Economics
Author Bruce Sterling offered his “State of the World 2010” on The Well this week. A few excerpts follow.
As a result of “an emergent, market-driven global financial system that was all about a faith-based market fundamentalism,” he says,
we’ve ended up with our current “It’s a Wonderful Life” Pottersville, where Rupert Murdoch plays our Mr Potter. …. Societies that are top-heavy in this way are just not gonna have major prosperity. Too much of the civil population has been fenced off from the trough. The wealth-generating capacity of the society has been short-circuited. There’s zero political will to socialize the entire planet and re-channel its currency flows, so that’s not gonna happen. Basically, the political class is waiting for the civil population to come back to the church of the free market and get over the fact that its cardinals walk in public with no clothes on.
So you’re just not gonna see a lively, vibrant scene in Pottersville. You can have a Japanese Pottersville, where everybody’s getting older and they’re building huge concrete bridges to nowhere. Or a Managed Democracy Putin-Pottersville, where everybody agrees not to say anything much about the many Potemkin aspects. You could even get some Rio de Janeiro Pottersville full of armed, dropout-ethnic shantytowns where everybody’s high on medical marijuana. But not prosperity.
Continue reading ‘Bruce Sterling’s State of the World’
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.
Twitter: @Geofutures
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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.
(Image copyright Futureatlas.com — usable with link and attribution)
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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)
International system
Pei suggested that there will not be an “Asian century” in the same way that the 20th century was the American century: Asia will lack the capabilities and skills to remake the world in the way the United States did. Moreover, the region is too divided, and intraregional rivalries will cancel the individual powers out, for no net effect.
Martinez agreed that, in the short term, the narrative of American decline due to the financial crisis was overblown. He emphasized that the US and China are now in a position of mutual dependence, a relationship could actually help the US perpetuate the American century. He does not see any innovative ideological worldview motivating China: no great ideological challenge is coming out of Asia.
Japan does not want to be second to China in Asia, Pei noted.
Asian economies
Continued growth in the 7-9% range should not be assumed, Pei asserted, given the challenges countries face in as little as 10-15 years. He suggested that Asia lacks an ecosystem for innovation, and that such a system is obstructed by the entire Asian “way of life.”
China’s domestic evolution
China will become a democracy at some point, Pei said. It will come from the top down, when members of the political elite choose to use popular discontent to further their personal goals. This could actually undercut its economic performance, he added.
He said that the Communist Party has successfully whitewashed history, and Chinese know little of the repressions from the 1950s to Tiananmen. As a result, the Party’s legitimacy could be threatened when it all comes out, as happened to the Party in Russia during glasnost.
Martinez forecast that, if economic growth falters, the Party would need an alternative rationale for its continued dominance, and might turn to nationalism, for instance on the Taiwan issue. He noted that even young, educated, cosmopolitan Chinese are in full agreement with the government on nationalistic issues such as Tibet and Taiwan.
Pei said that the financial crisis has not disillusioned Chinese about Western capitalism, but it has provided an “aha” moment, as they have watched the US make serious mistakes.
The discussion is at the NAF site on video.
Image copyright FutureAtlas.com — usable with attribution and link.
ChangeWaves last week noted that the landscape of the world economy has changed overnight.
With a recalculation by the World Bank, China’s and India’s economies are now much smaller, at least as measured by purchasing power.
This is how things used to look (click on the graphic to activate):
With the recalculation, the developing Asian economies are rather less imposing:
The upshot that the age of American (and Western) economic dominance may persist longer than people thought.
The Boston Consulting Group has released a report on 100 emerging-market companies with global competetive potential, according to the Daily Telegraph.
Firms from China (44 companies), India (21), Brazil, and Russia constitute most of the group, with Mexico also making a good showing.
Companies like these will be the shock troops for the redistribution of global economic power. In the process, they will transform their home countries’ global roles and interests.
An emerging market expert points out that the developed world may balk at the process:
“The whole pace of globalisation may have to slow or it could set off a wave of protectionism. So far the West has mostly been losing jobs at the low end, and the process has been mutually beneficial. There is now a big risk of losing jobs at the high end too now that China and India are moving move swiftly up the ladder, as we have already seen in software. This means that incomes in the West may have to adjust downwards, and the workforce is not going to tolerate this.”
[Via Social Technologies; image: Social Technologies]
The June 2006 Scientific American notes the 50th anniversary of the resignation of Trofim Lysenko from his position overseeing the Soviet Union’s agricultural science.
Lysenko famously set back Soviet science by rejecting Mendelian genetics — the science of genetics — in favor of the idea that organisms could acquire characteristics during their lifetimes, as the latter was seen as more compatible with Soviet Marxism and its pursuit of the new human.
Real damage was done; Soviet farms apparently did not even plant ideologically incorrect hybrid corn until Lysenko was out of the way.
