Articles tagged with: China
The Foreign Office is worried about David Cameron, apparently. It is “most concerned about the effects Cameron’s anti-EU European policy will have on the UK’s chances of effecting outcomes”, the Guardian claims. Labour Councillor Bob Piper has also spotted this claim reported on the Sky News website.
We should all share the concerns of the Foreign Office. It is only in and through the EU that the UK can best serve our national interests and values. Bizarrely, Tory MEP Roger Helmer describes it as “indefensible, humiliating and wrong” that David Cameron has not yet fulfilled a promise to form a new grouping in the European Parliament with other parties that have been described as ”openly and unashamedly racist and homophobic”. This promise suggests an inability to understand modern British values, let alone take them forward within the EU.
Cameron’s stance has also infuriated key allies, like Angela Merkel and Nicholas Sarkozy, at a time when EU policy co-ordination is imperative. We have been rightly much warned of late of the dangers of beggar-thy-neighbour economic policies. But most people would have less regard for their neighbours if they were racists and homophobes. Indeed, many would have to be really desperate just to pop round to borrow some coffee; never might discuss the right balance between protection for workers, which globalisation requires if it is not to collapse amid charges of unfairness, and protectionism, which retards globalisation but which forms of protection can amount to.
Beggar-thy-neighbour outcomes are dangers in spheres other than the narrowly economic. For example, we are often told that without extra capacity at Heathrow the UK’s competitiveness will erode as compared with other European countries that are expanding their major airports. So, EU countries currently face a choice between the “unpalatable and the disastrous” – J. K. Galbraith’s definition of politics: either they seek to control a major source of carbon or they become less competitive. The only real decision, therefore, is over which of these outcomes they consider unpalatable and which disastrous.
This is rather a zero sum game. You either take a hit to your competitiveness in the short-term or you suffer climate change over the long-term. But all countries will experience climate change, whether they now seek to control airline emissions or not. Thus, countries face an incentive to free ride, expand their airports and bite the bullet of climate change along with everyone else when it comes. After all, “in the long run, we are all dead”. Climate change gives this famous line from J. M. Keynes an even darker twist.
But couldn’t a pan-EU agreement on airport expansion allow us to escape this? The devil would be in the detail of such an agreement, as ever, though there must, at least, be potential for EU policy co-ordination on airport expansion to achieve superior outcomes to those which the present zero sum game is producing. However, it is doubtful that such topics are discussed at the National Front Disco or wherever it is that David Cameron hangs out. Nor is the need for improved European leadership likely to be a hot subject in this bastion of little Englanderism.
The Economist well illustrates the need for this leadership. “Consider the three big requests that Mr Obama made during his European tour: for more help in Afghanistan; for more fiscal stimulus; and for Europe to become more serious about energy security (ie, buy more non-Russian gas). Almost nothing was offered on the first and third, and the G20 conclusions papered over lingering transatlantic differences on stimulus plans and financial regulation. And Mr Obama also earned a public rebuke from Mr Sarkozy for strongly backing Turkish membership of the EU, which the French president opposes”.
Three things are clear. First, while Obama may have been the President that all of Europe wanted, his requests to Europe are closer to British agendas than to those of our EU partners. Our commitment to Afghanistan is witnessed in the troops we have deployed to Helmand – a commitment which George Robertson is right to chide other EU countries for not matching. We recognise the geo-strategic importance of Turkey in a way that other EU countries seem to struggle to. We see the unhealthy grip which Russian gas has upon the continent and want to avoid this fate for ourselves. And we, unlike others in the EU, are up for as much fiscal stimulus as we can afford.
Second, under Obama, the weight that Washington attaches to London will be positively correlated with the weight that London carries in Brussels. It shouldn’t be too hard for us to argue in Brussels for causes favoured by Obama because we too favour these causes; the more effectively that we do so, the stronger our relations with Obama’s America. The transatlantic relationship remains a key component of British influence on the global stage, but this relationship is now more bound up with our European relations than ever before at a time when the main fault line in global politics is to be found in the Pacific, not the Atlantic. This is the way of this Chinese century.
