“When the wealth and our future was allowed to emigrate” – my 15 October 2011 article republished with a tentative conclusion

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.

democracy

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.

5 thoughts on ““When the wealth and our future was allowed to emigrate” – my 15 October 2011 article republished with a tentative conclusion”

  1. Supplements as no other comments yet:
    1) Why is nobody else writing this?

    Both the politicians and their economic advisors are like navigators on a liner cruising in iceberg infested waters. The ship has been damaged by several minor iceberg hits and the mixed group on the bridge is arguing how they are going to get past the next such obstacles without totally loosing control. Late October 2011 the German major share-owner forced the rest to lay a course past the closest large iceberg and to accept plans for new rules for cooperation – only to be sabotaged in the former by Italian and Greek. However, all ignore that some time back they deliberately blew away all seacocks and bilge pumps of the western economies to let the sea flow freely in – and out (ignoring that gravity would make this rather unlikely).

    Some politicians may be in the early phases of panic about the accelerating out-flow of jobs, but the immediate crisis demand their full attention and their economic advisors – that brain-washed themselves of the soundness of the theory two decades back – tell them to concentrate on the immediate problems. When the situation becomes all too obviously critical no later than in a few years, the advisors most likely wash their hands and blame the politicians for lack of timely decisive action.

    A background combination of former long term defence planner and 20th century historian brings with it a willingness to face an obvious challenge and voice concern.

    2) What about the emerging economic problems of China with over-heating, labour bottleneck resulting from the ‘one child policy’ and rising pay level in the coastal zone?

    No matter what problems China faces, there is no realistic chance that the relative competiveness of the West will improve enough early enough to ‘suck‘ the wealth back ‘into the hull‘ or even reduce the outflow. The only likely result would be that the money goes to other developing low-cost production areas rather than China.

    3) Could this root crisis have been avoided?

    With the internal reform and development in China, India and Brazil, the narrowing of the wealth gap was inevitable and strongly desirable. However, it should have been managed by the West in co-operation in a way that ensured fair dealing rather than by blowing away the sea valves in ideological intoxication. And it might even have been accompanied by a tough and realistic appreciation in Western states and co-operating groups of states to guide adaptation to the more difficult and competitive future in a way that avoided the present approach of lemmings approaching the cliff.

    4) Can anything be done in Europe?

    The first and essential step is to acknowledge and accept the situation and that it is completely idiotic to aim policy at renewed growth. We must immediately take the hard decision to drop acting like the affluent societies we used to be. We are living on borrowed time and money. The challenge is to avoid a total collapse of the economy and most likely as a result of the societies that makes the democratic systems possible.

    We must do everything to gain time and regain competiveness, as China refuses to revalue its currency, the euro and those linked must be devalued deeply to mirror the decreasing productivity and low competiveness of the economies. The containment of the resulting dramatic stress on the weakest will be the main state and EU responsibility in the years it will take to rebuilt a new and competive production within the constrains of future limited resources.

    Further loss of innovative intellectual property must be stopped as must must free migration of capital. Unfair dumping must thereafter be met by trade defence. The West did not start the trade war with a state subsidised offensive. We were exposed to one and failed to see it thanks to naïve ideology.

    China should not be invited to finance part of our debth. It should be convinced by trade barriers and the reduction in production costs to invest in production in the West in the same way as Japan did when it established car factories in the U.S. and Europe.

    If all this does not happen very soon, Europe will be reduced to a mixture of a badly maintained museum and a North American Indian reservation as it was a century back – and then it deserves this fate.

    5) Is it not totally hopeless? Capital movement cannot be controlled.

    A common fatalistic reaction based on a lack of knowledge of the past so common in the present public discourse. It ignores that the passive attitude to the free move of capital is a new situation, established because of the unthinking ideological assumption that it was to the benefit of all. A combination of political will in the West to cooperate to meet the challenge in state and union legislation and adaptation of some of the monitoring tools developed for the “War on Terror” would be logical.

