Back home after a wonderful three week vacation
I´ve used to reload and recharge (not that I was either unloaded or
discharged), plus putting the finishing touches on my dissertation, time for
the Vintage Rocker to get back behind the keyboard and dispense more internet
wisdom and thoughtful content for the thought starved masses (yep, all three or
four of you guys).
And what better moment to put back the thinking
cap than the current market meltdown, apparently driven by the fear that the
much awaited GCS (“Great China Slowdown”, never heard of it? Come on! There probably
isn’t a single self-respecting pundit that
hasn’t predicted it at least once in the last decade… hell, some of us have
been predicting it almost monthly for all of that time) has finally arrived. It
may have and it may have not, I’m not yet fully convinced. If I had to give a
probability spread, I’d say there is a 70% chance this will end up being a
minor bump in the road (meaning that China still manages to grow around or
slightly above 5% this year, and that their stock market recovers so in two to
three months is no lower than 60-70% its
previous maximum in July), a 20% it is a significant bump (China’s grow comes
to a halt, and may even enter into a mild recession, and the main index for its
stocks is still less than half of what it was in July three months from now –which,
given it had more than doubled in the first half of the year, would simply mean
that it finishes 2015 roughly where it started) and a 10% it is a crash for the
history books (with contraction of GDP above 30%, shares below 10% of their
July value, massive unemployment, major social unrest, and eventual toppling of
the Chinese Communist Party, or at a minimum of their current leadership, to be
substituted by a new strongman followed by the imposition of much harsher and
stricter emergency laws).
I’m following the events with great interest
(understatement of the week!), as China for the last decade seems to be a fine
scale model (1:10 scale to be precise) of the whole capitalist world-economy, based on monopoly rent extraction by those well connected with a
nominally independent government (in their case it is not democratically elected,
but see what happened with supposedly democratic ones in Greece and Italy, and
what percentage of the eligible population votes in the American elections that
end up deciding the sign of both Congress and the Senate). In no particular
order, these are some of the most salient features of the situation that are
catching my attention:
·
China
accounts for 90% of the World’s poverty reduction for the last 20 years
(neither Africa, nor India, have managed to reduce much their absolute number
of destitute people, although at least they’ve managed to make all the
population they added “not desperately poor”, which is already a substantial
improvement over their historical trend). The whole capacity of “free markets”
(the highly bastardized version we call by that name) is put into question if
China becomes unable to keep playing catch-up to the Western democracies (as
they have been doing those same twenty years)
·
We
may be exploring the limits of such catch-up development. China has been
importing technology (in a wide sense that includes not only machinery and
power plant designs, but also management techniques and software to run ever
more complex, more sophisticated corporations) and leveraging their cheap labor
force to attract capital (either in the form of direct investment –over which
it has always exercised a high degree of control, and by selling huge
quantities of low-quality goods to the rest of the world, which created an
enormous trade surplus). That has enabled the country to invest at a staggering
pace, moving from an average GDP per capita of roughly 1,000 $ in 1980 to 12,700
$ in 2014 (in PPP, in nominal dollars it’s closer to 7,000), which has required
a phenomenal rate of growth of almost 10% per year for more than three decades.
Impressive? Let’s not forget the GDP per capita of the USA in 2014 was roughly
55,000 $ (again in PPP, which obviously in this case coincides with the amount
in nominal dollars). So the average Chinese has gone, after three decades of
breakneck enrichment, from being dirt poor to being only moderately poor (the
poverty threshold in the USA for a single adult is 11,700 $ a year). It may sound discouraging that just copying
other people’s innovations can only take you a tad above being on average 20%
as wealthy as them, but for India (or any sub-Saharan country) it’s a great
piece of news, as they still have spare room to quadruple their current wealth before getting there
·
Keynesianism
can only take you so far (the state can step in and spend instead of the
private sector up to a point, but finally there is no way to keep building infrastructure
nobody will use or houses nobody will live in, as we Spaniards know all too
well). We will probably have ample opportunity to explore not only the limits of
catch-up (see previous point), but of Keynesianism as a whole and of state
investment and its ability to reinvigorate a sagging economy, as my hunch is
that the central committee is about to go bananas with the former, but is going
to barely improve the latter. Why? Think about it, the reason China is finding
it difficult to keep growing at previous speed is not for lack of machinery or
infrastructure (they have unused capacity galore) that may give them additional
productivity gains to outprice their competitors (they have almost none), but
for lack of people that can buy their trinkets, not only in China, but in the
rest of the world. China has been saying it was shifting from an export
oriented growth model to an internal consumption dominated one for almost
twenty years, but they haven’t been able to do It, and I’m ultra skeptical they
will be able to do it now
·
That
leaves internal consumer spending as the only component of aggregate demand
that may offer a way to resume the growth path. When the rest of the world is
stagnant, it stands to reason that you can not grow an economy without growing
the consumer spending, BUT you can not grow the consumer spending when a) there
are less consumers every passing year (only Africa is growing its population at
this point, but they have no money to consume) and b) salaries are stagnant or
decreasing (except the top 1%, with very low marginal propensity to consume). The
most astute observers are already linking the secular stagnation with the
(equally secular) reversal of demographic trends and slowdown in technological
innovation. Of course, less people means less consumers of everything. It is
very difficult to grow the total output of an economy with less producers, although
via productivity gains it could be done. But why would you pursue those
productivity gains if the additional production will sit forever in your
warehouses for lack of consumers? (well, you could make your products perishable
in a shorter time span, so the dwindling number of consumers would still need
to buy more of them… it has been tried, it is called programmed obsolescence
and in the consumer electronics and automotive markets it has worked wonders,
but more and more people seem to be wising up to it and it doesn’t seem to be
working so well any more).
·
China
is a fascinating social experiment of the psychological consequences of extreme
materialism, after sixty years of state propaganda relentlessly denying the
possibility of any transcendent reality, and the kind of familial structures associated
with such mentality (Russia would be another shining example, and you can easily
spot some troubling similarities regarding the shape of familial structures). You
can find there the most extreme version of the most corroding tendencies
affecting most capitalist nations: every man for himself (don’t sell me
Confucian values and collectivism in a society without siblings, which
constitute the first and paradigmatic schooling in living and working within a
collective), hyper competitiveness, crony capitalism and corrupt allocation of
resources... The party cadres reaching the upper echelons of the Country are
the product of the one child policy (officially started in 1979, but being
followed in practice by the educated urban classes that formed the top tier of
the CCP since at least a decade before), what the Chinese press dubbed “little
emperors”, and thus one of the most spoiled children ever to be granted
government responsibilities…
So whatever happens in the following
weeks it is going to teach us a lot about the shape of things to come. I’ll
leave you with a final thought: In the nineties Giovanni Arrighi thought that
the latest accumulation cycle of capitalism (dominated by the USA) was coming
to an end, the stagflation of the 70’s being what he called the “signal crisis”,
and waiting only for the termination crisis that would confirm the demise of
the old hegemon and the rise to dominance of a new one. He was always cautious
about who that successor superpower would be, but he strongly hinted that China
was one strong candidate. For the last decade we have been hearing (from left
and right, with admiration and distrust) about the rise of China as one of the
most significant geopolitical developments of our times, and the question
widely posed was always if China would rise to the level of the USA (both in
terms of economic power and of military might, as it is well understood that
both variables cannot be decoupled) or if it would effectively surpass it. For
many, given its sheer size and population, it was a question of when, not if.
We may have an inkling of the answer to both questions in the next days.
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