Third, in this context, Cameron threatens British marginalisation on the global, as well as the European stage. This is the exact opposite of what we now need. In fact, it is indefensible, humiliating and wrong. We shouldn’t forget this when we vote in June’s EU elections.
Barack Obama may have granted his first UK interview to the FT. But, may be, he should read the FT a little more carefully. In particular, if he had of been following Martin Wolf’s column more closely, then he may not have stalled when responding to the question that Nick Robinson put to him yesterday.
“Unfortunately, no consensus exists on the underlying causes of this crisis or on the best ways to escape from it”, as Wolf notes. Robinson suggested to Obama that one’s views on the underlying causes of the crisis go a long way to determine one’s views on the best way to escape it. France and Germany are supposed to blame the crisis on “Anglo-Saxon capitalism” and so see its solution in a new global architecture of regulation. The UK and the USA are the citadels of “Anglo-Saxon capitalism” and are taken to be more attracted to fiscal stimulation. Thus, Robinson asked Obama to comment on the dividing line that he constructed between France/Germany and the UK/USA.
However, perhaps, if Robinson wanted to construct a dividing line he may have found a more solid foundation for it in the Pacific, rather than the Atlantic. Hamish McRae argues that the real summit has been between the USA and China. China runs the world’s biggest current account surplus and the USA runs its largest deficit. The massive imbalances between surplus and deficit economies are at the root of our economic malaise, while correcting these imbalances is also the key to future prosperity.
“In 2007″, writes Wolf, ”three countries ran current account surpluses of $835bn (€629bn, £585bn). Logically, counterpart deficit countries must spend that much more than their incomes. Yet today deficit countries have run out of willing and creditworthy private borrowers”. The credit cards of the deficit countries have been more than maxed out but the surplus economies will continue to decline until they find sustainable, alternative sources of demand. It’s easy to chide the excessive spending and sub-prime mortgages of the USA. Yet more domestic spending in China is part of the long-term solution. Just as much as the USA needs to get closer to Chinese levels of saving, so too the Chinese need to get closer to American levels of spending.
It’s hard to see how “Anglo-Saxon capitalism” can actually be the great evil in this context; nor is the dividing line really to be found in the Atlantic. But there is something of a dividing line in that ocean, as Germany is a leading surplus country. Indeed, there is also a dividing line in the British channel as the UK is a leading deficit economy. Wolf paraphrases Angela Merkel’s position as being: “The rest of the world needs to find a way of absorbing our excess supply, but sustainably, please”.
Merkel may point a disapproving finger towards the deficit countries of “Anglo-Saxon capitalism” but Wolf thinks that some of the solution is to be found zu Hause. “The answer lies partly in changing the policies of surplus countries”. We still seem too far from realising this. However, another part of Wolf’s solution was moved towards at the G20: special drawing rights. So, thankfully the G20 moved somewhat in the direction advocated by Wolf, even if Obama might read his FT more vigilantly. To be fair to Obama, though, so could Robinson. As could Merkel.
Lionel Barber, FT editor, thinks that one of the most underrated events of the past year was “the G20 summit in Washington featuring the leading industrialised nations as well as Brazil, China, India, Russia and Saudi Arabia”, because it “lay bare the new political constellation in the world, with power shifting to east of the Euphrates”. This video gives a funky illustration of this power shift and the exceptional nature of our times. Faceback is citied in the video as an illustration of the role of technological innovation in making our times exceptional. Mark Zuckerberg of this social networking site has been described by Barber as the person that he most admires in the media. “He is cool, understated, and possessed of a brilliant business focus and an understanding of the power of human vanity”. To what extent is the eastwards political power shift driven by technology and to what extent is technology driven by human vanity?
