Asia
I attended the Economist’s World in 2010 conference this week. The economic outlook was cautiously positive.
Carmen Reinhart, Professor of Economics and Director of the Center for International Economics, University of Maryland:
- A rapid V-shaped recovery is unlikely, as the conditions are not in place.
- The revenue hit inflicted by the recession will accelerate the arrival of problems associated with paying for rising health care and Baby Boom retirement costs in the US.
- There is no natural successor to the dollar in view. The dollar has Treasuries behind it, but the euro has no unified debt market.
- A “Tobin Tax” on financial transactions would have to be orchestrated globally, or it would simply push business to markets that declined to implement it.
Leo Abruzzese, Economist Editorial Director, North America:
- By the 3rd quarter of 2011, world economic growth will not be back even to 2003 levels.
- The US economy will reach its 2007 size by the 3rd quarter of 2011. It will have taken 16-17 quarters, much worse than other recessions in recent decades.
- The US banking crisis is not over, and many more small- and medium-sized banks will still get in trouble.
- In China, stock and property bubbles are forming, and are likely to pop within 2 to 3 years.
- China should overtake Japan as the world’s second largest economy in the next few months.
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In an attack on the Obama administration’s policy of “strategic reassurance,” Robert Kagan and Dan Blumenthal make an interesting point
“Strategic reassurance” seems to chart a different course. Senior officials liken the policy to the British accommodation of a rising United States at the end of the 19th century, which entailed ceding the Western Hemisphere to American hegemony. Lingering behind this concept is an assumption of America’s inevitable decline. Yet nothing would do more to hasten decline than to follow this path. The British accommodation of America’s rise was based on close ideological kinship. British leaders recognized the United States as a strategic ally in a dangerous world — as proved true throughout the 20th century. No serious person would imagine a similar grand alliance and “special relationship” between an autocratic China and a democratic United States.
Leaving aside that the writers are straining to detect how Obama differs from his predecessors — some see unusual continuity — it is true that the US lacks a natural protege. Brazil and India come much closer than China, as multicultural, democratic countries strongly shaped by Western culture, but real “kinship” is absent.
In any case, having a protege offers no guarantees: the US actively worked to deprive Britain of its chief global-power asset, its empire, even as the “special relationship” formed.
Given the strong odds that China and other countries will singly or collectively surpass the United States, the lack of proteges reinforces the value of the embedding the rising powers in an international system that Americans find amenable. It also argues for vigorous pursuit of soft power, converting rising powers to think more like us. Both of these tools were battered by the Bush administration, but Obama is pursuing them.
It should also be noted that an “autocratic China” is not forever. In many respects China is already less oppressive than South Korea and Taiwan were 50 years ago, when they were bastions of “the free world.” China may follow a similar course, and Kagan and Blumenthal imply that that matters. (Pure realists might object. After all, the US and Britain spent the first 100 years of their relationship warring or talking about warring with each other.)
Decline can be gradual: Britain remains a great power, 120 years after losing its place as the world’s largest economy. By that math, America will still matter in 2150.
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Zachary Karabell, author of Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It, spoke at New America Foundation this afternoon.
In discussing the deep mutual dependence of the US and Chinese economies, he suggested that two pathways are likely:
- China and the US might be like future EU members at mid-century, in proto-partnership, though no one is acting with that intention.
- China might be playing the role of the US in its relationship to the UK in early-mid 20th century, with the US fighting irrelevant fights (Iraq, Afghanistan) while China grows in power; it was ultimately the US that supplanted Britain, not Germany.
Other ideas of interest:
- It is not clear if global resources –- steel and oil, for instance –- could even support a much more prosperous China. Chinese demand is likely to drive up oil, copper, etc. prices in a few years.
- The chances are “almost nil” that China will follow Japan’s path, falling into stagnation. Japan was never as open to global commerce than China is; India is not as open as China either.
- China may be pleased with the American obsession with Iran, because that is something that it hardly cares about at all — it is always great to have one’s adversaries expending their energies at something that doesn’t matter to you.
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China is about to become the world’s second-largest economy, supplanting Japan, the New York Times reports.
