Can Western nations remain fair and affluent?

While Australia too may need to further support mutual obligation programs for people capable of work to enhance labour market participation, a minimum standard of living should be guaranteed by appropriate assistance to lower income people and families. Although Australia is an OECD leader in terms of its well-targeted social welfare system, any streamlining of social welfare expenditures must always ensure that assistance diminishes as income increases.

Contrary to any simplistic argument that either free trade or extensive protection is the answer, it is the balance between various considerations that always matters. After all, the rise and decline of state intervention was supported by both Labor and the Coalition since 1901 in line with the changing demands of the international economy, although both major parties have always expressed some differences in terms of the level of government intervention in regard to different issues.

This leads to the question today of whether most Western societies can compete with developing nations in terms of future GDP growth? The answer is clearly no.

As was also the case in many Western societies up to the 20^th century, political and economic rights only came about after long and often bitter societal struggles. For now, the powerful elites of China and other developing nations are in no rush to encourage reforms that would rapidly diminish their authority or dominance.

Hence, immense inequality remains more profound in many developing nations where the rich and middle classes appear to have little immediate interest to use new wealth to help their poor and vulnerable. For instance, while India’s Mukesh Ambani (worth $US27 billion) built a 27 story home costing $US1 billion with 600 full-time staff employed to look after a family of six, the vast majority of Indians live in conditions of abject poverty with many families living in a single room and sharing a single toilet with hundreds of others in the neighbourhood.

In China, while patients with good health insurance or ample savings get first-class treatment at the best medical facilities, millions of uninsured Chinese often face bankruptcy by using their meagre family savings to travel to the big cities in the hope of getting medical care. When they get there, packs of scalpers often roam China’s major hospitals, peddling appointment tickets for hundreds of dollars which allows patients with plenty of cash to avoid queues as scalpers collude with shady registration clerks to snatch up many of the slots and sell them to the highest bidder (David Pierson, ‘Want to see the doctor in China? Be rich’, Los Angeles Times, February 14, 2010).

Effective pluralist societies, aided by higher levels of wealth, have been instrumental in terms of obliterating disgusting levels of inequality and more adequately addressing the various concerns put forward by many players.

Even the poorest of China, along with its educated and middle classes, have an interest in reducing pollution levels. A 2006 study of the Pearl River Delta, a major manufacturing region of South China, estimated that 10-40 per cent of measured pollutants in the air were caused by the exports of produced goods to Western and other nations. In contrast, it was indicated in 2008 that total annual air pollution emitted by US manufacturers had declined by 58 per cent in regards to the four most common air pollutants despite the real value of US manufacturing output increasing by more than 70 percent over the past 30 years.

Democratic principles will always have greater universal appeal as most rightfully resent domination by a minority without democratic accountability. In China, a survey by the Zhejiang Academy of Social Sciences found that 96 per cent “feel resentful toward the rich” with many believing that they made their wealth by looting formerly state owned property, corruption and political connections. At the time, with about 130 US dollar billionaires in China, second only to the US with 359, it was estimated that one third of China’s 1,000 richest were members of the Communist Party of China.

But let us not kid ourselves. Despite our own struggle to maintain reasonably fair societies against tougher economic competition, we too need to remain attractive to some investment from the developing world, although how tolerant Western populations are to much higher numbers of foreign students and the foreign purchase of land and properties remains to be seen.

Western nations are attracting more foreign direct investment (FDI) from developing nations as the latter increase their wealth. In 2008, FDI inflows from just six nations (Brazil, Russia, India and China, Indonesia and South Africa) to developed nations reached $US121 billion after averaging about $US10 billion a year in the decade to 2003. The US also attracted $US5 billion from Chinese company investment in 2009 alone, although well behind Japan’s peak investment of $148 billion in 1991.

Attracting FDI often involves generous government incentives, which can diminish domestic public spending possibilities. For instance, Chinese investment into the US is aided by American government measures in terms of affordable land and reliable power (even cheaper than parts of China), and tax credits (including a state payroll tax credit of $1,500 per worker in South Carolina for any company creating more than 10 jobs). At the same time, China’s government, urging its companies to globalise, offers finance for some of up to 30% of the initial investment costs, although investments below $100 million from China do not need Beijing’s approval.