March 24th 2018


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Articles from this issue:

COVER STORY Media ensure a comfy rise for Bill Shorten

CANBERRA OBSERVED Can Liberals' broad church survive schism?

INTERNATIONAL AFFAIRS Middle-East time bomb: youth unemployment

ENVIRONMENT Europe's freeze further proof of global warming!

NATIONAL AFFAIRS Cashless debit card records positive results

NATIONAL AFFAIRS Liberals' Tasmanian victory: the implications

OPINION The height of absurdity: education as business

ECONOMICS AND CHINA Eyes averted from the dragon in the marketplace

RELIGIOUS FREEDOM The state attacking the Church: lessons from history

FAMILY POLITICS A Trojan horse for monitoring children

NORTH AMERICA The cultural and political mosaic that is Canada

CINEMA Mary Magdalene on film: a new interpretation

MUSIC Audio-visual: or, how to watch your music

CINEMA The Adventures of Tintin: A light amid the bleakness

BOOK REVIEW Taking arms against the gender fluid fad

BOOK REVIEW Narrative history from a great writer

LETTERS

POETRY

INTERNATIONAL AFFAIRS Sexual exploitation at Oxfam symptom of culture of death

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ECONOMICS AND CHINA
Eyes averted from the dragon in the marketplace


by Colin Teese

News Weekly, March 24, 2018

Regular readers of News Weekly will be familiar with the term “Washington Consensus”. Patrick J. Byrne and I have written extensively about its malevolent influence on the Australian economy.

The Washington Consensus was conceived by a combination of committed free market economists endorsing the views of the U.S. Treasury, the International Monetary Fund (IMF) and the World Bank about how world economic growth could be maximised.

Fundamentals of the Washington Consensus were free trade, minimum government interference in economic activity and privatisation of government agencies and activities to the fullest extent possible.

By these means, so the belief was, unimpeded global flows of goods and services would enlarge to benefit the entire world. It was, as its origins would suggest, a U.S.-centric view of economics.

Now, some 40 years after these ideas were first postulated, their shortcomings have been thoroughly exposed, except among a small but influential body of discredited elites.

Outside those circles, the aftermath of the global financial crisis (GFC) fully exposed the shortcomings of deregulated and unbridled free market economics. In particular, its inability to prevent high and persistent levels of unemployment, combined with enduring low wages and financial inequality.

Major casualties of the Washington Consensus have been families, communities and societies.

Internationally acclaimed economist Dr Mohamed El-Erian has recently drawn attention to the shortcomings of the Washington Consensus. He is well qualified to comment. Apart from his time in business, Dr El-Erian spent 15 years at the IMF and has also been a faculty member of the Harvard Business School.

In an article entitled, “Why the Washington Consensus must be replaced”, reproduced in The Australian Financial Review of March 1, he explains why in much greater detail than I have set out above. He also defends the concept of “fair trade”, a term much denigrated in orthodox economic circles but which is behind much of the economic thinking of U.S. President Donald Trump.

Dr El-Erian’s article makes compelling reading.

On the same page of the AFR, a couple of Hong Kong academics have observed that a “Beijing Consensus” is unlikely to provide a workable alternative. They are certainly correct.

One of the puzzling things about the rise of China is that it has excited little debate. Yet, both politically and economically, the rise of modern China represents a fundamental departure from the Western model developed in the United States in the post-World War II period.

China owes its current economic and political powerhouse status to a deal done between then U.S. President Jimmy Carter and Deng Xiaoping almost 40 years ago. No doubt when the U.S. opened up its market to China, the expectation was that it would lead to a repeat of the Japan experience. China would embrace Western democracy and U.S.-type capitalist economics along the lines of the Washington Consensus.

It is now clear that was not the intention of the Chinese leadership.

The Chinese growth experiment has turned out to be unique. It is too early to make a judgement about its durability. What we know is that China has no intention of embracing Western representative democracy; or, for that matter, U.S.-style deregulated free market capitalism.

The Chinese Government is communist. Does that word still mean what it once did? Today’s China is not the former Soviet Union. Chinese communism is home grown, based more on the idea of a mandarin ruling class laced with modern China’s form of Confucianism. Chinese economics unashamedly embraces capitalism, to the extent that it is compatible with Chinese politics. Modern China has a foot in both camps, communist and capitalist.

Is this kind of emerging China a totally benign influence? Certainly not. Does it present a threat to the dominating influence the United States has had on the world, particularly since the collapse of the Soviet Empire? Yes, it does.

