THE SHIFT OF POWER TO THE EAST AND SOUTH

ASIA WILL NOT EXCUSE THE WEST

By Kishore Mahbubani

[This article published in: Zeit-Fragen Nr.8, 2/21/2011 is translated from the German on the Internet, http://www.zeit-fragen.ch/index.php?id=4356&type=96. Kishore Mahbubani is dean of National University in Singapore.]

Although the founder of the World Economic Forum, Klaus Schwab, said the WEF as a world summit is in demand as never before and the list of participants is unique in quality and diversity, this year’s WEF hardly had any response in the media. According to sda, after the debt crisis, western states and the Eurozone fiddled with many arrangements around the shift of political and economic power to the East and South. The delegations from China, India and Russia are larger. In a TV interview with “cash,” Klaus Schwab said: “We live in a completely new reality.” The theme of the forum was “Common Norms for a New Reality.” The reporting about how the economic decision-makers of the world and government representatives from over 30 states intended to adjust to this was rather meager.

“The shift of political and economic power from West to East and North to South and the rapid development of technological innovations have created a completely new reality. The global systems and models of decision-making cannot cope with the speed and complexity of these changes. This year in Davos, we will make themes of the aftershocks of the most recent crisis, concentrate on defining this new reality and discuss what common norms are necessary to make possible global cooperation in this new age,” said Klaus Schwab, founder and executive chairperson of the World Economic Forum. Such a comprehensive theme that affects people all over the world certainly deserves a broad discussion. The statements of the dean of the National University in Singapore can be understood in this sense. The remarks of US economist Nouriel Roubini follow.

Most crises from the 1994/95 Mexican peso crisis and the 1997/98 Asian crisis are known from their origin. We should call a spade a spade: the western financial crisis. Unwillingness to name a spade a spade reflects an inability to deal with changes that the US and Europe must carry out to prevent a repetition. This alarms the rest of the world, especially Asia – even if western leaders know frighteningly little how they are seen.

Before this crisis, political decision-makers from Asia followed their western colleagues. We assumed the West knows best about finances and the economy. The enormous mistakes committed by the US and Europe means respect/deference was replaced by feelings of unease. There is a simple reason why the West has not noticed this. Asians are too polite. Sometimes a rather haughty Asian like me is needed to express the true feeling of our continent.

Happily a few have begun to open their mouths. Rakesh Mohan, the former acting president of the Reserve Bank of India said the “world financial crisis has its roots in the US.” Andrew Sheng, leading adviser of the China Banking Regulatory Commission, leveled criticism at US banks and authorities. He said: “If our teachers are not better than yours, we must really think for ourselves.” Liu Mingkong, top regulator of Chinese banks, said on the US financial reform: “After death the doctor comes.” This mood can now be found everywhere in Asia. In fact, if Thais and Indonesians did not come from polite societies, they would say to the US and Europe: “The time has come for you to take the same bitter medicine that you prescribe for us. Stop living above your means.”

Asia’s worry is that the world will soon be hurt if both the US and Europe refuse to carry out essential adjustments. An America that tightens its belt will hurt the rest of the world. Still there is no painless solution. Asia can hope for a more sustainable future when America puts its house in order.

But America fiddles around with quantitative easing in the hope of reviving its economy and creates immense worldwide instability. Things are not much better for Europe. Harvard economist Kenneth Rogoff writes: “Economic policy in the Euro zone is so incoherent, disconnected and jumbled that one does not knows where to begin.”

What must be done? At home the US has to cut spending and raise taxes although this is hard to carry out politically. Europe must loosen or dissolve its fragile currency union – with the reconsideration of its life-saving parachute and the revised version of “big trade” which Germany accepted after Maastricht so the periphery has opportunity for a necessary new beginning.

Internationally Asia needs the US and Europe to take a more positive role in coordinating financial regulations. The breakdown of the most recent meeting of the G-20 group of leading industrial nations shows both are still unwilling to make sacrifices. The next time they must demonstrate they can bring about decisive and internationally coherent reforms of regulations to avoid a repetition of the global financial crisis even if these reforms hurt their own interests.

America and Europe could help in organizing the world. They may not concentrate on scapegoats like China’s currency. Obviously China’s currency must be revalued. But their strength will not be changed if China’s currency rises 20 percent. Only fundamental restructurings within their own (America’s and Europe’s) borders can do that.

