top Five Christmas Wishes for the World Economy

December 28, 2009Marketsby David Caploe

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27 December 2009.

27 December 2009. David Caploe PhD, Chief Political Economist, EconomyWatch.com. While it lacked the dramatics of a 2008 that featured a Black September that will go down in history as one of the most chaotic and fear-inspiring episodes in modern financial / economic history, 2009 has been pretty rough in most places, as the aftermath of that trauma has continued to reverberate throughout the year.

In that context, here are our Top Five Christmas wishes for the world political economy as it concludes a roller-coaster of what Queen Elizabeth, in a different context, called, an “annus horribilus”.

 

1)   

The continuation of significant economic growth and development in China and India.

 

To be sure, there are major problems within each country, some of which we’ll discuss below.

But there is no question the on-going increase in both statistical and real wealth in both countries is one of the best things that has occurred during the past year – from the perspective of each country and the entire world political economy.

Let’s hope it continues a trend in which the terrible gap between the rich and poor countries continues to grow smaller with each passing year.

 

2)   

A radical DE-crease of income inequality WITHIN India.

 

For India, a radical reduction in income inequality is key to its becoming the first major “buy” economy in Asia.

China has grown by imitating the “export” strategy pioneered in the post-WWII period by Japan, and then imitated by the Asian Tigers of South Korea / Taiwan / Hong Kong / and Singapore, in which lots of money comes into the country, then trickles down to the huddled masses.

India has a chance to follow a different economic strategy that can conceivably give it a role in Asia and, we hope, the world, similar to that so brilliantly played by the US during the same post-1945 periodthe regional / global consumer of last resort, the market into which all countries aspire to sell their goods.

To achieve this, India must do what the US did after World War II: create a huge, hard-working, thriving middle-class, whose ever-increasing thirst for goods and services means an always-expanding opportunity for other countries to sell.

India has not yet committed itself to the manufacturing export orientation of China and the other East Asian Tigers, but has instead become the preferred home of “outsourced” work in IT / customer service / back-office operations / medical technology etc. – all made possible by its “natural resource” of native [ albeit with an accent ;-) ] speakers of English.

If India can continue with this strategy – AND decrease the radical income disparities WITHIN its population – it has the chance to not just pioneer a new economic model for developing countries, but bring unparalleled prosperity to ALL its citizens through the development of the largest middle class the world has ever seen.

 

3)   

For China, a realization that concern for the environmental health and well-being of its own population, including but not limited to workers, is NOT economically counter-productive, but a necessary step in development.

 

China has shown in the first decade of the 21st century it is second to none in its discipline and willingness to work hard.

Whatever its problems, the one-child policy has been a powerful factor in making it possible for, literally, millions of Chinese to ascend into at least the lower rungs of the aspiring middle-class.

As we have recounted, China’s macro economy has now passed Japan’s and is quickly approaching that of the United States, even though its per capita consumption remains below both of those two indisputably “rich” countries.

It has managed to not just survive but prosper during the global downturn through a combination of an a) well-conceived and –executed stimulus plan that, unlike the US’, achieved its goals with speed and intelligence to keep the domestic economy moving, and b) effective capture of the Wal-Mart / Target end of the American domestic market, the one sector of that reeling economy that is indisputably growing.

Given that, and the likelihood of its continuing success, China must now realize that general policy orientations appropriate at one stage are much less so as it reaches another one.

This is true above all when it comes to acknowledging that disregard for environmental aspects of both the process and products of manufacturing is not a good thing for Chinese business in even the short-run, let alone medium- or long-term.

No one wants to see the “animal spirits” unleashed by the post-Mao Teng Hsio-ping changes be dampened in any way.

But they must now be leavened with an awareness that environmental factors are not, as Dick Cheney sneered, an “admirable” add-on, but vital when it comes to investment decisions about where to locate both factories and corporate headquarters.

