Five years ago I published the article below on the blog. It was followed by two more articles discussing the possible implications and politico-economic effects of the described development.
These implications and effects in the West are now all too clear: the loss of mass welfare and a popular belief in the future and in the effectiveness of liberal democracy; a rejection and withdrawal of binding commitments to international co-operation; a withering of the ability and will to domestic political dialogue and compromise and the rise of “brown” opportunistic political movements as a popular reaction to loss of the good, remembered world and the fascination with and yearning for a former great and simple past. All very similar to the reactions in nearly all states in the 1930s.
The only difference between the 1930s and now is the nobody understands how terribly it can end.
The brutally clear-thinking Israeli meta-historian Azar Gat has underlined that there is no real and certain link between liberal democracy and capitalism. A capitalist economy will not necessarily generate a democratic system and democracy is not automatically the ideal and most effective framework for capitalism. The latest twenty years have all too clearly demonstrated that he is correct.
As ahistorical media and nervous politicians are incapable or unwilling to see anything but the closest ‘trees’, they have missed the total character of the ‘forest’ of the current economic crisis. The Western economies North America, Europe, Australia and Eastern Asia do not only lack money because of problems created by short-sighted stupidity of irresponsible bankers investing in the real estate bubble of the previous ten years. We are not only looking at the risk of a ‘second dip’ or even an international depression as the one that started in 1929. The steps taken to contain the actual phase of the collapse equals wetting you pants for warmth in a Siberian blizzard.
Drugged by the ideology of Globalism – capitalism ‘in absurdum’ – where the bankers’ greedy and irresponsible gaming was a comparatively innocent aspect, the West has allowed its wealth to emigrate to breed faster, thereby undermining its own position and future, including the future of the fruits of its culture and civilization.
Religion is the opium of the masses; however the ideologies of the West during the last two centuries have been far more dangerous because they always stopped the critical application of experience, moderation and common sense by the elites. As lemmings intellectuals launch the human race into dangerous experiments guided by repeated buzzwords. No small boy around to remark on the flimsiness of the substance.
Here the ideology has led to a fixed belief that the free movement of capital is automatically to the common benefit of all, ignoring that the purpose is basically to increase the immediate income of the capital owners (that are thereafter beyond the effective reach af the national tax-man). They seem to have forgotten that it was the Western states’ successful efforts to contain the negative workings of capitalism that made it more attractive than socialism in the end. The unbridled capitalism of the pre-WWI era was like an uncontrolled petrol fire. The post-WWII versions had harnessed the energy like different types of petrol engines. Capitalism, necessary for economic innovation, dynamism, rational organisation and motivation, had been harnessed so that it nourished and supported the society rather than destroying its cohesion. The unbridled globalisation of capitalism is as destructive to positive and controlled development the human project as is unharnessed nuclear energy.
The ideology also seems to have blinded the West to ignore that migration of capital linked to production is bound to weaken its banking sector.
During the two decades following the end of the Cold War, an accelerating amount of industrial production left the West. It was not the fault of the Chinese and other developing economies, but of the Western economist and politicians, who ignored that the production and money not only moved to places where the salaries were more competitive. It moved to places where the political leaders deliberately ignored and still deliberately ignore patent rights and copy everything freely.
It moved to places where the rights of labour to organize to improve its salaries and working conditions beyond sweat-shop slavery is blocked by the autocratic police state, places where the environmental conditions is ignored as badly as in the Soviet Union. What was allowed to happen within the framework of Globalisation of industrial production amounted to what would previously have been termed unfair and destructive dumping. However, the economic gurus ignored the certain medium and long time effects. They emphasised the benefits to Western consumers and Western welfare level of the cheap Chinese and other low cost products and started to consider and develop the happy ‘Post-Industrial’ society of increased leisure and service rather than production economies.
The capital thereby freed from common sense and human experience to move by the ideology of Globalisation. It followed the initial cheap production to earn some of the money generated by the unfair dumping of China and to get access to the expanding marked of the world’s largest population. Soon all large Western companies including Japanese and South Korean moved an increasing part of their production there.
