compassion, collaboration & cooperation iN transistion
twixt the EU and the USA is dying a slow death.
IT IS a heresy in our liberal age - a sin against Davos orthodoxies -
to question the premises of free trade, but this tissue rejection of
the TTIP project in Europe may be a blessing in disguise.
The European Commission's Spring forecast this week has an eye-opening
section on the rise of inequality. Without succumbing to the fallacy of
'post hoc, propter hoc', it is an inescapable fact that the pauperisation of
Europe's blue collar classes corresponds exactly with the advent of
globalisation. The report admits that "offshoring" by manufacturers may
have played a role, meaning of course that Western multinationals have
been able to play off workers at home against cheap labour in China,
emerging Asia, or Eastern Europe. This game is limited only by cost of
shipping goods, or by worries about the rule of law. It is why the profit
share of GDP has been rising relentlessly. The owners of capital have never
had it so good.
Yes, other factors are at work. A shift in technology has raised the premium
on skills. Reliance on QE instead of fiscal stimulus has inflated the price of
assets held largely by the rich. The eurozone's austerity regime has made
matters even worse, hitting the poor hardest. Even today the youth jobless
rate is still 51.9pc in Greece, 45.5pc in Spain, 36.7pc in Italy, and 24pc in
France. The report shows that those with incomes below 40pc of the
eurozone median have suffered a 14pc drop in their net receipts even since
the Lehman crisis.
This is not just a political failure: the inequality itself perpetuates the
depression, for the poor spend and the rich save, and the core problem in
the world economy is excess savings. The imbalances that led to the
savings glut and the global financial crisis - and has fed the 1930s malaise
of excess capacity ever since - all track in one way or another to
globalisation, whether it has been unchecked capital flows or the rise of
China. Perhaps great shock of globalisation is a one-off effect, already past
its worst as Chinese wages shoot up and the Communist Party weans the
economy off manic over-investment, or at least talks about doing so. But
right now China is still adding excess capacity across a swathe of industries,
and there is every reason to fear that the next global downturn will bring
matters to a head, either because President Xi Jinping devalues the yuan to
buy political time or because capital flight forces his hand. Either way we
would face a deflationary tsunami.
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