The developed world is deeply mired in debt, and there is plenty of blame to be shared in how we got here. U.S. officials, for example, point a finger of blame at China for holding its currency artificially low, thereby fueling exports that keep its factories humming and its people employed. With increasing stridency, Chinese officials point to the U.S.’s addiction to debt. There is, of course, truth in both of these points of view. A mess this big doesn’t happen without a lot of contributors.
Although this leaves the world economy in a very bad way, with untold human suffering as a result, there is some good news in these dreary circumstances. The world is undergoing a tectonic shift in the underlying conditions shaping economic transactions at both a micro and macro level. The debt crisis is the manifestation of such a shift – from an economic focus on unfettered and unsustainable growth, to one focused on creating a more responsible and sustainable world.
Transitioning between these economic realities is painful. And it is likely to take many years for the new economic reality to fully emerge. The more individual consumers, corporations, and politicians cling to the view that if we can just get over this rough patch, then we can return to the good old days, the slower and more painful the transition will be. It’s the equivalent of playing a new game by old rules –almost always a miserable failure.
The more quickly the economic players grasp the new rules and start playing by them, the better off we all will be. These new rules are remarkably simple:
- Both consumers and governments in heavily indebted developed nations, such as the U.S. and most of Europe, must consume less and invest more. Note that I am not advocating a reduction in total spending, which is a formula for a long-lasting economic depression. I am advocating shifting spending from consumption to investments paving the way for a better future.
- Developing nations – especially China – relying heavily on exports to keep their people employed and compliant, must create sustainable increases in domestic consumption – increases not fostering or depending on an indebted developed world.
This is the path forward to a more promising future, one where growth occurs responsibly. It is entirely possible for us to get there.
The antics of Washington over the past weeks, months, and years leave many among us deeply discouraged. But there is much each of us can do to call forth a new, better, and more sustainable economic reality. We don’t have to wait for our elected officials to do it for us – although it would certainly be helpful.
If this sounds like a Pollyannaish pipe dream, please consider what you yourself can do to improve both your circumstances and the world’s. It all starts with each of us using our economic transactions to support good companies – those that are good employers, good sellers, and good stewards of their communities and the planet. Ultimately, it is these good companies who will marshal in a better economic reality. And you have a role to play in making that happen. So get to work!
The seemingly endless pool of labor in China has finally dried up, wages are quickly on the rise, and emboldened workers are beginning to organize to demand better conditions. The Chinese government is demonstrating a surprising degree of tolerance, knowing that rising wages are both unstoppable and ultimately necessary to the political stability of the country.
This evolution is an essential step in achieving a more stable world economy. Unless and until China begins consuming more of the goods that it produces, trade imbalances and unsustainable borrowing (particularly in the U.S.) will continue to escalate.
So we should all keep our fingers crossed that this stage of China’s economic evolution is allowed to unfold peacefully, since attempts to constrain it will result in repeated cycles of violence as well as prolonging the much-needed adjustment to more sustainable levels of consumption throughout the developed world.
Yes, we will have to pay somewhat higher prices. But paradoxically, as workers’ wages and standards of living begin to rise in China, so too will they in the developed world as jobs that heretofore would have been shipped to China slowly begin to return.
Who will be the next great economic superpower – India or China? This is a topic of open and frequent debate in India.
Indians summarize the major advantages that the Chinese have over them as (at least) threefold: a controlled, orderly society; greater investments in infrastructure; and a large surplus of cash.
Indians, on the other hand, have a considerable language advantage (many more Indian people speak much better English than do Chinese people, a big advantage in a business world where English is typically the common language). In addition, India has a much more under-employed economy, whereas labor shortages are already emerging in China.
And then there is the issue of China’s much more controlled economy vs. India’s wildly chaotic economy. (Indeed, some Indians openly yearn for a bit more Chinese-like control and planning in their economy.)
In the end, I think this last factor is the key that will determine which of the two economies will win the race to superpower status. Will India achieve greater growth through chaos than China does through control?
Still a lot of unknowns, but based on what I’ve experienced during my visit here, I’m placing my bet on India.