  2. Repent, repent, the end is near (for Ecomonists)!

    While much of above is right, what we are witnessing may not be the terminal decline of the West but our temporary stagnation combined with ”the rise of the rest”.

    China’s success is not all that brilliant. After squandering decades and murdering tens of millions the regime indeed has harnessed a fifth or so of its hapless citizens to industrial production relevant for party members and foreign investors. The GDP’ed worth of their effort may in a few years reach that of the U.S., still only a third of that per capita. In China property rights are restricted to party members and foreign investors, and ”banks” and state enterprises are used as instruments of redistribution and social control. While the Chinese technocrats are doing well, their success is in part fortuitous and reflects that catching up is easy. As recent Chinese history has shown, Lord Acton’s pithy point that ”power corrupts and absolute power corrupts absolutely” easily translates into Mandarin, and so does Churchill’s insight that ”democracy is the worst form of government except all the others”: China’s regime may keep rampant corruption, economic, social and political instability at bay and avoid imperial overreach for some time but not for ever, and then there may be no balancing mechanism. Its lack of legitimacy will catch up with the regime, at best through democratic evolution at worst through conquest, war, pestilence and famine.

    What makes China appear brilliant and dangerous is the combination of ineffectiveness and self-doubt of the West. While I cannot subscribe to a Spenglerian ”Untergang des Abendlandes”, and find that the ”Yellow Peril” is but a variant of the formerly totalitarian ”Red Peril”, I share and enjoy much of your criticism: Shallow Ecomonists (spelling intended, pronounce ‘E-commonists’) confound our states, wreck banks, and make a mockery of universities. ”Ecomonics” is a perversion of the venerable academic discipline of Economics. Classical economists seek to understand economic history and to seek out regularities, at times conjuring up wee models for the fun of it. For the ecomonists, the megalomanic cousins og economists, history is irrelevant, models purified truth, and their forecasts the future. Without culture and history Man is “Economic Man”, management is linear rationalism (“New Public Management”), measurement is all and experience nothing. Preaching purity and clarity where there is none these Ecomonists have risen to power and harmed banks, businesses, and the public sector. Their model totems, their “visions, missions and values” and linear pseudo-rationality have reduced politicians to ticket-selling process managers thus de-politicising politics, and reduced professionals to self-serving employees, and citizens to consumers. This is what causes our current stagnation and feeds the century-old self-doubt of the West.

    Alas!; soon this wave of silliness will wash away, and for a time citizenship, politics, and professionalism will return (until another fad drives us into another ditch). With the pens sharpened, let us make their end near and not ours. Aux armes, historiens!

  3. I do hope your are right. However, I totally miss your arguments giving signs that any part of the First World is acting with more realisation of the fundamental problem and starting proactive brutally decisive reform than countries and empires did in the past 2.500 years, when those reforms would demolish long established priviledges and undermine social contracts.

    The only development that might give the West time to adjust would be the collapse of China into social-political turmoil as a result of the arrogance and corruption of the leadership in combination with the population’s access to information from outside, rising ressource and food prices and falling exports resulting from the slide of the Western economies.

    The feeling of panic is quickly deepening, generating automatic rejection of logic plus fancy advice built on hope rather than cool analysis even from the brightest. In New York Times Thomas L. Friedman warns us against taking any clear steps against China in spite of information that country is increasing pressure to on Western companies to move their latest technology production to within its borders. He underlines that any such steps would lead to a destructive trade war like in 1930.

    Instead of an anacronistic and vain hope to reestablish production, Friendman insists that the collapsing U.S.middle class should be rebuit to be live off continued creation of new innovative products and getting income from intellectual property rights. The rest of over 300 millions of Americans should earn their living from the increasing Chinese tourism to America.

