Tag Archives: review

Situation vacant: global hegemon

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Serendipitously, I started reading this week a book that has been sitting in my office for a while, [amazon_link id=”069115743X” target=”_blank” ]The Leaderless Economy: Why the world economic system fell apart and how to fix it[/amazon_link] by Peter Temin and David Vines. Serendipitously because this follows on from just having read Jonathan Fenby’s excellent overview of China, [amazon_link id=”1847394116″ target=”_blank” ]Tiger Head, Snake Tails[/amazon_link], which has a big chunk on China’s global position, and also the forthcoming [amazon_link id=”1907994130″ target=”_blank” ]The BRIC Road to Growth[/amazon_link] by Jim O’Neill.

[amazon_image id=”069115743X” link=”true” target=”_blank” size=”medium” ]The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It[/amazon_image]

All three raise the question of global economic governance. The word is unappealing, but it’s a vital issue. And Temin and Vines, a distinguished combo of economic historian and international economist, do a very interesting compare and contrast exercise between the 1930s and the present global economic crisis (I’m one of those who thinks it isn’t nearly over yet, despite signs of recovering growth). Others have of course drawn parallels with the 30s, but the focus here is on international governance – and also on the political consequences of an ailing global order. I knew I was going to like the book when the introductory chapter kicked off with David Hume’s price-specie flow mechanism. They write: “The price-specie flow model connects internal and external balances.” The two need to be considered together to find a solution to global disorder, they argue (Michael Pettis, in his excellent [amazon_link id=”0691158681″ target=”_blank” ]The Great Rebalancing[/amazon_link] would agree.) One thing that has changed since Hume’s time is the development of an asymmetric response between prices/wages and output/employment, but even so deflationary pressures are still evident in some countries.

The book characterises the current state of affairs as an ‘end of regime’ crisis, and argues that the resolution will depend on the emergence of a hegemonic country in the global economy, just as the 1930s crisis was not fully resolved until the US took that role. The ‘how to fix it’ of the subtitle is to have some leadership. “Continued neglect of international imbalances will lead to conditions reminiscent of the 1930s and possibly even to military conflicts like those of the 1940s,” they write. Scary thought. They note that it took decades for the switch from Britain to America to occur – from 1918 until the late 1940s really.

I suppose it is true that a single hegemon is necessary to orchestrate the co-operation needed to resolve the interaction of internal and external balances around the world. However, this is a depressing conclusion because my sense from my China reading (and I’m not at all an expert) is that the only candidate is far from ready to step into that role, while America’s decline is increasingly apparent with every news story about its bizarre, internally-obsessive politics – it can’t co-operate with itself, never mind other nations. Like Pettis, Temin and Vines see the economic solution as obvious – an expansion of domestic demand in China and Germany.

“The world …needs both co-operation and a way to make durable bargains among nations. … The absence of an obvious hegemonic leader makes it easy to be pessimistic that such co-operation will not be forthcoming.” Maybe, they suggest, the G20 could get its act together. Jim O’Neill’s [amazon_link id=”1907994130″ target=”_blank” ]The BRIC Road to Growth[/amazon_link] is a bit more optimistic about the scope for leadership to come from the fast-growing large emerging economies but also forsees governance change as likely to be too slow. Temin and Vines are pessimists: “Alas, politics in America and Europe seems to be aimed at repeating the mistakes of the 20th century in the first global crisis of the 21st.” A sobering thought as the 100th anniversary of World War I hoves into view.

I would make all political leaders read this book over the holidays – whether in December or a bit later for Chinese New Year – and hope that it prompts them to make a New Year resolution to show true leadership. A globalized world without global leadership is a pretty terrifying prospect.

Injecting nuance into the debate about China

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It wasn’t until reading Jonathan Fenby’s [amazon_link id=”1847394116″ target=”_blank” ]Tiger Head, Snake Tails[/amazon_link] that I realised how polarised some of my previous reading on China had been. While I’ve read some superb reportage/analysis such as Leslie Chang’s [amazon_link id=”033044736X” target=”_blank” ]Factory Girls[/amazon_link] and Richard McGregor’s [amazon_link id=”0141975555″ target=”_blank” ]The Party[/amazon_link], there is definitely a strain of the literature that is either ‘China will conquer the world’ (eg Martin Jacques in [amazon_link id=”0140276041″ target=”_blank” ]When China Rules The World)[/amazon_link] or ‘China is doomed’. Mr Fenby is an experienced journalist – a former editor of the South China Morning Post – and the extent of his knowledge about the country is clear on every page.

