Economic policy: The decline of the West?

In contrast, the U.S., the world’s most important economy in terms of boosting the international economy through large trade deficits, saw its share of global manufacturing decline from 12.15 to 9.2 per cent and agriculture from 14.32 to 10.43 per cent. China, although today with 1.3 billion people, even out-performed Australia in terms of agricultural global exports, increasing its share from 2.42 to 3.15 per cent while Australia’s level declined from 2.86 to 1.95 per cent.

We now face a crucial time. After several centuries of considerable and positive influence by more liberal-minded nations, notably Britain and later the U.S., we are somehow expected to accept the rise of authoritarian China as some sort of equal with the U.S.

As Westerners, with the ideal of fairer trade and democracy remaining a guiding light for humanity, we must be careful that a changing policy mix does not merely lead to a tariff war and dangerous level of tension. Open markets are important for maximising and creating wealth, which means that Western societies too need to give ample attention to competitive realities. As McKinsey Global Institute indicated in December 2010, mature economies lost about $20 trillion of investment between 1980 and 2008 based on pre-1970s rates, and higher domestic costs were a prime reason why the proportion of offshore employment for U.S. manufacturing firms increased from 10 to 47 percent between 1957 and 2009.

But Western societies have a clear choice. They either accept their fate and further economic decline based on recent policy trends, which will inevitably mean greater suffering for their most vulnerable, or they alter their policy approach which may even force other societies (even powerful authoritarian nations) to adopt a different approach. While Western leadership must always endeavour to reasonably balance national and international considerations, such societies still have high levels of per capita resources and reasonably well-educated populations to encourage a policy mix that secures fairness and consensus.

As Richard Duncan suggests, it is not straightforward when we decide the balance between government intervention and a reliance on market forces. While the $3 trillion increase in U.S. government debt helped prevent a global depression over the last two years, but hardly delivered expected growth, it remains to be seen what sector of the economy will take on additional debt and drive the future economy. While some urge government spending to be slashed, Duncan argues that world economic growth will long depend on how much the U.S. borrows and spends.

And while the philosopher Chris Berg expressed disdain at the Coalition’s position on anti-dumping laws (in agreement with the Australian Workers’ Union), and its industry spokeswoman Sophie Mirabella for suggesting that departments should buy equipment and clothing from local companies, the sentiment for greater protection will probably increase. As Berg notes, the British-based Centre for Economic Policy Research indicates that G20 have enacted 155 trade restrictions or tariffs since November 2010.

In accordance with recent Western efforts to again modify the balance between government intervention and market forces, the opportunity for change still remains. Whether Western policy elites lead the way with ideas that promote effective change, or whether the wrath of public anger forces changes (perhaps leading to unsophisticated protectionism or even hate), remains to be seen.