    Friedman’s incantatory solution ignores both that even if the West and especially the U.S. retained its advantage in the innovation field and the producers went on paying, the number of people in that middle class would be tiny. A quickly increasing millions of people would fall outside the economy making it most unlikely that the union, state and local government structures could be supported. The income of the companies producing outside the country cannot be taxed and the income will be concentrated even more than it is today, where the public protest is increasing. A likely result is the collapse of the Union, or democracy, or both.

    His premise is that the innovative advantage can be sustained is, however, fundamentally unrealistic. It is built on franctic hope rather than logic. Even if mainland China fails in creating “Silicon Valleys” because of heavy handed treatment of intellectuals and systemic corruption, there is no reason to believe that Taiwan, India, Indonesia and Brazilia cannot do what first Japan and then South Korea surprised the West by doing in the last three decades of 20th Century.

    There is no good solution for the West, only the choice between doing something difficult, extremely painful, contrary to established ideology and common reading of history and passively rotting away for the garbage dump of history.

  4. This is exactly the kind of debate Western politicians and the wiser part of the intelligentsia should have taken up long ago. We are at historical crossroads, and the writing on the wall is rather gloomy.

    However, I beg to differ, when it comes to the negative descriptions of China so commenly entertained in the west. In the following comments I have taken heavy inspiration from the British writer Martin Jacques and his excellent book ‘When China Rules The World’:

    We choose to see China in a context according to Western values: what preoccupies us is the absence of a Western-style democracy, a poor state of human rights, the plight of the Tibetans, and the country’s terrible environmental record.

    But China is profoundly different from the West. The most fundamental defining features of China today, and which give the Chinese their sense of identity, emanate not from the last century when China has called itself a nation-state but from the previous two millennia when it can be best described as a civilization-state: the relationship between the state and society, a very distinctive notion of the family, ancestral worship, Confucian values, the network of personal relationships and the Chinese language with its unusual relationship between the written and spoken form.

    The implications are profound: In China, on the contrary, the sense of identity has primarily been shaped by the country’s history as a civilization-state. China, as a civilization-state, has two main characteristics. Firstly, there is its exceptional longevity, dating back to even before the break-up of the Roman Empire. Secondly, the scale of China means that it embraces a huge diversity. Because China is so vast and embraces such diversity, as a matter of necessity it must be flexible: ‘one civilization, many systems’, i.e. Hongkong is ruled differently than Tibet, Xinjiang and China proper (the eastern and most populous part)

    The idea of China as a civilization-state is a fundamental building block for understanding China in its own terms. The reason why the Chinese state enjoys legitimacy in the eyes of the Chinese has nothing to do with democracy but can be found in the relationship between the state and Chinese civilization. The state is seen as the embodiment, guardian and defender of Chinese civilization. Maintaining the unity, cohesion and integrity of Chinese civilization is perceived as the highest political priority and is seen as the sacrosanct task of the Chinese state.

    China is now playing the core role of what we have commonly mislabelled globalization (forgetting that Africa is largely left out of this integrational process). For decades we discusssed the North-South divide in developmental politics and we spent billions of tax payer’s money in aid programs, with many of them being misused or disappearing. In recent years we have seen both China and India rising fast economically and socially without use of western-induced development aid. Should we blame them?

    China becoming the world’s largest economy is just a return to the normal order known from the 17 centuries that followed the birth of Jesus Christ. There is no reason to be surprised. But we certainly need to adjust.

  5. Jeg brugte nogle af dine argumenter – endog formulering – i en kronik i Berlingske 1 JAN 2012. For regeringen synes det tilsyneladende tilstrækkeligt blot at fastfryse lønninger i en rum tid, og hæve/sænke afgifter for pendlere og vegetarer. De vil ganske enkelt ikke se i øjnene at universelle velfærdsydelser og en evigt skrumpende ungdomsgeneration påtvinger samfundet at reducere kraftigt i ydelser, og samtidig erkende at forskellige mennesker med forskellige forudsætninger, må have forskellige professionelle tilværelser.

    venligst,
    Bruus
    KT, ANK 2

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