Yves here. This Real News Network interview with Yilmaz Akyuz, formerly the Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD), describes how the problems that produced the financial crisis have morphed into new, no less troubling problems. One key part of this discussion focuses on how China has adapted to its considerably smaller trade surplus, and why having Germany as the new excessive exporter poses new perils to the global economy.
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That’s the purpose of all the reforms and “change you are a fool to believe in”^ make sure the 0.01% can maintain their customary standard of living.
Yilmaz Akyuz makes a point which you kind-of know instructively but you don’t get spelled out in the way he does in the interview. I’ll put it a bit more bluntly than he does: In a lot of ways, mercantile countries are very dangerous. While imports markets can keep sucking in the mercantilist’s exports, the show is kept on the road. At least for a time. But sooner or later, the pfennig drops and this marry game is brought to a halt though some combination of either debt or currency revulsion.
Faced with a collapse of export markets, the country operating mercantile policies has a choice. It can cease using these tools and let domestic demand start to balance out foreign demand. It does though as a consequence need to have a much more intelligent dialogue with its citizens because it entails letting go of the comfort blanket of having claims over other states and instead allowing other states to have claims over it. Once the mercantilist state stops oppressing its citizens into doing what it wants, it has to, ergo, trust those same citizens to make the same choices willingly. Or respect different choices if that is what those citizens want to make.
A superficially much easier choice is to simply look for “fresh meat”. That is, other countries on which to practice its mercantilism.
China does seem by some measures to “get it” — realise that it is unsustainable to go on as it has been doing. Economically speaking, it cannot continue with the previous murder-suicide pact approach to trade policy with the US and other developed countries. Not that I’m completely convinced that all policy makers in China have indeed got the memo. But at least the memo is written and it is circulating.
Germany, by contrast, is not remotely interested in writing the memo let alone having anyone reading it. And I’m not optimistic that it will be able to move in a different direction any time soon. It has taken the Japanese 20+ years to figure out that no, they’re not intrinsically some sort of collective industrial geniuses possessing unique abilities or insights that enables them to maintain unrivalled leadership in economic development. Even today, not a few of the large Japanese conglomerate managers simply cannot understand that they’re really nothing special, not the best thing since sliced bread and merely had a good run for a while based on a specific gameplan that eventually had to come to an end.
The same psychology is prevalent in Germany and it will be a shock to the national psyche on a similar scale when the realisation dawns that no, they aren’t supermen and women of the new industrial age and the living embodiment of the protestant work ethic. The ordinary German is merely a victim (along with its trade partners) of a Madoff-style Ponzi scheme where they loan out their surplus back to their customers in a circular exchange which would be like a perpetual motion machine except that the margins get eroded a little bit more with each cycle.
Finding out that you’re not a prodigy after all is a tough lesson for all over us when we have to, inevitably, learn it.
When national identity is tied up in such illusions though, it is all the tougher.
Dear lord, what an excellent post! Wish I had written it.
Abe doesn’t know that. He is devaluing the yen so that exports can boom again.
It isn’t the citizen who need to learn this lesson it is the banksters.
The problem is that it works for a while. Sometimes, quite a long while.
And while it’s nice to think that the populations of countries are completely innocent, mere passive puppets in some theatre where their strings are pulled by governments/big finance/rentiers/whoever the truth is for me a little more uncomfortably nuanced. The sad fact is, many people who are presented with an idealised (but distorted) vision of who and what they are — and what they should be — will happily grasp at that idea, however flawed.
I speak as a Brit who lives in a society which is even now coloured by over a century of empire. Such fantasies take a long, long time to work their way out of the population’s systems.
Try telling your average German that they don’t work especially hard relatively speaking, aren’t particular frugal in their consumption of the planet’s resources, can’t claim to be hugely inventive compared to the rest of the world and are, basically not all that and you’ll meet, erm, some resistance. A suggestion that the country as a whole goes through a, cough, typically Germanic exanimation of their banks’ balance sheets, rigorously recognises losses and works out how much it will cost to recapitalise them, then subtracts that figure from national wealth will be met with a blank stare. Conversely, a suggestion that Germany is a world-leading export powerhouse based on thrift, prioritising capital investment and “hard work” will elicit a nod of approval.