Put bluntly, whatever the economic opportunities, few companies are going to be able to convince top people to move to Chinese cities where the air is unbreathable / the water undrinkable / and the cultural life barren and lifeless.

If China wants to continue to be a magnet for global capital, it MUST improve the environmental quality of life throughout the country.

 

4)   

For the US, recognition its economy is unlikely to improve until its broken and corrupt political system undergoes a radical change.

 

As an American, the current political economic scene is painful to observe, even from a distance, as the country reels almost drunkenly from a seemingly unmanageable crisis in one area – say, health care – to a similarly out of control situation in another – say, the economy and TBTF banks and insurance companies.

For a long time, Americans could pretend that, no matter what a sad and painful joke the political system was during the Cheney / Bush era, the US’ sheer innovative genius would compensate in the economic sphere, and keep everything more or less all right.

But despite the neo-classical / Marxist faith that economic factors dominate political ones, it is becoming clear that the realist view – where politics is crucial in setting the framework within which economic activity unfolds offers a much-needed corrective, as those allegedly in charge continue playing their destructive games, while the economy continues to spin out of control.

Such a change will not be easy, as Americans have been weaned on the neo-classical dominant myth that economics rules everything, and politics doesn’t really matter, and can, consequently, be an after-thought.

Unfortunately, the rule of Cheney / Bush in the short-term, and Ronald Reagan in the long-term, has put the US on a self-destructive path whose bitter economic fruits are just now becoming visible, even as Americans continue to deny their political roots.

The reckoning is going to be long and hard, made even more so by the rampant denial that has become such a structural feature of US public discourse.

But we can at least hope that people will start to realize what has gone on, and begin the process of acknowledging some painful truths.

And while other countries may laugh that the US is getting the comeuppance it so richly deserves, they should temper their snickers at least a bit – for the foreseeable future, the US will remain at the center of the world political economy on which EVERYONE depends.

 

5)   

For OPEC and other Persian Gulf / petro-states, awareness the carbon-based “ecologonomy ©” will eventually run out of gas, so to speak, and both they and the whole world will be better off if they use their current oil-based wealth not to buy weapons but invest in the “clean green technology,” which, whatever bumps it may encounter en route, is clearly the wave of the future.

 

Here, of course, the evident leader is Abu Dhabi, which is using its vast oil wealth to move precisely along the path of investment in “future- / mind- based” sectors like education / media / culture, as well as the green technology they realize will eventually supplant the black gold that also enables them to help out their wayward brothers to the north in Dubai, for whom the future has already arrived.

Obviously, it’s easy in the short-term for oil-rich countries to use their mineral wealth to paper over any immediate difficulties they may be encountering, be they economic / political / social [eg, large populations of non-citizens who nevertheless do most of the work in a country’s economy].

But they should all take a positive lesson from a far-seeing country like Norway, which has used its oil-based prosperity not only to set up a just and fair welfare state for their citizens, but also to lay the groundwork for a future WITHOUT oil.

And they should also take a negative lesson from nations like the US, which squandered its vast natural resources in developing an economy of waste, and now finds itself ill-prepared for a world in which a generally rising tide – which has suddenly stopped rising and is rapidly receding – covered a multitude of major inequalities, whose echoes are just beginning to resound throughout the society as a whole.

Planning for the long-term seems not to be an in-bred human characteristic, nor is a full awareness of even recent history – aside from selective memory that retains grievances against “others,” whether within or outside a countries borders.

But as we prepare to say good-bye to a difficult 2009, perhaps the best Christmas wish for the entire world would be the hope that people’s outlooks can become a bit more open, and their perspectives a bit more long-term.

The world is not in great shape, and it would be a big step forward if EVERYONE could be a little less reactive, and a little more thoughtful in their efforts to deal with each other in a planet growing ever more crowded and, thanks to communication technologies, ever-more aware of each other’s weaknesses and strengths, follies and achievements, with each passing day.

David Caploe PhD

Chief Political Economist

EconomyWatch.com