Wednesday 26 November 2008

A thought On The Economic Crisis.

If I might be forgiven putting on my historian's hat just for a moment. One point of significance that I have not seen mentioned in all the talk about getting us all out and spending again is who ultimately benefits, and what the consequences of that are. Given that Britain, along with most of the rest of the western world, manufactures increasingly little in terms of what reductions in VAT are likely to be spent on, The real beneficiries of the cuts in VAT and other financial stimulants are likely to be the economies of those countries that do, China, India, Brazil and the other rapidly emerging economies beyond Europe and the USA. The net result of this will be that such contries will inevitably emerge from the current crisis even stronger in relation to the developed western economies then they were before the current downturn began.

It seems increasingly likely to me, that we are seeing a fundamental shift in the balance of global power both financial and political, unprecedented since the dawn of the industrial revolution. This has become increasingly obvious to anyone who thought about it ever since the insatiable demand for metal from the Chinese led to the disappearence of drain covers from drains around the country. This shift in power is likely to be of far more consequence for our children and grandchildren then the current knockabout in the house of commons about whether the chancellor should have cut VAT or not.

1 comment:

babyblox said...

I fully agree with you on your last point that we are witnessing a major shift in the balance of global economic and political power. But it did not begin with the recent economic meltdown; it is a continuous process which has been going on for centuries and which only becomes apparent when a major economic or political event occurs to emphasise how far things have changed. The European Century began with the industrial revolution and ended in 1914, although Europe was already in decline by 1900. The American Century began after the Civil War but only became apparent in 1918. The American Century is now in the course of giving way to the Asian Century. US economic and political power will not end overnight but rather will slowly decline as Europe’s power declined after the First World War. Europe, including the UK, is still a major trading bloc but is now irrelevant in world geo-politics. Arguments over whether we should be in Europe are as relevant as arranging the deck-chairs on the Titanic.

I made the point in an earlier post that money and wealth are not the same thing, although they are frequently confused. What really matters is GDP, the total of what a nation produces, be it goods, services or intellectual product. The 1980s witnessed the shift of the UK from a manufacturing to a ‘knowledge-based’ economy, with Europe gradually following. We are now witnessing the decline of the US manufacturing base – great swathes of the Mid-West rust belt are testament to the loss of US heavy industry – and the conversion of that nation’s economy in a similar manner. It is the emerging nations which are now the industrial powerhouses. In answer to your first point about who will be the winners and losers from the current situation, we can all be winners as long as the world wants our knowledge-based output. GDP can just as easily be maintained through production of intellectual products. But intellectual product is easy to replicate, it does not take years of investment the way an industrial base does, and if the West loses the world market for intellectual and service products we are in serious trouble. Throughout the last three hundred years it has been manufacturing economies which have dominated and it is difficult to see beyond that in the twenty-first century. The Great Powers of the last three hundred years, Europe and the USA began by dominating resources and markets and then preserved their dominance with military supremacy. Will China/India really act any differently as soon as they are able?