It's hard to raise a weather eye above the current fray of mortgage and debt default, unemployment and gridlock in Congress, but as if that's not enough, I've a feeling we're ignoring things going on outside the nation and outside of our attention, that are vitally important.
In particular, regardless of your personal feelings, attention to China, India, Brazil, Europe and Russia are of immediate importance. The picture of China I'm going to paint works equally well for the other emerging nations and their nascent but burgeoning economies. This includes not only the BRICs (Brazil, Russia, India, China), but every other nation on earth that is clamoring to get aboard the capitalist free market express. This even includes the PIGS (Portugal, Ireland, Greece, Spain), which, as we speak, are drowning in debt, corruption and incompetence. Debt and corruption can be forgiven, but incompetence needs crucifixion for redemption.
That personal philosophy aside, China is the world's fastest growing nation and has recently pushed Japan out of second place in the world superpower rankings. They are right behind us but fortunately not yet breathing down our necks in the GDP race. China's GDP is about one quarter of ours, so we've a comfortable lead if we don't falter.
China's dangers to the world economy and consequently to our own come in numerous forms, some close at hand, some further down the road, but all must be dealt with sooner or later. First of all is the recognition that China will soon be the largest superpower on earth simply due to her huge numbers. One point three billion people form a gigantic labor and consumer base, thus providing China the wherewithal to create untold and unimagined degrees of wealth.
It's a recognized fact of capitalism that a nation's most powerful and enduring source of wealth is its people, and the more the merrier. Each human being has a definable cash value to society, the economy and the state. The individual is the core source of all wealth, all production and all consumption. This is why China and the rest of the world are going to be so wealthy. Four billion is a conservative estimate of the number of new capitalists we have on hand at the moment. Even though we invented capitalism and took it to some of it's highest levels - we shall always have our glory engraved on a bar of gold - we have some new competition that is going to prove tough because they will have the benefit of our experience and our mistakes.
Wealth eventually begets power and begs the question of what China will do with hers? Does she still have the same imperialistic aspirations as in the past? It's hard for a society that has been continuous for nearly 5,000 years to not feel a strong pride and uniqueness in itself, which can lead to a sense of manifest destiny given its head. Japan and Germany were the only two nations in recent history to have gone on a large conquering binge - and each did it twice in the same century. Let's hope we've got that out of our system and the Chinese imperial dragon does not rear its fire-breathing head. My personal feeling is that China's transformation into a capitalist free-market society will eventually turn her into a democracy as well.
There are some who hold that the Asian mind is not compatible with a free-wheeling democracy, but they also said the same about China's chances in the free-market. One of the benefits of an old and continuous society is that much has gone before and is kept in the mental vaults of the society. They can rely on that sage wisdom to think longer-term, which always will succeed in the end.
This is where Asians have it over Westerners. Western society and its economy has been built on a foundation of short-term gains with little thought back or forward. A good example of long-term thinking by the Chinese is Hong Kong, that bejeweled bowl of pudding in which lies the proof. It was leased to Britain for an absurdly low sum and taken back 99 years later as one of the wealthiest cities in the world. Hong Kong is now the Chinese crown jewel of the Orient. These are no dummies we're dealing with. As I pointed out above, they have the benefit of (and the wisdom to use) the experiences and mistakes of the Western nations in building capitalism.
Another reason what happens in China matters here is that she will be so big - too big not to be felt - that any major disruptions in the Chinese economy will affect and be felt around the world by all nations. Will she be judicious with this power and discretion? One would hope because the only overruling authority would be a majority of the other nations imposing economic sanctions on her.
Demand from China's consumer base will dictate global prices, generally raising them for the foreseeable future since I assume that the Chinese have the same basic makeup as ourselves and will tend toward overindulgence. Sort of like kids with a fistful of Renminbi in a candy and toy store. Maybe they'll surprise me and mature faster. That would be nice.
Demand from China's industrial base has driven the cost of many raw materials sky high already. Prices for copper, iron, aluminum and other metals, as well as lumber, cement, tools and fasteners have skyrocketed to all-time highs and are not looking to come down any time soon. China also produces the majority of the world's rare earths which are used in most of our high-tech machines and toys. Without rare earths we would not be able to build computers, cell phones, video games, televisions, transmitters, or any modern electronics. The power this gives China was amply demonstrated last year when China cut off Japan's supply of rare earths due to a jurisdictional dispute in the China seas. Japan caved amply fast since much of their economy is dependent on electronics.
Wealthy nations can wield much power and influence over other nations not so well endowed. We're the proof in that pudding and it's earned us not a few enemies even among our friends. China's power makes me want an article I recently read to be true. It spoke of how it's time for China to heed Mao's call for democracy. It spooked me a bit till I read the context of it, and found that Mao saw his revolution leading China eventually to capitalism. He felt that a dictatorship was not properly endowed to govern a capitalist society, thus his call to his party to lean toward a more democratic form of governance. A piece of the puzzle snapped into place.
Any economic disasters China might encounter would also have tsunami-like repercussions around the world. We recently had to prop up domestic industries and banks that were "too big to fail" and now we're going to have to deal with nations, which are too big to fail. I think the IMF needs to become a lot bigger, especially in the area of reserves, in order to maintain stability in an economic downturn.
Will we have another economic downturn with this new global economy? Of course we will. We're human beings and at times our own worst enemy. We'll likely have a number of downturns. But we'll survive them. We've always managed to survive ourselves in the long run. Which is a convenient segue to the last aspect of China we have to recognize and prepare to deal with. Corruption. We complain about the corruption in our society, business and government, but compared to most of the rest of the world, we're just pikers. In most older societies, corruption is ingrained by centuries of practice. Baksheesh is the language of business and government in most quarters away from home. I dare say that once this global economic venture is up to speed, corruption (bribery, theft, embezzlement, fraud, etc.) will be one of its largest costs just as it is with our own system.
But then I've been harping on that point for half my life. If only people would (could) learn to behave virtually any system of society, government or economics would be enormously successful. The obverse of that coin is the maxim that for any venture to have a hope of success, the human element (Hue) must be considered foremost in any equation. Around the edge of that coin is engraved in microscopic script the seven deadly sins in profuse detail.
That said, this can all be multiplied by the rest of the nations in the world clambering up the gangplank of the good ship Moneypockets. India alone will add another one point two billion capitalists to the mix. Fortunately she is already a democracy. I'm not saying we're going to wind up powerless and destitute in the world at large. We're still a very major power in every way. But we're going to have to sharpen our game to stay in the game because there are new players who have a lot more chips (people, money, power, lucre) than we do.
Edward A. Tomchin