You can blame the FIRE sector for many, many things. But not (on its own) that one.
I totally agree with all of that, Clive.
I would further add that the mercentilism which the Germans are still practicing is only working because of the Euro, which provides Germany with an artificially weak currency.
They have been successful in not only exporting their goods, but in exporting the economic stresses and social pains, to the Euro periphery, that their policies would other lead to.
Spot on Clive,
I wonder how the average German manages to maintain their self-image as a hard working, thrifty creator of Mercedes Benz automobiles and other superior products with the fact that their personal net worth is only a fraction of that of the average “irrational, lazy, slothful”, wine drinking Italian?
Mr. J. A. Hobson ” Democracy After the (Great)
War”:—
“Where the product of industry and commerce is so divided
that wages are low while profits, interest, and rent are relatively
high, the small purchasing power of the masses sets a limit
on the home market for most staple commodities. The
staple manufacturers, therefore, working with modern mechan-
ical methods, that continually increase the pace of output,
are in every country compelled to look more and more to
export trade, and to hustle and compete for markets in the
backward countries of the world. . . . Just as the home
market was restricted by a distribution of wealth which left
the mass of people with inadequate power to purchase and
consume, while the minority who had the purchasing power
either wanted to use it in other ways or to save it and apply
it to an increased production which still further congested
the home markets, so likewise with the world markets. . . .
Closely linked with this practical limitation of the expansion
of markets for goods is the limitation of profitable fields of
investment. The limitation of home markets implies a
corresponding limitation in the investment of fresh capital
in the trades supplying these markets.
Dork – nearly 100 years later ~ a fantastically.accurate description of todays euro soviet.
What is happening really
There is a industrial inertia in the modern war economy which in todays neoliberal world is a car based economy.
Therefore the English based bankers have done a Deal with their German brothers.
London will make war on the Euro periphery so that Industrial raw materials will flow from the euro periphery and into the modern German war machine.
London and other financial centers will then consume German & eastern European war like production which in the main is higher value added products.
The UK continues to see a explosive increase in its goods deficit from the Rhine / lowlands area.
Germany / Netherlands / Belgium
Goods balance £ Billion
Y2011 : -26.697
Y2012 : -32.476
Y2013 : -41.743
We can now see the UK deficit with the Non Eu is declining and EU region increasing.
Most notable is the increase of the UK trade deficit with respect to EU members and a decrease with non EU members such as Japan.
Deficit with EU
Y2011 :43 billion
Y2012 :57 billion
Y2013 65 billion
Deficit with non EU
Y2011 :57 billion
Y2012 : 52 billion
Y2013 : 43 billion.
The UK trade balance is of course the most obvious given its highly financialized nature but other financial centers are absorbing German overproduction.
Dublin for example consumes much more cars as a % total of new car irish consumption then before the 2007 crisis.
Financial centers such as Dublin are now deeply involved in breaking up local Industrial productivity – such as the splitting up of former national utilities which is really a jobs programme to bail out credit banks.
For example more young people get involved in useless sales or management jobs in now multiple private utility companies.
These people now have a economic pulse from a credit banks point of view as they have cashflow.
A 0% peoples car loan can then be subsequently given to these Avon Girls by hybrid bank industrial systems such as Volks.& the other tank companies.
The purpose of the present economy is not to satisfy real demand.
It is to absorb useless surplus production.
Its purpose is to fling Avon girls into modern machine gun nests so as to maintain the rate of profit.
This collapse is directly a consequence of the concentration of capital claims within the demonic bank / corporate fascist superstate.
There’s that word “shares” again. If only we had a private money form that automatically shares productivity gains instead of legally stealing them!
We do. It’s called shares in Equity, i.e. common stock. But business will never justly share since/when legally stealing is cheaper.
But you guys ain’t listening. But that’s OK because justice is coming with or without Progressives, unless the ashes of Malachi 4 count as “with”.
Dork’s 100 year old quote says a lot of it. We have no sensible theory of comparative advantage. Clive is on the right track. The Germans love work some much they could do it all for the rest of the world. To cut out problems with financial flows we could enslave them – or have I been living in post-Empire Britain too long?