This “will bring an end to a global economic order that has prevailed for 40 years, with ramifications across arenas from trade and diplomacy to, potentially, military power,” the Times notes.
China is already the second-largest economy measured by purchasing power, of course. But as early as next year it could achieve this status at exchange rates as well, a crucial turning point, as it is a better measure of global economic clout.
China is projected to overtake the US in total purchasing power before 2020, the Times says. Then comes the big moment:
Based on current growth and currency trends, Mr. Kwan forecasts that the Chinese economy could surpass that of the United States in 2039. And that date could move up to 2026 if China lets its currency appreciate by a mere 2 percent a year.
Meanwhile, Japan is not faring as well:
China’s rise could accelerate Japan’s economic decline as it captures Japanese export markets, and as Japan’s crushing national debt increases and its aging population grows less and less productive — producing a downward spiral. “It’s beyond my imagination how far Japan will fall in the world economy in 10, 20 years,” said Hideo Kumano, economist at the Dai-Ichi Life Research Institute.
Japan is already fraying, by some standards:
Many here ask whether Japan is destined to be the next Switzerland: rich and comfortable, but of little global import, largely ignored by the rest of the world… The per-capita gross domestic product of Japan … stalled at $34,300 in 2007; it is now a quarter below American levels and 19th in the world. Both income inequality and poverty are on the rise.
No Japanese companies are now in the top 10 firms by market capitalization, and Japan’s largest, Toyota, is 22nd. Only 5 other Japanese companies are in the top 100.
Japan’s self-regard has taken a hit; a new poll finds Japanese to be the least proud of their country among 33 nations surveyed.
(Japanese self-image: tip from @Urbanverse)
(Image of Shanghai courtesy alexkost, Flickr)
People are not that certain of China’s rise. Majorities or pluralities in only half of the countries surveyed “believe that China will — or already has — replaced the U.S. as the world’s leading superpower.” Sensibly, only minorities believe that the handover has already occurred — 4 to 17% think so, with no clear pattern emerging in countries with larger percentages within this range. Only 8% of Chinese believe that they are already on top.
People in developed countries –and thus likely higher education levels — are more likely to expect Chinese dominance.
Two exceptions set the stage for future clashes of expectations: only 26% of Americans foresee being replaced by China, with 57% doubting that this will ever happen, while 59% of Chinese expect to replace the US, and only 20% are skeptical that this will occur.
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Writing in Foreign Policy, Paul Quinn-Judge outlines a scenario in which “the fighters of the Caucasus Emirate link up with their jihadi allies in Central Asia, turning much of the southern rim of the former Soviet Union into a zone of low-intensity warfare.”
He writes that “The absolute worst-case scenario — a gradual linking-up of insurgents in Central Asia with the North Caucasus’ young Islamist fighters — might be remote, but it is now possible. Such a link-up would require at least three factors.”
- “Russia’s policy of blind brutality in the North Caucasus would have to continue, ensuring a steady stream of recruits to the Islamist cause.”
- “The Taliban would have to consolidate along Afghanistan’s frontiers with Central Asian countries such as Turkmenistan, Uzbekistan, or Tajikistan, turning the borderlands into safe havens and creating a series of conduits allowing fighters to move from Afghanistan into Central Asia and beyond.”
- “Central Asian jihadists from countries such as Kyrgyzstan, Tajikistan, or Uzbekistan would have to emerge as a fighting force large enough to exert serious regional pressure.”
As to their likelihood, Quinn-Judge suggests that
- “The first is already happening.”
- “The second is a matter of time.”
- “The third cannot be ruled out.”
China has plans to create a 25-square-mile photovoltaic solar farm. The array would have a two-gigawatt capacity; this could power three million homes, ABC News reports.
Of course, China has announced a lot of sustainability projects that haven’t quite panned out. Still, ABC notes that China is the world’s largest producer of solar panels, and is about to be the world’s largest wind turbine maker.
The first marker for this solar project will be whether the 30 megawatt demo is completed in the next couple of years. The full-scale project’s target for completion is 2019.