[amazon_image id=”1847394116″ link=”true” target=”_blank” size=”medium” ]Tiger Head, Snake Tails: China Today, How it Got There and Why it Has to Change[/amazon_image]

As always, the scale of anything about China is staggering – to give just one example from the book, China’s foreign exchange reserves in 2011 were enough to buy Italy; or all of the sovereign debt of Portugal, Ireland, Greece plus Spain, and also Google, Apple, IBM and Microsoft and all of the real estate in Washington and Manhattan, and the world’s 50 most valuable sports franchises. There are lots of fascinating insights too. I was struck by the information on market structure – many markets have a few state giants but are otherwise highly fragmented and regionalised. There are 121 very large state firms, another 114,400 smaller state owned enterprises, and a vibrant competitive fringe. In retail, the very biggest firms have less than 6% of the market each. Rare earth mining – surely somewhat capital intensive? – is carried out by small family-owned enterprises. Of the half million food producers, 80 per cent have fewer than 10 employees. The book has other interesting insights. For instance, China excels at individual sports – golf, table tennis, gymnastics – but fares poorly at team sports.

Like many commentators, Fenby highlights the enormous challenges facing China as it makes the transition from relying on cheap, abundant labour to drive rapid export growth and infrastructure (often debt funded) at home. These include the political conundrum of how the Communist Party will try to keep control – and whether it will succeed – and the enormous demographic challenge. He writes about the endemic corruption and absence of trust, the environmental horrors, the need for better social welfare including ending the distortions created by the ‘hukou’ system of residence permits. However, the book does not despair. All countries face difficult transitions at various points in their history, and China also has great resources for addressing the challenges. Tiger Head, Snake Tails is a cracking read, and I really like its injection of nuance into the debate we in the west have about China.

Poverty, fear and loathing

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One of the books I read on holiday this past week was Alan Johnson’s memoir, [amazon_link id=”0593069641″ target=”_blank” ]This Boy.[/amazon_link] It’s a very moving testament of love to his mother, who was abandoned by her feckless husband and died young, and his older sister, who subsequently brought him up despite being just a teenager herself. Born in 1950, he grew up in extreme poverty in wast London. Few people who experience that kind of deprivation – cold, damp, cramped rented housing, hunger, constant debt, second hand clothes, lack of hot water, power being cut off – write about it or are paid any attention if they do so. It was Mr Johnson’s success, via his union, in politics that gave him a voice and an audience. His story is both a great family saga, both sad and uplifting, and an unusually authentic account of being brought up in material poverty. It is especially revealing to see how hard it is for anybody – even someone as hardworking and determined as his mother Lily – to safeguard children from their circumstances. It must be heartbreaking for parents not to be able to stop their children being hungry, not to be able to protect them from the everyday violence of the streets.

[amazon_image id=”0593069641″ link=”true” target=”_blank” size=”medium” ]This Boy[/amazon_image]

It would be a mistake to think that this kind of poverty is history. Conditions are somewhat better than in the 1950s and 60s, but it is still hard for most of us to appreciate the lives of people on low incomes. This column by food blogger Jack Monroe recounts how scarily easy it is, too, to become poor – as she points out forcefully here, she did not fall in to any of the usual tabloid blame categories. Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, has written a marvellous book, [amazon_link id=”1907994165″ target=”_blank” ]Why Fight Poverty[/amazon_link], out soon in a new series I’ve been editing, in which she highlights both the standard failure of imagination about poverty, and the fear that either makes us unwilling to think about the lives of people who do not have enough money, or turns into loathing and blame.

[amazon_image id=”1907994165″ link=”true” target=”_blank” size=”medium” ]Why Fight Poverty?: And Why it is So Hard (Perspectives)[/amazon_image]

I think she’s right to draw our attention to the emotional baggage we bring to the subject, and the barriers to tackling poverty created by our unacknowledged fear. I do recommend reading [amazon_link id=”0593069641″ target=”_blank” ]This Boy[/amazon_link].

Fortune tellers, astrologers and economists

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[amazon_link id=”0691159114″ target=”_blank” ]Fortune Tellers[/amazon_link] by Walter Friedman is a provocative title for a book about economic forecasters – or perhaps not. For many people would agree about the resemblance between the two activities. Besides, this is the tale of the early forecasters who preceded or perhaps more charitably laid the foundations for the model-based, computerised macroeconomic forecasting of our own times.

[amazon_image id=”0691159114″ link=”true” target=”_blank” size=”medium” ]Fortune Tellers: The Story of America’s First Economic Forecasters[/amazon_image]

The first character to stride onto the stage is literally a fortune teller. Evangeline Adams was an astrologer who offered stock market tips and predicted business trends for affluent New Yorkers in the early 20th century. Her enormous influence was cemented by the claim to have correctly forecast the 1929 stock market crash. Friedman writes: “Even in her own time, many regarded Evangeline Adams as a fraud and a scam artist. Her success, however, points to a profound anxiety about the future. Capitalism, after all, is a uniquely future-oriented economic system.” The other characters range from the more respectable Roger Babson, whose forecasts prefigured technical analysis, based on charts and trends, to the highly respectable Irving Fisher, who based his forecasts on theory and models, and John Moody, who collected masses of detailed data and analysed the figures, founding what would become the famous ratings agency.