Economics has all kinds of clown assumptions from theories of comparative advantage rooted in 17th and 18th century homily, through to notions we enjoy working and turn up in free choice. What it lacks is any assessment of work needed to be done and fair allocation and reward (there’s more). It’s like putting all the food for 100 people out and letting the first 50 eat on only a vague promise to leave enough for the others.
The question for me is what we would do if we were starting again. It turns out we have often started again, Britain after Dunkirk and West Germany from the rubble in 1945. Lord knows how many families have had to. I suspect we’d ignore economics as I’d ignore the bible in recovering evolutionary biology. The ultimate sell in the current situation is that competitive behaviour is best left to its own devices. Very succinct way to put a lot of the issues Clive. Thanks.
For those in control of large property and powerful institutions, economics provides a smoke screen behind which loan credit is utilized to capture assets in a process of perpetual recapitalization, and ill gotten gains may be pyramided for as long as a substantial majority of the country’s population remains disorganized and more or less satisfied with the results obtainable through individual striving and luck. Meanwhile, financial capitalists in individual countries engineer a variety of state sponsored strategies to provide those capitalists some advantage in the international trading game, but all such advantages, inevitably, are temporary.
The cycle repeats itself so god-awful often. The endless blather about a “new” order, where money can be allowed to stream in to “decoupled” economies is such trash talk.
Which fool believes in their heart that networked computing power hasn’t coupled all those economies into a tightly bound dynamic, one that exhibits all the symptoms of non-linearity and little to none of the regulatory force needed to tame the resulting oscillations? This is another of the staggeringly dangerous lies endlessly told and endlessly repeated, till the collapse comes about. These economies are no more decoupled than Twitter is from the global riot of communications.
Money is deserting many of those economies. Those that tried their best to keep it out such as Brazil had no such luck even as they were summarily chastised by the charlatans, sycophants, and shills at the IMF. They are all collapsing back to a very different looking state space.
How long Germany can keep the shell game going is an open question, one that has to haunt central bankers across Europe as they try to talk sense into them. Fat chance.
A more simple model in favor of the 1%
http://failedevolution.blogspot.gr/2014/02/a-more-simple-model-in-favor-of-1.html
” as long as a substantial majority of the country’s population remains disorganized and more or less satisfied with the results obtainable through individual striving and luck. ”
This a possible discription for only half of outcomes. The other half of all outcomes comes from what people gain through their interpersonal relationships. Those in control of large property and powerful institutions have repeatedly told the substantial majority of a country’s population that their success is also due to their (unbroken, more religious, more caring, more intelligent, etc) families and their above-average interpersonal skills.
“I wonder how the average German manages to maintain their self-image as a hard working, thrifty creator of Mercedes Benz automobiles and other superior products with the fact that their personal net worth is only a fraction of that of the average “irrational, lazy, slothful”, wine drinking Italian? The same manner people in countries with with a similar self-image in relationship to reality do; they have narratives where they are suffering because of the actions the average “irrational, lazy, slothful” much in the same way that a parent suffers because of a misbehaving child. To be precise, the Germans maintain their self-image as being industrious by creating dependency–by denying their neighbors the ability to be self-sufficient and thus, depend on German exports, y’ know, the same way in which managers maintain their self-image by limiting the ability of employees to make decisions. Or how the cool kids in k-12 limit the ability of uncool individuals to develop their social skills by isolating them.
Exports are actually silly unless they are needed to fund imports. Otherwise, real goods and services are being traded for mere money tokens.
It’s almost as if the world is some kinda of competitive altrusism society where the nations compete in giving away stuff FOR FREE.
It’s an ironic rat race the banks have constructed. Let’s deconstruct it, eh? Before it deconstructs us?
@A Real Black Person
Med peoples wine consumption has tanked , this is entirely a monetary event.
http://www.bbc.co.uk/news/magazine-21929287
Tax increases to pay for the cost of Industry.
You see in the Euro soviet Industries purpose is not end use consumption.
Its purpose is to encourage people to drive around in ever decreasing circles.
The people of the Med regions have given up low input /tax village life / wine consumption for high input city life / cars.
They have exchanged their own wine /bread for German tank production !!!
This is quite extraordinary.
The people of Santa Vittoria have lost to the people behind the German myth of net production.
http://www.youtube.com/watch?v=qOs6RdO4H6A