Is Asian capitalism different?

[A cross-posting from my Quote Unquote blog.]

Last March, an FT journalist called K. Mahbubani wrote a piece claiming - quite rightly for the moment, perhaps - that there are various distinctively Asian versions of capitalism, all of which are a good deal more conservative than the ‘western’ model. Asian societies have much higher levels of savings, since the Asian financial crisis of 1997-98 have restored a degree of government regulation, they have largely ignored the IMF’s market fantasies, and so on.

Which is very sensible indeed. But how sustainable is it? As Mahbubani notes, the high savings level is the product of centuries of economic and social uncertainty. But the same might be said of westerners, whose personal prudence in these matters was once legendary. Indeed, some economic historians have claimed that our high ‘propensity to save’ was one of the foundation stones for capitalism itself. Likewise for regulation: it is not so very long ago that no one in the West would have dreamed of deregulating our economies to anything like the extent that we have.

But things change. Once consumerism – rapidly emerging in the east as in the west – takes command, the vast marketing machines will make sure that savings are quickly eroded. There will come a time when Asian economists will recommend the deregulation of markets, and there will come a time when Asian governments will be so exposed to global economic pressures that they will be unable to resist. That’s how capitalism works – not western capitalism or Asian capitalism - just capitalism. After all, what we have in the west is not a specifically western model at all – it is simply capitalism completely let off the leash. When it is let off the leash in Asia too, they can fully expect the same tribulations.

And plainly Asian capitalism can be fooled into playing along with the western model, because for a long while they did. In 1997-8 they learned better – but to what extent did even that happen because there are at least two major global players in Asia – India and China – neither of which has really been absorbed not the global capitalist network at every level of society? They are both heading – indeed, sprinting – that way, so why should we expect them not to succumb to the 'western' model?

There is an answer. It's a combination of peak oil, global warming and the ecological devastation that is already making itself felt all across Asia. But Asian capitalism? No, I doubt very much that that can resist effectively on its own. Why should it? 'Western' capitalism didn't, even though philosophers and historians and politicians and pundits of every stripe claimed the same virtues for the west as Mahbubani does for Asia.

[1] Mahbubani, K. (2009). Lessons for the west from Asian capitalism. Financial Times, March 19 2009.

Funding clean development in developing countries

Anyone with a sense of decency and proportion about humanity’s current environmental predicament understands and sympathises with the claim by developing countries that the developed countries should actively support developing countries’ contribution to controlling global warming by technology transfers, improved terms of trade and direct funding. Conversely, as India and China’s own governments have pointed out, the attitude of the governments of developed countries to their position is hypocritical at best and shameless at worst.

But at the same time, is it really clear exactly what would be accomplished by such support? Just as the justice of their cause is clear to anyone with half an eye, so the dubiousness of their chosen route to development is obvious to anyone with half an ear for the brilliant but discordant disharmonies of their emerging industries and agricultures. For both India and China (and most other developing countries) have certainly set themselves on a strictly capitalist road to industrialisation, and it is exactly this that undermines their claims to the sympathy and assistance of developed countries. That way lies not socially intelligent development but endless, inexorable growth of all kinds, guided not by whether it is of social value but solely by whether it is profitable – a completely different motive, and largely contradictory criterion to social responsibility.

Not that developed countries are any less culpable – after all, we invented capitalism, we made sure that most developing countries (with the notable exception of China itself) would adopt a capitalist strategy for economic development, and we have wilfully turned a blind eye the environmental (not to mention social, cultural, political and psychological) consequences of our own road to wealth. But to support the industrialisation of any country on the same basis would only be more of the same problem we already have. Indeed, capitalism’s incessant demand for growth and more growth, coupled with the lower ‘carbon efficiency’ of less developed countries’ industries, would actually make the problem disproportionately worse. So even if the environment at large could countenance the rapid doubling and trebling of the global economy, the environmental impact is likely to be much worse than that.

So what is the answer? Beats me. But it isn’t capitalist development, because that can only lock us – and in this case it really is us all – into a worse and constantly worsening problem. Nor will it solve developing countries’ developmental problems, given that they are far more likely to suffer from the resulting climate chaos, resource depletion and ecosystems damage than their more developed neighbours.

From ‘Made in China’ to ‘Owned by China’

Between 2007 and 2008, Chinese overseas investment almost doubled to $52.2bn. In May 2009 the Chinese government announced that Chinese companies would soon find it easier to invest overseas. Just as scary is the fact is that, at the start of May 2009, the IMF reported that China held $1.8 trillion in foreign reserves - which is to say, in convertible foreign currencies, with perhaps 70% of that in US dollars.[1]

This is more than the GDP of Russia – the world’s 8th largest economy - or the total GDPs of all the 140 smallest countries put together. It is also enough to buy the 11 largest non-Chinese corporations outright, including the four largest oil companies, Wal-Mart, GE, Proctor and Gamble, Johnson and Johnson, IBM, and Microsoft. Given that the other four out of the world’s fifteen largest corporations are already Chinese, this suggests that a great deal of attention needs to be paid by anyone expecting a future capitalist global economy to respond to democratically expressed environmental concerns. It is exceedingly unlikely that either China’s own corporations or the non-Chinese companies with whom they compete will be either inclined or in a position to address popular environmental concerns – or needs - in the coming decades.

