Welcome to guest blogger: Dr Michael Power - Investec Bank:
For the marketing and the sheer entertainment value - the Beijing Olympics exceeded even the advanced hype. But, as the images fade, we should remember that this contest was not the only one of Olympian proportions to be playing out in the world at the time. There is also an economic marathon taking place between runners in the West and those in the East, a national relay race that will eventually see the baton of economic primacy being carried – symbolically having been dropped by the US Team in the 4x100m relay race in Beijing – by China. The final medal table of the Beijing Olympics may yet come to symbolise the start of this hand-over process.
Many in the West probably still think – and the lazy love of the familiar more than brute logic is often the father of their thoughts – that the West’s current economic malaise is nothing more than a very bad case of cyclical flu. In such a context, aspiring Western politicians will continue to peddle promises to build a better tomorrow: witness Barack Obama and his “Yes, we can!” pledge. By contrast, few will dare articulate just how structurally passé the West’s current model might soon be and therefore just how difficult delivering on those electoral promises could become.
Final Medals Tally Total:
China 100United States 110Russian Federation 72Australia 46Korea 31 Canada 14
Overriding the forebodings of that small clique of Westerners not in denial, the ‘yes we can’ apologists for the West still dominate the airwaves of CNBC and Bloomberg. Those daring to suggest that something more seminal might be happening are usually dismissed as the economic equivalent of doomsday merchants wearing “End is Nigh” sandwich boards.
I believe profoundly that the essence of what makes mankind such an optimistic species is our dogged faith in the idea of “hope springs eternal”: indeed Obama’s book captures this determination in its title, “The Audacity of Hope”. For it is humanity’s pre-disposition to dream of a better tomorrow that is the source of that river of human endeavour that irrigates the seeds of a brighter future. And so powerful can be this flow of sweaty optimism, it can cut valleys through granite mountains of counter-logic in forcing its way towards the greener pastures of progress. But hope alone cannot guarantee progress and the wellspring of industriousness that feeds the West’s river is not nearly as plentiful as it used to be. Instead, today’s sweaty optimism rises most abundantly where the sun also rises: in the East.
In this game-changing world, a few commentators – George Soros, Marc Faber and Jim Rogers – have suggested that the West is in its worst financial crisis in 30 years precisely because the economic baton is being passed from West to East. As the great economist, Joseph Schumpeter, might have noted, perhaps we are at a crossroads in history where Western destruction is now being offset by Eastern creation. In our far from decoupled world, the West’s economic yin cannot change without impacting the East’s economic yang, and vice versa.
On the one side, the West (and especially its Anglo Saxon heart), by living way beyond its means on the chimera of easily available credit, ever rising household indebtedness and ever increasing fiscal and current account deficits, has enjoyed many decades of prosperity. And, even in the wake of the credit crunch, most Westerners still believe that this model of prosperity is both soundly-based and sustainable. The last year has proved to us it is not.
On the other side, the East (and especially its Chinese heart), by living well within its means with a high domestic savings ratio (45% in China compared to a negative rate in the US), regularly running current account surpluses and maintaining high levels of foreign exchange reserves (the Greater China Club – China, Hong Kong, Taiwan and Singapore – now have over $2.5 trillion) has deferred consumption today and, by funding investments from these savings, set about building a better tomorrow. At the same time, a not insignificant portion of the East’s savings have also been diverted to plug that savings gap in the West and especially in the US.
By postponing consumption for well over a decade, the East’s hoped for tomorrow has now started to materialise in a better today – Beijing’s splendour is evidence of that! And despite the desire by some of the East’s Old Guard to extend its era of abstinence, many Asian governments are now encouraging their constituents to enjoy a bigger share of the fruits of yesterday’s labours. This suggests that the Asian model – one based not upon self indulgence but rather self denial – was ultimately not sustainable either.