China regards its rebirth as a powerful nation as unexceptionable: nothing more than regaining its place in the world. It regards it as self-evident that it should be a dominant power (perhaps the dominant power) in Asia.

Of course, this view cuts directly across the fact that the U.S. has reigned unchallenged as the dominant Asian power for more than half a century. Any disturbance of that status would, in its eyes, and those of its close allies, be a serious setback.

Although unstated, the fact that China is communist, unsupportive of representative democracy and deregulated capitalism, makes the present circumstances even more disturbing.

Some commentators dismiss this point as of small consequence: easily manageable if each side is prepared to accept the valid claims of the other in the context of Asian power politics. However, the real question is whether such an accommodation is possible.

Like it or not the new reality of China intrudes into the existing power status of the U.S. in Asia.

For the moment, the situation is being managed. Presumably, it can remain so as long as both parties choose not, publicly, to contest pre-eminence.

Both are sniping. China is making points about South China Sea sovereignty, and the U.S. is talking about departures from (its) rules based order. But suppose it heats up. What then?

International law remains anarchy until we can all agree to accept a justice system that can enforce it. We are nowhere close to that.

We cannot even look to precedent. It is not, as mentioned earlier, a re-run of what happened with Japan. True, Japan was a Pacific power which rose to become the second largest economy in the world. Those who recall the 1980s will remember that, when Japan became an economic powerhouse, that, to some extent, caused anxiety to certain U.S. economic interests. But that was where it ended. Japan was not seeking pre-eminent status in the region. Importantly, in stark contrast with China, it was prepared to cooperate with the U.S. economic and political platform.

The problem with China is complicated by the fact that its economic, commercial and political reach have far exceeded all Western expectations. To just what extent is made clear in the McKinsey Global Report. China now accounts for more than 40 per cent of global commerce measured by transaction value. Also, it now has more than a third of start-up companies valued at more than $US1 billion.

The assumption that U.S. giants Facebook and Amazon will dominate the digital economy worldwide is now under challenge. A combination of government backing and a massive digital-wise market at home means that Chinese companies like Tencent and Alibaba may come to dominate world markets outside the U.S.

On the financial side, Chinese progress is no less startling. In 2010 the value of its mobile payments related to individual consumption was more $US790 billion, 11 times greater than that of the U.S.

China is reshaping the trade and payments system to its advantage in the 21st century by leadership in digital technology. Japan did it with industrial development in the 20th century.

China’s leadership in mobile payments will have consequences for the future structure of banking. Payment will become entirely a matter of consumer and retailer, with no role for banks. China is already spreading its e-commerce tentacles all over Asia, to Singapore, the Philippines, Vietnam and Thailand. How much further and how quickly will heavily depend on how fast national regulators can respond.

And of course there is its giant infrastructure program: roads, rail and air linking Asia, Central Asia and Europe, through which China presumably will further extend its trade reach. The U.S. has largely ignored this until recently. Among other things, it will bring China closer to Europe at the very moment the U.S. is drawing back.

How, you may ask, is all this related to the Washington Consensus? Well, perhaps it means that the U.S. is losing ground to China because it has locked itself into a brand of capitalism its business prefers but which belongs in a different technological age; one which cannot easily adapt to the changes the 21st century brings forth.

If that is so, then a worrying geopolitical problem emerges, different, but no less threatening, than that faced in the days of Soviet communism. Some have suggested we are confronting a new Cold War. I disagree. China is not a reborn Soviet Union.

The Soviets were not part of the Western economy in any real sense. They were not integrated into the Western economy. They were not members of the IMF or the General Agreement on Tariffs and Trade (GATT), now the World Trade Organisation (WTO). The USSR was seen rather as a political threat with European territorial ambitions. In a nuclear age, more or less military parity between the Soviets and the U.S. and its allies was enough to assure peace.

Nothing like this applies to China. It is fully integrated into the world economy. It already holds sway over 40 per cent of world commerce, and is pushing ever deeper into Asia, and even Europe.

At the same time it is far inferior to the U.S. in military capacity, though it is growing fast.

The troubling development is that the U.S. is already moving into a trade war with its European allies and with China, which could well bring down the WTO and destroy international trade cooperation. Europe is responding belligerently. Thus far China is not. But a trade war could escalate.

What can we in Australia do?

It’s a big players’ game in which Australia currently looks weak, confused, and ineffectual. Neither side of politics has developed realistic proposals in response to these developments.

Colin Teese is a former deputy secretary of the Department of Trade.




























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