Monday, January 22, 2007

The Writing on the Wall

Global in Hargeisa, originally uploaded by CharlesFred.

I have just finished reading the book 'The Writing on the Wall - China and the West in the 21st century' by Will Hutton. I picked this up at Bahrain airport on the way back from Bangkok, even though it has only just now come out in the UK. The cover is red and looks like it is a book about China, but it is more about the state of the world economy today with an emphasis on looking at the effects of globalisation.

It is a very very interesting read, giving a very different take on globalsiation and how it benefits us in the West far more than other countries, giving us access to cheap goods and services as well as access to cheap credit to finance the spending spree in countries such as the US and the UK, which seems to be the driver of economic growth.

He takes a very good look at the reality of the Chinese economic miracle, which he sees as being plagued by corruption and being not a lot more than a question of Western companies taking advantage of tax breaks and cheap labour to have their goods manufactured and assembled, there being no Chinese mutli-national of any note to have arisen. The Communist Party has been very astute to take advantage of globally free markets and the very high savings patterns of the rural poor to create the phenomenal economic growth which China has seen. It is this economic growth which gives the Communist Party its current justification for existing, he claims.

He also claims that the current situation of high annual economic growth cannot be maintained indefinitely, partly because of the law of large numbers and partly because the laws of economics will ensure that the Chinese economy will overheat, leading to inflation, affecting the savings of the rural poor and so on.... leading to eventual collapse of the Communist party and the policies it purues. (The argument is long and complicated and I have not explained it very well, I am sorry to say).

Anyway, the main point of his argument is that the West should help China transition out of its current economic state to one which is sustainable, whereby consumption and savings are at more normal levels. For this to happen, he argues, China will have to embrace the Enlightenment values of pluaralism, such as the rule of law, multi-party system, freedom of the press and so on.... and the end of the Communist Party.

This will not be easy and while the change is made there are plenty of flashpoints with the West. He says we should keep our cool and play a long game of helping China make its neceessary transition.

The other side of the Chinese economic miracle is the trade surplus China has with the US, the funds from which are being invested in US bonds, keeping interest low in the US, fuelling the consumer spending boom, which is a major driver of world economic growth and in turn a major contributor to the trade surplus which China has.

The point now is that any shock to the system which causes a slowdown in the rate of growth of the Chinese economy will have a major knock-on effect on the US and world economy, sending the dollar down and pushing interest rates up, leading to a world depression.

This is a little bit of what he writes, but his other major theme is how the soft infrastructure of capitalism, the Enlightenment values of democracy, rule of law, free press, civil society, public realm, accountabilty and so on are infinitely important to economic development, a major reason why so many developing countries have problems in developing. He looks at the relative lack of these Enlightenment values affects the UK economy (our revolution having taken place before the onset of the Enlightenment) and how Enlightenment values in the US are being destroyed by the neo-con consensus in the US, which, in the long term will damage that country's own econmic interests.

Lastly, projecting Enlightenment values onto international governance, we find them distinctly lacking with the WTO and IMF being more rich man's clubs than genuinely reflecting the pluralist interests of all the countries in the world. Also, he makes the obvious point that the US's unilateralim undermines respect for international law such that when we might need to call on it, in the case of a breach by, say, China, we might not find it strong enough to protect us.

The book is a (relatively) easy and very interesting read. Highly recommended.


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