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A Rising Economic Tide Will Float All of Our Boats

From John Shannon, who writes about green energy, sustainable development and economics. Email him at john[AT]borderstan.com.

"economic"

The world economy is the country’s economy. (Courtesy)

As the world economy improves, national economies are being carried aloft by a rising tide of success in other countries.

Now that we are living in an ever-more globalized world, nations are no longer entities unto themselves. While they were once insulated from the economic successes or failures of other nations, that is profoundly no longer the case.

A recent example is the United States financial crisis of 2008 which was at first confined within the U.S., but later spread to Europe, Japan and China, with those countries experiencing varying degrees of economic malaise directly attributable to the original fall of the U.S. sub-prime mortgage segment.

Adding to the entire long chain of negative events in the U.S. were the hapless attempts by ‘some individuals and corporations’ to obfuscate the primary reasons for those failures, namely, a weak American banking sector regulatory environment and personal judgment lapses by some senior banking and other corporate executives.

This timeline of regulatory insufficiency and judgment lapses:

  1. Caused the initial crisis
  2. Allowed widespread economic damage
  3. Ensured a longer U.S. recession
  4. Delayed economic recovery

Had a financial crisis of this sort taken place within the 1950-1980 timeframe, it would have been seen as an ‘America only’ affair as the (then) economic islands of Europe and Asia had little interest in the internal workings of the American economy.

How the world has changed in the 21st century

Recently, ‘America sneezed’ — and most of Europe along with Canada ‘caught the cold’ – and whilst Asia felt unwell, it didn’t need a doctor, nor did it miss a day’s work.

Globalization is a process. Every year, countries are harmonizing their diplomatic relations, international trade and laws, walking through the remaining issues towards true interdependence between nation-states.

Along the way, we have seen dramatically lower prices for consumers within the participating nations and a strong downward pull on inflation within the globalization community. Foreign Direct Investment (FDI) flows toward nations with lower land, factory and labour costs, while competition ensures that prices reflect those newfound cost savings.

One of the unfortunate effects of globalization from the Western perspective are the jobs that have fled the West to Asia. Over the span of (almost exactly) four decades, millions of manufacturing jobs have gone to the nations which feature lower-cost land, factory, and labour rates.

The transition of trillions of dollars of investment from the West to the Emerging and Frontier economies has spawned a rising economic tide in the Middle East, Asia and India. In fact, the rise of the BRICS nations are easily traced by the FDI inputs into their nations, as a welcome effect of, (but not the primary cause of) their success.

Since 1998 China and India have often been described as the two economic engines of Asia, and during recent recessionary times, were noted as the economic engines of the world. Even as some nations were falling away from their traditional economic rankings, the unprecedented demand for raw resources and high tech originating from the ‘rising tiger’ economies, slowed the fall of the Western economies and have even spurred their quicker recovery.

Historically, it was axiomatic that when the United States was doing well, Europe, Japan, Canada, Australia and New Zealand were doing well — as the U.S. economy had the power to float those economies no matter the ‘local’ economic conditions.

America is no longer alone with this power

Now, not only can American demand float the economies of countries or entire regions — the combined demand of the BRICS nations can float national economies and regions.

The U.S. population seems ‘torn’ at this juncture, with some in that country lamenting the loss of the unipolar world which was theirs since the end of the Cold War, whilst others welcome the strengthening and broadening-out of the world economy into a truly interdependent and open economic model.

For those Americans who believe in the open economic model (which is the name given to the free enterprise system by economists) the strengthening and broadening-out of the world economy is exactly in line with their beliefs and is seen as an adjunct to American economic and political clout.

“We told you the open economic model was the way to prosperity, and now you are ‘our firm converts’ to that, and to the democracy which necessarily accompanies successful free enterprise systems.”

For those Americans who secretly or publicly wish for a closed economic model (known as the communist, or the statist economic model, by economist’s) globalization is the root cause of all American economic woes — when in fact, America’s recent economic problems were caused by a perilously-lacking regulatory environment in but one segment of the U.S. economy and poor decision-making by a handful of individuals.

All the nations advancing towards interdependence will see rising demand in their own countries from other partner nations (as at any given time certain of them will be experiencing growth) thereby helping to balance-off the occasional lack of demand.

De-facto: Interdependence between nations means facilitation of effort, FDI, and countless other forms of assistance towards whatever is the weakest link of the chain that day.

This contrasts with the decades of ruthless competition which played itself out (even between allies) for decades and ruled every diplomatic and business decision. De-facto, that became a ‘sink all the other boats — before we get sunk’ game, played in the global economy.

Wherever interdependent nations are working to improve upon an open economic model, they are in effect, working to create a rising tide for all of the participants within that interdependency, because it is simply and profoundly, in their best interests to do so.

Interdependency creates the incoming tide that will float our boats.

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This post was written by:

- who has written 24 posts on Borderstan.

Shannon writes about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI. It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers. Email him at john[AT]borderstan.com.

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