Many Western economists have taken the position that rebalancing of world economies is necessary. Martin Wolf in the Financial Times (6 April 2011) also takes this position. He notes there has been a long accumulation of credit
outside the developed economies for consumption in the developed ones
and that this credit has been transferred into credit instruments in
these developed nations. This is not unusual in history, it has been
the case with nearly every empire. Italy for example, had a similar
inflow of consumption of goods and services from the provinces, and its
army maintained order in them. We can, I think, assign the same
situation for the USA today. It is basically a tribute situation.
Certainly China and Japan have huge stocks of US Treasuries, but these
promises are just acknowledgments of the power the US wields so far.
He asks the question of why there was a surge of savings in surplus
regions of the global economy. The assertion that there is a
rebalancing coming is probably true, but the question concerning the
reason for savings must be determined by the power relationships in the
global arena. The real questions to ask are how far can the current
situation go under the guise of power alone? Can China challenge the
US and why would they? Is it in their interest to undermine the
tribute condition?
But these question also mask the actual conditions. The savings
occurred because of off-shoring of jobs and wealth by US investors and
businesses. The impression one gets from Dr. Wolf is that all the
businesses involved in the imbalance are Chinese, Indian or Brazilian,
but this is far from true. American businesses have been in the
forefront of off-shoring production and so have our financial
institutions. It is not they alone who are involved, it is an American
businesses strategy as well.
What is missing from this analysis is that the BRICs as they are called, the rising developing economies of China, India and Brazil have heavy government investment and intervention in their economies. The US and the UK have divested themselves of state capital and their future reliance in the new world economy is lessened as is the dogma surrounding state involvement.
There may be a rebalancing, but the actors will be global, yet the
effects local.