The claim of the US and Europe to being masters of the universe must be ended. Both have to learn to share power. This means specific reforms, for example regarding the right to vote in the IMF. We need changed basic attitudes that accept Asians as equal. Only with such changes will the Doha round have results in negotiations on climate change or in coordinating monetary policy. What really frightens many Asians is that western governments are not ready to say the hard truth to their people – that the world has changed. Their countries must now experience the sufferings of redevelopment measures that they once prescribed to others.

Source: Financial Times, 1/25/2011

INSOLVENCY, TRADE DEFICIT AND INFLATION

The Enormous US Budget Deficit

By Nouriel Roubini

[This article “What is the New Economic Policy?” from Jan 26, 2011 is translated from the German on the Internet, www.weforum.org/s?s=Roubini.]

The US could grow this year. However there are four possible dangers of a decline of the US: a high unemployment rate since the creation of jobs will not be very extensive, secondly the real estate market is already declining after a brief recovery (double-dipping), thirdly, a significant problem exists on the plane of the Federal government and local governments through the risks of the bond market and fourthly, the US is doing very little regarding its long-term budget deficit. What the president proposed in his State of the Union address will not significantly reduce the budget deficit. Thus risks of a downswing for the US exist. […]

MISSING GROWTH IN THE EURO ZONE

“[…] in the periphery [of the Euro zone], there is no growth. In reality, the economy totally shrivels. Without economic growth, two problems arise. One is the social and political backlash to the austerity policy in a form that becomes more corrosive since people see no light at the end of the tunnel. Secondly, the debts and the deficits in the private and public sector must be stabilized as part of the gross domestic product. If the GDP continues to fall, there will be no stabilization with austerity policy. I do not think a strategy exists to revive economic growth in the periphery of the Euro zone. The policy of the European Central Bank is too rigid and the Euro is too strong. Even if necessary, the austerity policy has a negative effect on economic growth. If there is no economic growth, the economy shrivels continuously. The mood on the market is slightly better but the fundamental problems of the Euro zone are not solved. […]”

EXPLOSION OF FOOD PRICES

“Look at what is happening in Tunisia, Egypt, Morocco and Algeria. The higher food prices have become a serious social and political problem. An increasing inflation occurs on overheated threshold markets where growth is too great and inflation climbs since the credit volume grows excessively and stock bubbles lead to another challenge […].”

RELATED LINKS

"Manifesto of Appalled Economists," January 2011, 32-pages pdf
State debts do not come from excess spending but from reduced corporate taxes. Corporations in the US and Europe play off states in competition for subsidies and tax cuts. "Job creation" is the clarion call that leads fragile states to pour out "incentives."
http://www.assoeconomiepolitique.org/IMG/pdf/Manifesto_of_the_appalled_economists.pdf

to read the 38-page pdf "IMF Working Paper: Inequality, Leverage and Crises" published in November 2010, click on
http://www.imf.org/external/pubs/ft/wp/2010/wp10268.pdf

David Harvey says it's time to look beyond capitalism toward a new social order that really would allow us to live within a system that could be reasonable, just and humane.
Explanatory formats, institutional failures, obsession with false theory and cultural origins are discussed in this video from RSA Animate in Britain.

Where is the debate and discussion? We have a duty to change our mode of thinking.

to watch the 11-minute video posted on June 28, 2010, click on

http://comment.rsablogs.org.uk/2010/06/28/rsa-animate-crisis-capitalism/

Video: "Crises of Capitalism," 11 min
http://comment.rsablogs.org.uk/2010/06/28/rsa-animate-crisis-capitalism/

"Empathic Civilization," 11 min
http://comment.rsablogs.org.uk/videos/page/2/

Video: Barbara Ehrenreich, "Smile or Die," 10 min
http://comment.rsablogs.org.uk/2010/03/17/rsa-animate-smile-die/

Barbara Ehrenreich lecture at RSA that inspired the animation, 34 min
http://www.thersa.org/events/vision/vision-videos/barbara-ehrenrich-smile-or-die

VIDEO: "21ST Century Enlightenment"
http://www.wimp.com/centuryenlightenment/

Herman Daly, "Enough is Enough," 130pg book or 10pg summary
http://www.steadystate.org

Lawrence Lessig, "Free Culture"
http://www.free-culture.cc/freeculture.pdf

Max Otto, "The Financial Crisis and the Failure of Economics"
http://www.indybay.org/newsitems/2010/11/16/18664300.php

Tom Tomorrow cartoon, "If all businesses were like Goldman Sachs.."
http://climateprogress.org/2010/05/04/tom-tomorrow-goldman-sachs/

"Final Report of the Financial Crisis Inquiry Commission," 576pg pdf book
http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_full.pdf