Twenty-five square miles is ambitious at the moment, but may come to be seen as just a start. The current National Geographic asserts that the entire US electricity supply could be powered by a solar farm occupying a 100-mile-by-100-mile square (10,000 sq miles). (George Johnson, “Plugging into the Sun,” National Geographic, September 2009, 39) This might seem like a lot, but, by comparison, it is less than a tenth of the acreage planted in corn alone each year.
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Polling by the Pew Global Attitudes Project show that Pakistani attitudes are shifting. They are far more worried about extremism, and feel less positive about al Qaeda and the Taliban.
- Seventy percent have an unfavorable view of the Taliban, vs. 33% in 2008. On al Qaeda, 61% now hold unfavorable views, compared to 34% last year.
- Nearly two-thirds of Pakistanis — 64% — see the US as an “enemy,” though 53% think improved relations between the two countries are important.
- India is viewed as a very serious threat by 69% of those polled, while 57% see the Taliban this way, and 41% label al Qaeda a serious threat.
- China is viewed positively by 84% of Pakistanis.
- Pakistanis have strong authoritarian impulses: “78% favor death for those who leave Islam; 80% favor whippings and cutting off hands for crimes like theft and robbery; and 83% favor stoning adulterers.”
- Pakistan may have some resistance to fragmentation: “89% say they think of themselves first as Pakistani, rather than as a member of their ethnic group.”
- Pakistanis are not deeply unhappy with their lives, despite poverty, instability, corruption, etc.: “74% say they are very or somewhat satisfied with their overall lives.”
- Only 5% now support suicide bombings targeting civilians “in defense of Islam;” 41% did so in 2004.
Public hostility to the US suggests that it would not take an outright extremist takeover to create a hostile regime in Pakistan. Politicians might find it a rewarding stance in an election, and in office, though economic and diplomatic costs might make this a risky strategy.
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Analyst Andrew Bacevich questioned the US strategy in Afghanistan on NPR’s “Morning Edition” today.
We don’t need to fix Afghanistan and the world, he said; we simply need to defend the US. The American interest in Afghanistan is limited to insuring “that Afghanistan does not become a sanctuary for a large number of jihadists plotting attacks against the United States.”
Our current strategy and level of commitment does not reflect that limited interest, he said. The current approach fails “to think seriously about where our interests lie and to think seriously about how much power we have available and where it can most effectively be used.”
As an alternative, “explore the possibility of providing incentives to the warlords to get them to rule their little patch of Afghanistan in ways that keeps the Taliban and especially keeps al-Qaida out. In other words, we would pay them in order to accomplish that for us.”
Present strategy leads to “perpetual occupation,” according to Bacevich.
This alternative strategy could present several issues:
- The warlords are often corrupt and brutal — sometimes as brutal as the Taliban — and backing them could be difficult for Americans to stomach.
- The brutality and oppression of the warlords brought the Taliban to power in the 1990s, and could enable them to triumph again.
- If American aims are limited to blocking hostile jihadists, we might do as well negotiating with the Taliban directly, as some say is inevitable.
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A researcher has found that fertility may go up again after countries reach a high level of development.
The pattern has long been that fertility is declining pretty much everywhere, and in the developed world is has dropped below replacement levels — about 2.1 babies per woman — in many countries.
Lower fertility has many societal, economic, and environmental benefits, but rapid fertility drops drive rapid “aging” of a society, with rising ratios of seniors to workers.
According to Rob Stein in the Washington Post, Hans-Peter Kohler found that countries which reach a high quality of life often increase their birthrates. The threshold is a human development index (HDI) of 0.9, which reflects high levels of income, longevity, and education.
Kohler speculates that the key may be social structures and employment situations that enable women both to work and have children. This would explain, he notes, why Japan has not achieved this fertility rebound, given its high level of gender inequality.
Immigration could clearly play a factor, as most developed countries (but not Japan) have greatly increased immigration in recent decades, but Kohler says it cannot account for the full effect — and this would not explain why Canada has not had such a rebound.
Sociologist S. Philip Morgan casts some doubt on the development-driven theory, telling the Post that other factors could be at work, such as ideological changes. (These two ideas are not necessarily contradictory; development is an important driver of ideological change, according to theorists such as Ronald Inglehart.)
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