The Chinese got legitimate access to the latest patents and technology, and as less and less was produced in the West more and more capital was accumulated and thereafter used to buy the remaining brand and technologies as the Swedish Volvo and Saab. The Western states and local communities were happy to sell the increasingly unprofitable factories unrealistically hoping to keep the workplaces.
However, China will be hit by the recoil when the Western markeds collapse and default on its debt. The present accelerating slow-down is already being felt.
Western Universities – forced by another shallow, brainstopping ideology to substitute academic norms and ideals about quality with business principles demanding quantity – were and are happy to accommodate the armies of paying Chinese students that sap into the ideas and technological innovation that might otherwise have generated some resurgence of Western production. A Chinese recently bragged that he had gained access to iPhone5 technologies plus software and was already producing a pirate copy before the original. In a country as ridden with corruption as China his claim could be true.
The result of the fiction of a Post-Industrial economy is that the West is now without both capital and an acceptable future. Political leaders underline to their people that they are not going to compete with the salaries in lower income areas in Mexico or Eastern Europe – not to mention those of developing Asia. Banks now fail not just because of irresponsible speculation, but because the only robust part of their income should come from interests of loans given to sound and competitive production and from loans to individuals involved in that production. States have similar problems because the only solid taxation is from competitive production and related external and internal services.
Western politicians hope and conjure up that their borrowed welfare will be safeguarded by new Green technology, opportunistically ignoring that there is absolutely no chance that such production cannot be done much cheaper in China, both because it is more profitable for Western companies and because the ideas are transferred as they co-developed by the Chinese students.
They hope against all evidence that China will go the way of Japan, Taiwan and South Korea and become more normal and democratic and allow its now established advantage to slip. This is where Azar Gat’s analysis is so awkward. In the meantime they muzzle their concerns about the status of human rights in the country.
They pretend that the main problem of their economies is their aging population, ignoring that there will neither be productive jobs nor the previously hoped for paid leisure for those who will get ever older – at least for as long as there is money to sustain the full health system. They are happy to notice that China is facing the same problem of an aging population, ignoring the still vast labour supplus in the interior as well as the very limited social support spent on old Chinese people.
No state can maintain its wealth if it cannot produce at a combination of competitive price and superior quality that make the products attractive. Even well engineered and rationally produced German products of well-established brands are now coming under pressure due to the far too high cost of any production in Europe, and even if a significant part of the parts come from China or other low cost countries. Our remaining industries stand on quicksand.
Within the fiction of a still rich West, they have adopted the ideas of ‘New Public Management’ that have added a massive non-productive, Soviet type ‘nomenklatura’ to the already large public sectors without any evidence that the resulting control and centralisation add any benefits.
In an attempt to prepare for the ‘Post-Industrial’ fictional future, they have increased the number of university students far beyond the requirement and available talent. It has been done by lowering the student quality and academic staff morale within the irrelevant business ideas of the management fad.
Anyone with a minimum of historical sense knows that the unhappy result of academic overproduction is the creation of a large group of frustrated unemployed academic youth that will nourish and drive revolutionary protests – as we now see illustrated on both sides of the Mediterranean. They are not going to make easier the necessary dramatic downwards adjustment of welfare in the probably vain attempt to regain competiveness.
The reaction is now starting. Argentina tries to counter the development by legislation aimed at stopping capital flight and ensuring some taxation of multinational companies.
The Americans experience the fast collapse and proletarisation of a middle class. It could not be sustained without a basis of industrial production. They ask from their bankrupt position that China revalues its currency to make completion fairer. The Chinese threaten trade war. Due to the emigration of capital from the West the Chinese hand is the far stronger, but in self-defence of its future the American democracy will accept the challenge and initiate protectionist measures.
For Europe the situation is far worse. Heavily endebted, with some very inefficient economies, with fast falling income from exports, lack of labour mobility, inability to act quickly in crisis due to its decentralised and democratic decision making organisation and with a tradition to break rank and appease under pressure – hoping for miracles around the corner. Without drastic and painful adjustment we now stand at the end of some often nice 400 years.
Some may argue that the West has always been able to get out of economic depression after some years. My reply is that it was never in a situation where there general collapse of relative competiveness was in relation to asymmetric outsiders with significant reserves of both capital and well educated labour.