How many of the world’s hundred to so dominant corporations and conglomerates will end up in with owners from non-democratic countries in the future is difficult to gauge. Probably all of them will have major shareholders from such dubious polities. For governments, resistance to foreign ownership seems to be largely cosmetic, while companies are likely to be equivocal at best. Indeed, at least one of the major banks – Barclays – preferred to raise capital from such sources (in their case a Gulf sovereign wealth fund) rather than accept support from the British government. As a Financial Times commentator put it, ‘As a bank with an increasingly global business, freedom from government meddling was essential’.[2]

One is inclined to ask, how long will such businesses be able to resist meddling from their new friends – and towards what goals will that meddling be directed? In 2009 Chinalco (a Chinese aluminium company) initiated a move to buy a sizeable stake in Rio Tinto (the world’s third-largest mining company, with largely Anglo-Australian ownership), which the Chinese government repeatedly asserted was purely a commercial investment. Yet shortly after the (ultimately unsuccessful) deal was announced, Chinalco’s president was appointed to the State Council - China’s counterpart of the Cabinet. Nor was even the commercial element of this enormous deal at all apolitical. On the contrary:

Four of the biggest state-owned Chinese banks lined up to lend the company
more than it required for its planned second investment. They charged interest
close to zero and did not set a time for Chinalco to pay its debts. Such lending
activity is possible only in China, where state-owned banks and businesses are
treated as the left and right arms of the state, working together to achieve
national long-term development objectives.[3]

Based on this highly politicised strategy, China’s total direct foreign investment has gone from almost nothing at the turn of the millennium to topping $52 billion in 2008. With only a little more expansion, over a ten year period that would equate to buying a half-share in all of the world’s ten largest companies China does not already own.

More generally, the present economic downturn has seen huge acquisitions by funds based in non-democratic countries in companies that Japan, the West and their immediate allies have previously regarded as ‘theirs’. Of course, any notion of national control over transnational corporations has increasingly strained credulity, but I suspect that ceding so much economic power to non-democratic countries will introduce huge new obstacle to those who seek to save the environment for human beings rather than for governments or business.

Of course, the conventions of capitalist economics would regard this is as quite normal. If China has the money to buy then China should be welcomed as the new owner. But capitalism is also only acceptable to most of those who live under it in the west because its enthusiasts claim that it has at least a nominal commitment to a certain style of non-political governance (and conversely a commitment to corporate non-interference in politics), and plainly this would be violated by allowing such politically committed buyers to take such a strong position.

This may seem to contradict one of the general thrusts of this blog: that what is wrong with capitalism, from an environmental perspective, is precisely its lack of political direction. But not all political directions are equal, and China’s track record hardly suggests a wholesome commitment to the interests even of its own people, let alone a sustainable global environment.

[1] http://www.imf.org/external/np/sta/ir/hkg/eng/curhkg.htm#I.
[2] Financial Times, May 7 2009.
[3] Yao (2009).

The lovely Pat Robertson

Pat Robertson, reports today's Guardian, blames the Haiti earthquake on the people of Haiti themselves for making a pact with the devil to gain independence from France in 1804. You can see him saying so on Youtube.

From this we can infer that:

1. Both Pat Robertson and God are opposed to countries freeing themselves from tyranny. Apparently it takes a pact with the devil to get you free. So who did the American Revolutionaries do a deal with, Pat? And does that mean that you (and God) believe that we Brits should have our American colonies back? Or perhaps that we Brits should hand ourselves (and the USA) back to the Romans? Or ...? (Opened a bit of a can of worms here, Pat.)
2. Mr Robertson's God is a bit slow on the uptake. The Haitians sign a pact with the devil in 1804 and God punishes them in 2010? Oh all right, they've been ahveing two centuries of hard time, but that only makes the matter worse - not content with punishing the first Haitian revolutionaries, he punishes their children adn their children's children. I assume that Pat would welcome the imprisonment not only of criminals but also their children and their children's children, for century after century. Why do so few Christians seem to have any grasp of morality and responsibility?
3. President Obama would be wrong to close Guantanamo - this is exactly where vicious lunatics like Pat Robertson belong. But perhaps the base itself could be moved across the strait to Haiti itself, so that this Man of God can be more directly in touch with the suffering people of Haiti - and vice versa, perhaps with a sign around his neck explaining his interesting theological position.

Act Now - Change the Future

How big is the current recession - really?

I've just read Bruce Watson's article 'The Great Recession: A Hidden Depression?' in the Daily Finance. To quote its opening paragraph in full:

The story of the Great Depression is often told in pictures: while few people recognize the names "Smoot-Hawley" or "Schechter Poultry," photographs of bank runs and bread lines continue to pack a punch, almost 80 years after they were first snapped. But the Great Depression's position as our absolute standard for economic disaster carries an unintended consequence: The power of its images seem to overwhelm -- and minimize -- the economic troubles of our own time. After all, if it doesn't look like a Depression, how tough could things be?

As Watson documents in some detail (for the USA), the correct answer is 'very tough indeed'. By the end of 2009, foreclosures had topped 4 million, and 14% of homeowners with mortgages were either in foreclosure or behind on payments. Much the same percentage of the population is homeless, of which about 40% are children. There seems to be little reason to think that the worst is past.

Which is odd. The news programmes I hear are constantly citing how much the stock market has risen by, and by implication, that everything is getting better. Most of the big indices have done pretty well. No news that I am aware of about the real economy, though - you know the economy that produces the goods and services and employs all those people who didn't actually cause this crash but are certainly on the sharp end now. Why the complete lack of interest?

I suspect that the answer is that they're not newsworthy. Not exciting bond traders or investment bankers. No need to worry about them.

On cap and trade

Click on the title of this post for some interesting observations on cap and trade. It can't work unless we force the price of carbon so high that it is uneconomic to burn fossil fuels, and that will never be allowed to happen so long as everyone thinks a) economic benefit can be created while disregarding the environmental consequences, and b) this is a zero sum game in which we have to make someone else pay.