The book is a great read, based as it is around the personalities of these early forecasters. A surprising number were sufferers from tuberculosis – it is hard to resist the amateur psychology of speculating that they particularly wanted to foresee the future, living as they did in the shadow of mortality. They were inventive and entrepreneurial. Babson (who founded Babson College in Wellesley*) built the world’s largest relief map of the United States. Fisher patented a precursor to the Rolodex and invented a prize-winning tent to aid the treatment of tuberculosis. He also built a machine showing the circular flow of income in the economy, well before the famous Phillips Machine.

These men (Adams is the only woman) founded businesses, wrote books, travelled around giving lectures and promoting themselves. I can see a terrific movie in the ‘forecasting wars’ of the 1920s as these larger-than-life, quintessentially can-do Americans competed with each other to call the stockmarket, win followers and make a fortune. Leonardo di Caprio, Benedict Cumberbatch, and George Clooney, with Tilda Swinton as Evangeline Adams. It would be a great way to tell the story of the bubble and stockmarket crash. It was an era of such forecasting mania and desire to know the future that even AT&T and Macy’s started generating their own economic forecasts in the 1910s. The government, too,  got into the business, through Herbert Hoover and Wesley Mitchell in the mid-1920s.

I spent a couple of years in the late 1980s producing macroeconomic forecasts, enough time watching the sausages being made to put me off eating them. Nate Silver’s book [amazon_link id=”0141975652″ target=”_blank” ]The Signal and the Noise [/amazon_link] has an excellent chapter on economic forecasts, comparing and contrasting them to weather forecasts. The problems are similar – non-linear dynamic systems of great complexity, although economics is harder because the ‘particles’ are conscious human beings. Weather forecasting is much improved at very short time horizons but still not good longer term, despite the huge increase in data collection and processing that has occurred. It is foolhardy to think economic forecasting will ever be accurate. Forecasts are no more than a tool for thinking about current trends. Still, as Friedman points out, the appetite for forecasts will never diminish, and that demand will always create a corresponding supply.

* Corrected from earlier thanks to Edward Hadas

Essays by the worldly philosopher

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[amazon_link id=”0691159904″ target=”_blank” ]The Essential Hirschman[/amazon_link] edited by his prize-winning biographer Jeremy Adelman ([amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher)[/amazon_link] is a collection of essays well worth reading by anbody who, like me, was not very familiar with Hirschman’s work. The book is divided into three sections covering Hirschman’s work on development economics, essays on market societies, and essays on democracy including his thinking on political rhetoric.

[amazon_image id=”0691159904″ link=”true” target=”_blank” size=”medium” ]The Essential Hirschman[/amazon_image]

I particularly like the combination of economic analysis (rarely expressed mathematically, but nonetheless rigorous) with an awareness of the difficulties of implementation, of political constraints, and of the role of the emotions in people’s decisions. For example, the first essay, ‘Political Economics and Possibilism’, looks specifically at the role of optimism and political leadership in bringing about change, and the scope for the same economic policies to have vastly different outcomes depending on political characteristics of the society in which they are introduced. For example, trade-offs that are possible in a relatively homogeneous society may not be feasible in one divided on religious or ethnic grounds, of might even lead to civil war. As Adelman puts it in his excellent introduction, “It is rare to find a writer in our times so at ease with the modern tools of the social scientist and yet so concerned with the complexity of the human condition that he or she can bring to life the frictions and tensions that come from looking at our world at the junctions of political, economic and emotional life.”

Hirschman, it is evident from this book and Adelman’s superb biography, Worldly Philosopher, was increasingly out of tune with the economics of his times. The subject became increasingly abstract and generalised, and inclined to require mathematical rigour everywhere. Hirschman was focused on the specifics of each situation. In ‘Search for Paradigms’, he argues that the highly analytical, paradigm-seeking frame of mind led either to undue conservatism about the prospects for things to improve, or its opposite, a revolutionary bias. In the essay on possibilism, he wrote: “Most social scientists conceive it as their exclusive task to discover and stress regularities, stable relationships and uniform sequences. This is obviously an essential search, one in which no thinking person can refrain from participating. But in social sciences there is a special room for the opposite type of endeavour: to underline the multiplicity and creative disorder of the human adventure, to bring out the uniqueness of a certain occurrence, and to perceive a new way of turning a historical corner.” And it is this last that makes him such an optimistic, encouraging thinker too.

I least enjoyed, however, a couple of the essays on development, which may well be because I am entirely unfamiliar with his theory of linkages – these essays didn’t mean much to me out of context. Still, even in those, the emphasis on tensions and conflicts as motors of change, and the inevitable messiness of the process, is clear.

The book also has a nice evaluation of Hirschman by Emma Rothschild and Amartya Sen as an afterword. They say his work cannot be neatly mapped onto any of the normal distinctions we tend to make, between orthodox and heterodox, between theoretical and empirical, between state and market – “he aspired to both and embraced the conflict between them,” they conclude. It is well worth reading some of Hirschman’s classic books such as [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link] of course, but this book of essays is a terrific overview of his work.