Holden Thorpe points out in “Evolution’s Bottom Line” in the NYT that creationists could do similar harm in the United States.
Creationism, he notes, has no commercial applications, while evolution does. An understanding of evolutionary relationships enables us to use animal genomes to study human health problems, and the knowledge that evolution continues equips us to fight deadly antibiotic-resistant bacteria.
Humans and bacteria share many genes, making antibacterial treatments trickier; Thorp suggests that most people would rather use antibiotics developed by someone who understood how this sharing came to be, rather than by a Biblical literalist ignorant of this relationship.
How will American students, and American competitiveness, fare when American kids are learning an ideologically distorted version of science, while Indians and Chinese students are learning the real thing, Thorp asks?
The Soviet Union suffered when ideologues suppressed science that disturbed their religious world view; the United States will suffer if the same thing occurs here.
The Economist Intelligence Unit released its 2006 e-readiness rankings yesterday. The index is a measure of a country’s readiness for e-business, judged by Internet access, broadband penetration, innovation, information security, and other factors. More telling than the ranking is the country’s distance from a score of 10.
The ratings are a good indicator of general abilities in IT, and thus an important component of present and future competitiveness.
The top countries
Rank. Country — score out of 10 (2005 rank)
1. Denmark — 9.00 (1)
2. US — 8.88 (2)
3. Switzerland — 8.81 (4)
4. Sweden — 8.74 (3)
5. UK — 8.64 (5)
6. Netherlands — 8.60 (8)
7. Finland — 8.55 (6)
8. Australia — 8.50 (10)
9. Canada — 8.37 (12)
10. Hong Kong — 8.36 (6)
11. Norway — 8.35 (9)
12. Germany — 8.34 (12)
13. Singapore — 8.24 (11)
14. New Zealand — 8.19 (16)
14. Austria — 8.19 (14)
16. Ireland — 8.09 (15)
17. Belgium — 7.99 (17)
18. South Korea — 7.90 (18)
19. France — 7.86 (19)
Other countries of interest
Rank. Country — score out of 10 (2005 rank)
21. Japan — 7.77 (21)
22. Israel — 7.59 (20)
23. Taiwan — 7.51 (22)
25. Italy — 7.14 (24)
30. United Arab Emirates — 6.32 (X)
31. Chile — 6.19 (31)
35. South Africa — 5.74 (32)
37. Malaysia — 5.60 (35)
39. Mexico — 5.30 (36)
41. Brazil — 5.29 (38)
42. Argentina — 5.27 (39)
45. Turkey — 4.77 (43)
46. Saudi Arabia — 4.67 (46)
48. Venezuela — 4.47 (45)
49. Romania — 4.44 (47)
51. Colombia — 4.41 (48)
52. Russia — 4.30 (52)
53. India — 4.25 (49)
55. Egypt — 4.14 (53)
56. Philippines — 4.04 (51)
57. China — 4.02 (54)
60. Nigeria — 3.69 (58)
61. Ukraine — 3.62 (57)
62. Indonesia — 3.39 (60)
64. Kazakhstan — 3.22 (62)
65. Iran — 3.15 (59)
67. Pakistan — 3.03 (64)
Regional standouts in the developing world are Chile, South Africa, and the United Arab Emirates. The low scores of some countries, notably India, China, and Russia, disguise significant specialized capabilities in infotech.
The World Economic Forum has released its new report on Latin American competitiveness.
Twenty-one countries are evaluated on the basis of macroeconomy, institutions, infrastructure, health, education, market efficiency, tech readiness, “business sophistication, and innovation. The rankings say a lot about the prospects of these countries — and 20 of the 21 rank poorly.
Country (global rank out of 117 countries)
1. Chile (27)
2. Argentina (54)
3. Costa Rica (56)
4. Brazil (57)
5. Colombia (58)
6. Mexico (59)
7. El Salvador (60)
8. Jamaica (63)
9. Panama (65)
10. Trinidad and Tobago (66)
11. Uruguay (70)
12. Peru (77)
13. Venezuela (84)
14. Ecuador (87)
15. Dominican Rep. (91)
16. Guatemala (95)
17. Nicaragua (96)
18. Honduras (97)
19. Bolivia (101)
20. Paraguay (102)
21. Guyana (108)
Chile is highly competitive, surpassing 13 of the EU’s 25 members.
The rest of the region lags. Despite some improvements
Latin America still suffers from one of the most inequitable income distributions worldwide, social tensions and an increasing sense of reform fatigue. Moreover, the region seems to be losing ground as foreign direct investment and trade shares shift to other developing regions, notably Asia and Eastern Europe.
Still, Latin America had its highest growth since 1980 in 2005, and many structural factors are in better shape than in previous decades.