Depression, recession, L-crisis, W-crisis You will hear much explanations on the problems of the world economy. And all they are not true. Because in fact there is no any problems in much and important regions like China, India and Brazil. In these countries there is neither a depression, nor a recession. In fact these countries mark an impressive growth. So while in Western countries and Japan economists are wondering what happens, in China economists are enjoying to comment only good news. What happens?
The answer is relatively simple. It is not a crisis of a standard type not
even the most bad crisis of this type the depression. It is something
else - we can call it a "process of
relocation". In fact the economy is not going down. It is just moving from
one place to another. So in the old place we see going down and in the new place
we see going up.
The problem is that in an uncontrollable way the world has entered in an
extreme globalization process that is to destroy entirely the economies of
developed countries. The reason is very simple the labor cost advantage of
the poorer economies. It is obvious that step by step in an accelerating speed
the business and real production is moving to the poorer regions (mainly
China). So with less economy developed countries are losing jobs, profits and
tax-income.
There is much pressure to Western governments to cut spending and implement
austerity measures. But we must be honest the problem is not only up to
government spending. Yes it is a real problem it is too high, and the overall
regulation of business is too high. But this is not the only problem.
Even if we remove the government and all taxes and regulations, even then the
business leak to China will continue. Because of the labor cost. Chinese workers
are about 10 times and more cheaper than the French or the Spanish workers. So
even if we accept and implement the wild capitalism concept in Western countries,
this will not be enough. The labor cost competition of China will still beat
us.
Injecting such type of factor in well balanced before that Western economy will
simply destroy it. For corporations is profitable to move the real production
to China and use the Western countries only as a market. But when all
corporations do the same, the market simply collapses and disappears. Because
the market this is the income of the workers in economy. When all jobs are in
China, the people in Western countries are jobless and have no income. No
income, no market
No taxes
The process is unstoppable. Even if a corporation decides not to move its
production to China, it will be pressed to do this. When competitors bring to
the market cheaper products, the company will have no choice that to follow
them. The same is the result of the government efforts to keep jobs. When a
company announces its plans to close a factory it starts a political lobbying
process of stopping it. Ministers are meeting with workers and with the
management and are trying to stop the closing. But all this is a hopeless
effort. In the best case it can only win some time. At the end, the factory
will be anyway closed, because with keeping it the company is not competitive.
So the crisis is not only in government expenses. It is in the fleeing economy.
In last 50 years the Western world has created an exceptional economy of
welfare, based on its internal market. The big salaries of EU came from the EU
market and not from export. The big salaries of USA came from the USA market,
and not from export. Being completely ruined during the WW2, Europe succeeded
in rebuilding up its economy by developing its own internal market. And based
on this economy, some countries succeeded in building a heavy social
infrastructure. It is true to say that this was a big economic success. May be
an economic miracle.
But in last 20-25 years this well balanced system was hit by the cheap labor
competition of China. The politics were not prepared to react on the aggressive
Chinese expansion. The international legal structure was to stimulate the free
trade, with the idea that in the trade will participate mostly the developed
countries with equal living standard and labor cost. This free trade would be
beneficial for all.
But with China with its cheap labor, no social costs, and sometimes even with
slave labor, The West has found a dangerous economic enemy. For 20 years China
has ruthlessly extracted factories, jobs and living standard from Western
markets. It did not develop its own market. It just used and acquired other's
markets.
Theoretically the new balance - this time a global one will be reached when
salaries in old and new economies become equal. I.e. The West can have back its
competitiveness if lowers the salaries down to the level of China.
Obviously this is a crazy idea. This means decades of efforts of 2-3
generations to be sacrificed in the name of developing China. Exactly this
happens now and this is the main reason for our problems. We are sacrificing our
living standard to help China grow faster. This situation marks a fundamental
question of what economy is. Is it just a scientific laboratory to test
different ideas and find ideal decisions? Or it is a construction, created to
make the life of people better? I.e. do we have to sacrifice everything in the
name of higher competitiveness or we have to save the reached level of
life-quality?
I think the second is the better choice. The economy is a complex system that unites
the efforts, labor and knowledge of different people to give these same people
good life and prosperity. I.e. the economy is a system that makes our life
good. So if this system is attacked by someone, it will be a wise decision to
defend it. The economy must be defended from any factor that ruins it and
breaks its integrity. It is clear that the cheap-labor competition attacks the
system and destroys it. The system can be reestablished only on much lower
level - when our labor also becomes cheaper. But from our point of view this
means going back a few decades. I.e. we will have to repeat the building of the
economy, based on the new internal market, that this time includes also China.
Do you think this is wise? And what will happen even if we do this? Will we
have to repeat then for the third time, because out of China there are another
cheap-labor countries?
I don't think this is wise. I think we must restart the protectionism. A "new
protectionism" era is good to be started to save the already built developed
economies and reestablish their integrity. I think several closed economic
zones (EU, USA, Asia) must be created that include countries with almost equal
living standard and income level. And all this zones will continue developing,
based on their internal markets. When poorer zones become richer they will be
added to another zone.
For the most speedy growth I would suggest a "wild capitalism" rules
inside every zone. But well defended behind duty and tax laws. Wild capitalism
inside, a Great Wall outside. And a development based on internal competition.
This is much better solution than the current chaotic globalization that will destroy
the world before rebuilding it. Lowering the living standard will lead to civil
unrest and can provoke even revolutions is some countries. The stability and
the peace will be lost, because the lowering of income is so big that it is
absolutely unacceptable. Free trade is a good idea, but only between equal as
income areas. Otherwise the process of inevitable making the incomes equal is
leading to a destruction.
To become an equal to ours market (so we can sell goods and services there)
China needs decades. To reach our living standard it must have a GDP of $50 billion.
Even with very high levels of growth of 10% yearly, decades will be needed to
reach this. In the meantime the economies of West will be entirely destroyed
and people will become an angry crowd.
And at the end it must be said that the "new protectionism" concept
is not anti-China concept. We will take nothing from China. We will just stop
giving. But the same will happen if we do nothing, our economy crashes and we
stop being a market due to the lack of income. So it is better to limit at
least some of the markets from outer access , than to destroy the markets. Even
with limited markets China will continue growing - using its internal market.
Just like Europeans has done after the WW2.
Dobri
November 13th 2012
