The Telegraph carried an interesting article today by Liam Halligan on the international economy. A similar article appeared in yesterday’s Le Figaro. It appears that the American decision to go for another dose of ‘quantitative easing’ (pumping more money into the economy) has set the cat amidst the pigeons. Germany, China, Uncle Tom Cobley and all, are upset by the prospect of the dollar becoming cheaper and making their own currencies a handicap to exports. China in particular is upset because of the effect on its massive holdings of American paper.
Though humour was not the intention, Halligan’s piece made me chuckle at certain points. For instance, ‘…China gave the States a public tongue lashing. Measures to cap trade surpluses would “hark back to the days of planned economies”, said Cui Tiankai, who will be one of China’s lead negotiators in Seoul.’ This is rich coming from a prominent figure in the country most active in practicing state capitalism, or neo-mercantilism, as some have called it.
Later in the article, the sentence ‘This is not the way liberal capitalism and free trade is supposed to work.’ also made me smile. In truth, liberal capitalism and free trade never has worked as it is supposed to. The performance has never matched the rhetoric in its favour, with not a single major economy having developed on its basis.
My hope is that this latest crisis and America’s response to it will at last drive home the realisation that the belief in ‘liberal capitalism and free trade’ is a disaster for the West. Voices in America are already raised against the philosophy among the intelligentsia and academics, but it needs to become a no-no at the political level before change takes place. Hopefully, the politicians’ instinct to save their skins may just trigger it off.
Boadicea's Chariot 
I’m no economist but isn’t “liberal capitalism and free trade” part and parcel of “globalisation”?
Hello, Araminta, it is the philosophy driving globalisation.
Morning Tom.
So what are the alternatives?
IMHO, the electronic age has created such huge changes in public awareness, even in China, that globalisation is here to stay. China will have to accept that it can’t stand with one foot in the West and the other in its closed economic system. For now China is trying to ensure that western currencies remain strong (= more profit on Chinese exports) – hence too it’s own refusal to revalue the Yuan (= higher export prices). Angela’s position is strictly in defence of Germany’s exports to the USA. In fact the Euro is over-valued but she would rather see the Dollar stronger than the Euro weaker.
The alternative, Araminta, is to recognise that the model being followed by the Chinese, and which enabled a broken Japan to become the second largest economy in the world, is superior to ‘free’ market capitalism and to adopt some of that models lessons. The short-term, technical details mentioned by Janus are not the real problem, in the long term. We are in a period of transition ine which our model of market capitalism is being superceded by state capialism, which is in the ascendency; and it is not simply in China.
It was interesting to hear on the radio this morning that some are calling for a return to some form of gold standard.
Thanks Tom.
I shall ponder on the concept of “state capitalism”. Certainly our present model seems to be desperately flawed, I agree.
Araminta, there is a book around entitled ‘State Capitalism’, but I forget the author’s name. If you feed the title into Amazon it should pop up.
OK, let me tell you a few things about state capitalism in China. As in any system where this has been tried, it is corrupt from top to bottom. Everything operates on ‘guanxi,’ – connections. You can do nothing in China without bribing an official. Conversely, with the right connections – and providing you pay them enough, and regularly, you can do anything. Ignore the rules – any rules – steal intellectual property, put people’s lives at risk and stifle competition whether internal or external. It means that contracts and agreements mean nothing. It means that property can be expropriated, it means that… well, you get the idea.
Which parts do you suggest we should learn from?
bravo, I take your word for the corruption, but the system goes beyond China. The best known example of the model is post-war Japan.
Fair enough – but I’m not sure the zaibatsu model would work that well in the West?
Araminta, sorry, but I misled you on the book. I just went downstairs and my wife happened to be reading it. It is called ‘The End of the Free Market’ by Ian Bremmer, an American guru. Bravo, I am not familiar with the word ‘zaubatsu’ so can’t comment, but if it means having a MITI type arrangement, you are probably right. However, it is the philosophy that matters, the details can come later.
Oh, OK, thanks Tom.
I’ve heard of Bremmer.
‘Zaibatsu’ – the big, Japanese style conglomerates. There is a problem with ‘the details will come later,’ – failure to take into account either the law of unintended consequences, or the all too human penchant for breaking their own trails through thickets of regulation – like the yakuza in Japan, for example.