Professor Michael Pettis offers a persuasive global economic overview. He notes China’s status as the leading current account surplus country. Ultimately, fiscal expansion, such as that recently taken forward by Alistair Darling and Gordon Brown, in deficit countries, like the UK, can only be “a temporary measure aimed only at assisting the transition among China and other major current account surplus countries from an over-reliance on exports to absorb capacity”. He, therefore, continues to be haunted by John Maynard Keynes’ nightmare: surplus accounts. Where does he think we will end up if these surplus accounts go uncorrected?
“The world cannot support indefinitely continued debt-financed overconsumption on the part of the US, whether this consumption takes place at the private or public level, and it cannot support continued growth in Chinese capacity without more rapid growth in Chinese consumption. To continue in this way almost certainly means little more than to postpone a larger and more difficult adjustment on the part of both countries, and will probably eventually lead to a collapse in international trade”.
Troubled times, indeed. But, at least, the US is going to soon be under superior leadership. And the special relationship will help the UK steer through any choppy waters, right? Well, it may no longer be safe as houses (and how safe is that?) if it needs to rest upon an Obama-Cameron axis. It seems that Obama takes a dim view of the pro-American and Eurosceptic mix offered up by Cameron.
Where does this leave the UK? A senior Labourite is reported as reacting to Obama’s view on Cameron by saying: “Obama will want to work with a united Europe, not the 27 divided nations envisaged by a David Cameron, William Hague and [the Eurosceptic backbencher] Bill Cash vision of Europe. Tory isolationism is the last thing Obama’s new foreign policy team will want from London”.
In a world potentially ruptured by a trade war emanating from the Pacific, the kind of squabbles across the Channel that have personified Cameron’s approach to foreign policy seem pathetically irrelevant and marginal. What a contrast with the global reverence and respect which Gordon Brown’s economic management has recently earned.
President-elect Obama probably now receives more advice than anyone else in the world. The advice below from the Economist strikes me as being likely to be amongst the most important of the advice he receives, however.
“At the end of the 19th century, Britain was the world’s superpower. By the end of the 20th it was America. The transition was preceded by two world wars. Some time in this century, the balance of power will change again. Mr Obama has inherited a world of pressing troubles. But as he tackles them he will have to keep an eye on the longer game: how to prepare for the day when America may no longer be sole superpower and only the first or maybe the second of many big powers. To manage that transition peacefully and still promote the spread of free markets and liberal democracy: that will be the mark of a truly great president for the 21st century”.
The longer game increasingly intrudes upon the shorter game. Success in the longer game has to mean modernised multilateral institutions. Martin Wolf makes a fascinating point on an underlying challenge to such institutions in the economic sphere, which has been thrown into much starker relief by the credit crunch.
“The first is the inability to gain a purchase on the policies of countries that run huge and persistent current account surpluses. That was a dominant concern of John Maynard Keynes in 1944. Ironically, the problem then was US surpluses. Today, it is the collapse in the ability of US households and those of a few other high-income countries to offset the vast current account surpluses generated by China, Germany, Japan and oil-exporting countries. Surplus countries love criticising those who spend what they wish to lend. The former will soon discover they cannot do without the profligacy of the latter”.
So China is today to the global economy what the US was in 1944: the leading current account surplus country. The proposals which John Maynard Keynes made at Bretton Woods to deal with such surpluses were rejected due to American opposition. But these proposals may be worth revisiting in any move towards a Bretton Woods II. This would lead to a much reformed IMF and World Bank. Their current structure reflect the global realities of the time of their formation when climate change, for example, was unheard of and World War II had recently ended, as does the UN, which is equally ripe for reform. It will require immense political skill to take any of this forward, however. Still, at least, the President-elect believes in these multilateral institutions, in stark contrast to the President he will replace. George W Bush rode roughshod over these institutions in ways that appeared short-sighted at the time and only appear more so with the passing of time.
