Page 1 of 2 DISPATCHES FROM AMERICA America suffers a power outage
By Dilip Hiro
"Make poverty history!" A catchy slogan, and an admirable aim, it was adopted
by world leaders at the United Nations summit in New York on the eve of the New
Millennium. A decade later, it is America which has made history - even if in
the opposite direction. The latest United States Census Bureau statistics show
that, in 2009, one in seven Americans was living below the poverty line, the
highest figure in half a century. Last month's 95,000-plus home foreclosures
broke all records.
These were only two of the recent glaring signs of the sagging might of the
globe's "sole superpower," now heavily indebted to Beijing. Other recent
indicators include its failure to corral China
into revaluing its currency, the yuan, against the dollar, and to compel
Russia, China, India, or even Pakistan to follow its lead in suppressing the
oil and natural gas trade with Iran. With Washington failing to impose its
monetary or energy policies on the rest of the world, we have entered a new era
in history.
America's struggling economy
It's crystal clear that jobs and the economy have emerged as the key
preoccupations of American voters as they approach the November 2nd midterm
Congressional elections.
The economic "recovery" is proving anemic. An already weak gross domestic
product (GDP) growth figure, 2.4% for the second quarter of 2010, was recently
revised downward to 1.6%, and the Organization for Economic Cooperation and
Development, consisting of the globe's 30 richest countries, has predicted a
paltry 1.2% US expansion in the fourth quarter of the year.
Soon after retiring as vice chairman of the Federal Reserve, where he served
for 40 years, Donald Kohn summed up the dire situation in this way: "The US
economy is in a slow slog out of a very deep hole."
Consider one measure of the depth of that hole: between December 2007 - the
official start of the Great Recession - and December 2009, the American economy
made eight million workers redundant. Even if the job market were to improve to
the level of the boom years of the 1990s, it would still take until March 2014
simply to halve the present 9.6% unemployment rate and return it to a
pre-recession 4.7%. Little wonder that James Bullard, president of the St Louis
Federal Reserve Bank, warned of the American economy creeping closer to the
black-hole years of deflation experienced by Japan in the 1990s.
By now, the Obama administration's $862 billion stimulus plan has largely
worked its way through the system without having had much impact on job
creation. And keep in mind that the high official unemployment rate is
significantly less than the real figure. It doesn't take into account part-time
workers who would prefer full-time jobs, or those who have stopped seeking
employment after countless failed attempts. In the end, the administration's
policy makers seem to have failed to grasp that a recession caused by a banking
crisis is always much worse than a non-banking one.
China roars ahead
Just as the Obama administration revised those anemic GDP growth rates
downward, China's economy was passing Japan's to become the second largest on
the planet. While the Chinese GDP is steaming ahead at an annual expansion rate
of 10%, Japan's is crawling at 0.4%.
China's leaders responded to the 2008-2009 recession in the West that led to a
fall in their country's exports by quickly changing their priorities. They
moved decisively to boost domestic demand and infrastructure investment by
sinking money into improving public services.
While Western governments tried to overcome the investment slump at the core of
the Great Recession indirectly through deficit spending, China raised its
public expenditures through its state-controlled banks. They provided easy
credit for the purchase of consumer durables like cars and new homes. In
addition, the government invested funds in improving public services like
health care, which had deteriorated in the wake of the economic liberalization
of the previous three decades.
Altogether, these measures boosted the GDP growth rate to 9% in 2009, just when
the American economy was shrinking by 2.6%. Such a performance impressed the
leaders of many developing countries, who concluded that China's state-directed
model of economic expansion was far more suitable for their citizens than the
West's private-enterprise-driven one.
On the ideological plane, the spectacular failure of the Western banking system
on which the private sector rests revived socialist ardor, long on the wane,
among China's policymakers. In response, they decided to bolster
state-controlled companies, proving wrong Western analysts who bet that
public-sector undertakings would lose out to their private-sector counterparts.
The upsurge in government spending and generous bank lending policies led to
increased investments by state-owned companies. Whether engaged in extracting
coal and oil, producing steel, or ferrying passengers and cargo, such companies
found themselves amply funded to upgrade their industrial and service bases, a
process that created more jobs. In addition, they began to enter new fields
like real estate.
Overall, the Great Recession in the West, triggered primarily by Wall Street's
excesses, provided an opportunity for Beijing to stress that, in socialist
China, private capital had only a secondary role to play. "The socialist
system's advantages enable us to make decisions efficiently, organize
effectively, and concentrate resources to accomplish large undertakings," said
Prime Minster Wen Jiabao in his address to the annual session of the National
People's Congress in March.
The sacred yuan and gunboat diplomacy
In March and early April, there was much sound and fury at the White House
about China's currency, the yuan, being undervalued, and so giving Chinese
exporters an unfair advantage over their American rivals. This assessment was
faithfully echoed by a compliant media. Pundits anticipated a US Treasury
report due in mid-April condemning China's manipulation of its currency, a
preamble to raising tariffs on Chinese imports. Nothing of the sort happened.
Instead, the Treasury delayed its report for three months. When released, it
said that, while the yuan remained undervalued, China had made a "significant"
move in June by ending its policy of pegging its currency tightly to the
dollar. Hard facts belie that statement, highlighting the former sole
superpower's impotency in its dealings with fast-rising Beijing. Between early
April and mid-September, the yuan appreciated by a "significant" 1%.
More worrying to White House policymakers is the way Beijing is translating its
economic muscle into military and diplomatic power. The controversy surrounding
the sinking of the South Korean patrol ship the Cheonan in March is a
case in point. Following a report in May by a team of American, British, and
Swedish experts that a North Korean torpedo had destroyed the vessel, the US
and South Korea announced joint naval exercises in the Yellow Sea off the west
coast of the Korean Peninsula. China protested. It argued that, since the
planned military drill was very close to its territorial waters, it threatened
its security. Later that month at a South Korea-Japan-China summit, Chinese
Premier Wen refrained from naming North Korea as the culprit and instead
emphasized the need to reduce tensions on the Korean peninsula.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
