Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

May 22, 2011
David Warsh, Proprietor


| contents |

Those Shifting Plates

All eyes remain on President  Obama’s Mideast speech last week and justly so.  For more than fifty years, US supported stability in the Mideast; now, after a decade of intense debate, it supports change.  Only a little less interesting, however, was the news in a Financial Times op-ed by Yoichi Funabashi, former editor of Japan’s leading newspaper, Asahi Shinbun.

A coterie of “senior business leaders,” reported Funabashi, recently has privately expressed the view that “This is the moment for Japan to break with the past and move closer to China.”

In crisis lay opportunity, Funabashi wrote. Japan’s triple disaster was forcing Japanese manufacturers to shop for parts in China. Executives were worried, too, about energy dependency, given the disappointments of nuclear power.

But the deeper development necessitating change was China’s emergence as an economic superpower. The Chinese have made no secret of their determination to dominate in many lines of business. Their domestic market was the fastest growing in the world.  Japanese manufacturers would have little choice but to diversify their supply chains and, in some cases, transfer them outright to China.

Old animosities are still strong, Funabashi acknowledged, but the new realities would prevail. In the long view of history, “Japan’s new tilt to China will seem not dissimilar to the trajectory of its recovery and revitalization following the Pacific war.” The US had provided the jumpstart after 1945.  “This time around, the spark must come from the China engine.”

One of the most exciting science stories of the twentieth century was the discovery that the thick surface of the earth consists of seven or eight giant tectonic plates,  far larger that than the continents, and many smaller pieces in between.  The pieces of mantle (known as the lithosphere) rest on a viscous layer of molten rock a hundred miles or so beneath the surface (called the asthenosphere).  The slow slipping and sliding of these giant unseen plates upon the more plastic mass beneath has created the topography of the present world.  Their continuing motion causes earthquakes, volcanoes and much else.

Some vaguely similar structure may exist among blocs of custom, opinion and hierarchy among the seven billion people of the earth.

Certainly I get that feeling while reading The Next Convergence: The Future of Economic Growth in a Muiltispeed World, by Michael Spence. It’s not a good title – what was the last convergence, anyway? that of the little island states of Japan, Singapore and Hong Kong with Europe?  But in considering the consequences of the rapid integration into the global economy of China, India, Russia, Brazil and many other nations, it takes off from Kenneth Pomeranz’s The Great Divergence:  China, Europe and the Making of the Modern World Economy.

That important scholarly book, useful for focusing the debate about global development, appeared in 2000 — the year after Spence stepped down after nearly a decade as dean of Stanford University’s Graduate School of Business, and the year before he won the Nobel Prize, along with George Akerlof and Joseph Stiglitz, for work in the 1970s on the economics of information.

The Economist, always hyper-confident in its views, harshly panned The Next Convergence last week. Spence “breaks little new ground and sticks to broad generalities, offering little in the way of examples or research to prove his point,” wrote its anonymous reviewer, who complained that it feels “less like a book than a transcript of the author thinking out loud about a hotch potch of contemporary economic issue.”

That’s an unusually mistaken judgment. In fact, The Next Convergence is the result of the four years Spence spent leading a Commission on Growth and Development for the World Bank. That unusual caucus among top scholars (Robert Solow, of the Massachusetts Institute of Technology, chief among them) and senior political leaders of developing countries was designed to achieve a consensus about what had been learned in the previous fifteen years.  For the most part it succeeded in describing the possibilities and perils of the way ahead. It’s hard to imagine a broader or more thoroughly informed view than that of Spence – or a book about international economics that would better repay a slow and careful reading.

What The Economist’s reviewer didn’t like was Spence’s emphasis on the desirability of cooperative solutions to the problems engendered by adding billions of people to high-income ranks – air, water, energy, inequality, coordination, nationalism.  “He clearly believes the world trusts too much in laissez-faire and not enough in government.”

That’s true enough.  For example, Spence writes, “The benefits of global openness have been oversold and the potentially adverse distributional impacts brushed aside. Being wrong does not seem to be accompanied, however, by the expected increment in humility.”   And it is clear that the last few chapters of the book were written in haste.

But when it comes down to choosing between glib sloganeering and the hard work of fashioning a pragmatic agenda, Spence wins the argument hands down.  There’s no way around it: the successful emerging economies are changing the political landscape of world. All the advanced economies can do is adapt, as Japan is adapting – or fail to adjust until it is too late for relatively smooth and continuous change.

Towards the end, Spence resorts to the game theoretic language that helped him win his Nobel prize:

This is a cooperative game on a gigantic scale that we are trying to learn how to play, a complex one because of the asymmetries among the players.  The chances of asynchronous moves and separate agreements on distinct issues will lead to a fully cooperative outcome are very low.  More likely is a non-cooperative outcome with suboptimal results and instability.  A bumpy road to a new and not very attractive normal.

All the more reason, then, to pay attention. If you listen carefully, you can almost hear the grinding collision among the great plates of public opinion.

| contents |

Post a Comment

Your email is never published nor shared.
Required fields are marked *

*
*


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.

Camisetas de fútbol baratas camisetas fútbol camisetas futbol Réplicas camisetas de fútbol Camisetas futbol tailandia Camisetas nba baratas nike air max pas cher nike tn nike air jordan nike free zapatos deportivos baratos