Clyde Prestowitz has written one of the most articulate and thought-provoking articles I've seen in recent months on the topic of globalization. He argues that the global economy is "asymmetrical" because the United States is the consumer and the most other countries (especially Asian) are the producers. But the supply side cannot move offshore forever, he says, because at some point the global savings that are financing America's trade deficit will be depleted:
"Of cousre, U.S. consumption and imports could be cut, but if that were to occur without a commensurate increase in consumption elsewhere, the whole world economy would suffer recession, if not depression."
Further, Prestowitz blames producer countries as much as the U.S. because they have a vested interest in maintaining the present status quo:
"There are many flavors, but most Asian economies are characterized by relatively low consumption, savings rates of 30 to 50 percent of GDP, government intervention in markets, managed exchange rates, promotion of investment in 'strategic' industries, incentives for exports and accumulation of chronic trade surpluses along with large reserves of dollars."
It cannot be denied that Prestowitz's dire predicions could come true, but personally I would like political leaders to stay out of the way and allow the market to correct itself naturally. Moroever, from my perspective as a long-term resident of Asia it's clear that consumerism is here to stay.
For one thing, most Asians I know are only a generation or two removed from extreme poverty and deprivation. For example, my father-in-law (now deceased), who used to run a rice mill in rural Thailand, remembered the brutal Japanese occupation of Thailand during World War II. And two of my Chinese employees were forced away from university to dig ditches in the countryside during the Cultural Revolution. It's no surprise to me that they and their descendants (including my wife) tend to be frugal. Nevertheless, as the financier of my household, I can attest to the fact that my mother-in-law is far more frugal than my wife. I expect our son and his peers to behave much more like Americans than traditional Asians in the pursuit of material gain (i.e. consumption) -- to say nothing of the "little emperors" that China's one-child policy and rapid increases in wealth are creating.
For another thing, I simply don't believe that Asian governments are discouraging their citizens from spending. Here in Thailand the government has promoted the same "easy money" policies you see in the U.S. in order to encourage people to buy houses, cars, furniture and other things on credit. Meanwhile, as they are in the U.S., interest rates on savings are ridiculously low. In China, huge shopping malls and Wal-Mart stores are proliferating everywhere -- not just where you would expect in cities like Beijing and Shanghai, but also in more obscure places like Qingdao and Chengdu -- and most of the customers jamming these malls are Chinese. It's much the same story in India, too.
To be sure, most well-off Asians follow time-honored tradition by sending money back to their families in the village, where no doubt much of it is stuffed into mattresses for the next rainy day. But this is self-correcting, too, as the village elders die off. If the remaining population continues to save 30% to 50% of its income and America stops buying the stuff they make, we can expect massive surpluses of stuff and attendant price decreases that will motivate domestic consumption. In fact, this is happening already in the Chinese automotive industry.
The business press makes a lot of fuss over the fact that Chinese automobile capacity continues to grow while sales and exports remain flat. Yet the Chinese automotive manufacturers I'm working with are gung-ho on expansion. Conventional wisdom says this is unsustainable, but the Chinese observers I know think differently. They say that cars will finally become affordable so more people will start buying them. Because the market for cars is highly elastic, this means more marginal revenue and profits, not less, creating a gathering force for the continuing rise of consumption in China.
Let's just hope the world's political leaders stay out of the way long enough to allow these market forces to bear fruit.
Link: The World Is Tilted (by Clyde Prestowitz, Newsweek Issues 2006)
"Thus, for the sake not only of the united States but of all nations with a stake in globalization, it is imperative that political leaders change its current mode. The game cannot continue with one participant playing consumer while nearly all the others play producer. For the long-term success of all, everyone must agree to play the same globalization game."
