Blaming China Won’t Help the Economy
By ANATOLE KALETSKY
The Asian nations’ interest in American politics stems not just from America’s standing as the sole global superpower, but also from a growing belief among Asian leaders that the era of United States hegemony will soon be over, and that the polarization of its politics symbolizes America’s inability to adapt to the changing nature of global capitalism after the financial crisis.
In Asian politics, what you see is often the opposite of what you get.
On Sept 14. Mr. Kan, generally seen as favoring free markets, held on to his job in an intraparty election after a bitter challenge from his rival Ichiro Ozawa, who had loudly demanded a Chinese-style policy of currency intervention to keep the value of the yen low.
Given Mr. Kan’s victory, investors assumed that currency intervention was off the agenda and piled into the yen, lifting it to a 15-year high against the dollar.
It turns out, however, that Mr. Kan, in winning the election, may have tacitly ceded control of economic policy to Mr. Ozawa, known as the “shadow shogun” for his prowess in backroom dealing. Hence the ensuing sell-off of the yen.
The decision to break with free-market ideology and spend government money to control the yen’s value against the dollar was mainly driven by Japan’s relationship with China, not America.
Japanese companies including Sony and Toyota that had demanded government action devaluing the yen were not concerned primarily with their competitiveness against America rivals.
The motivation was a fear of being undercut by exporters in China, Korea, Singapore and Taiwan – all countries that aggressively manage their exchange rates.
With Chinese economic policy now serving as a model for other Asian countries, Japan was faced with a stark choice: back United States criticisms that China is artificially keeping down the value of its currency, the renminbi, or emulate China’s approach.
It is a sign of the times that Japan chose to follow China at the cost of irritating America.
Japan’s action suggests that, in the aftermath of the recent financial crisis, the dominance of free-market thinking in international economic management is over.
Washington must understand this, or find itself constantly outmaneuvered in dealings with the rest of the world.
Instead of obsessing over China’s currency manipulation as if it were a unique exception in a world of untrammeled market forces, the United States must adapt to an environment where exchange rates and trade imbalances are managed consciously.
This doesn’t necessarily mean that governments get bigger. The new model of capitalism evolving in Asia and parts of Europe generally requires government to be smaller, but more effective. Many activities taken for granted in America as prerogatives of government have long since been privatized in foreign nations – even in what so many Americans view as socialistic Europe.
In France, Germany, Japan and Sweden, water supplies, highways, airports and even postal services are increasingly run by the private sector. For home mortgages to be backed by government guarantees would be unthinkable anywhere in Asia or Europe.
Tax systems, too, are in some ways less redistributionist in Europe and Asia than they are in the United States. According to the Organization for Economic Cooperation and Development, the proportion of income tax raised from the richest tenth of the population is 45 percent in America, compared with only 28 percent in France and 27 percent in Sweden.
These countries raise money for public services mainly from middle-class voters, through consumption and energy taxes, not by soaking the rich.
Dr. Pinna says:
The U.S. demand that China increase the value of the Yuan is ignoring the new reality that China represents. China must sell its products, and therefore, it works as one unit to do so.
The Chinese Government values the currency, thereby effectively producing a product/currency combination that is attractive on the world market.
The U.S. must remember that it is only one part of the world market.
Unemployment in the U.S. is of very little interest to the Chinese government, which is primarily interested in Chinese employment.
Rather, it would make it likely that the newly dominant economic model will not be a product of democratic capitalism, based on Western values and American leadership. Instead, it will be an authoritarian state-led capitalism inspired by Asian values.
If America opts, for the first time in history, for nostalgia and ideology instead of pragmatism and progress, then the new model of capitalism will probably be made in China, like so much else in the world these days.
Anatole Kaletsky, the chief economist of a Hong Kong-based investment advisory firm, is the author of “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis.”