0.3 Globalization  (Page 8/9)

Consider now a topic increasingly discussed in financial and political circles:

Globalization and “decoupling”

In 2009 at the beginning of the most recent world recession, doomsayers were predicting a very sharp collapse in the entire world economy. And even in fast-growing countries like China, Korea, Indonesia, Singapore and India, growth did slow down temporarily. But by the second quarter of 2009 growth in emerging East Asian nations was 10% on an annualized basis. Also, Asian stock markets were up sharply in 2009: for example, stock market values increased in Indonesia 80%, China 75%, and South Korea 40%.

But at the same time, the economies of the U.S. and the other six big, rich countries contracted 3.5% in 2009. Some have argued that there has been process involving some kind of “decoupling” of economies and growth rates, in spite of claims of growing convergence in economic development.

But we should not be surprised that Asian economies recovered much more quickly than the U.S. and Europe. There were at least four reasons for this, none related to “decoupling”:

1. Asian households had debt burdens well below those of the U.S. and Europe. U.S. and European householders had to “dig out” of deeper holes than households in Asia.
2. Asian households have long been s aving a much higher percent of income than those in the U.S. and Europe. Savings rates in China reached 40% in the early 2000s, more than double that of the U.S.
3. Asia’s governments entered the downturn with much stronger government finances and lower national deficits (U.S. deficit 2011: 12-13% GDP)
4. Asia’s banks did not join in the debt frenzy that did in so many U.S. and European banks did. (We conclude that excessive leverage (debt) was the prime cause of the 2007-2010 worldwide meltdown.

So Asia displayed prudence in households regarding debt and savings. Asian governments showed prudence in avoiding budget deficits before 2008, and Asian banks showed much more prudence in lending then in the U.S. and Europe. This is noteworthy, since there has been a tendency in the U.S. and Europe to view prudence as primarily a western value. See Max Weber(1930), The Protestant Ethic and the Spirit of Capitalism London: Unwin University Books. See also R.H. Tawney (1926), Religion and The Rise of Capitalism London: Harcourt Brace. Nevertheless, economic prudence has been much more evident in East Asia.

In any case, we have seen that, however measured, the results of globalization have so far been mixed. One response, coming from those who have incurred costs, such as labor unions in the U.S. and Europe, has been pressures for a return to protectionism, especially more restriction on imports from China, Brazil, Columbia and other emerging nations.

However, except for some labor unions in U.S., France and other rich nations, most critics of globalization agree that more protectionism is not a constructive response to globalization. And we will see in Chapter___ that protectionism often leads mainly to self-inflicted wounds.

Above all, one fact seems indisputable: If economic growth is viewed as a “good” thing, it should be to understand that sustained growth requires that a country leverage the resources and technology of the global economy . There are no known exceptions to this rule. China has proven this emphatically.