Crisis, what crisis?

It is also why Australia and other Western nations have relied on the growth of financial services, consumption and debt to help boost domestic activity and the growth of the international economy after losing their domination and reliance upon manufacturing.

But while the policies of certain Western nations (led by the US) were intended to both enhance the growth of the international economy through a willingness to accept trade deficits and make respective national economies more interdependent, the recent financial crisis has finally ended the brief illusion that all is well if only all nations simply adhere to free trade.

There was something obviously wrong when just 497 billionaires possessed $3.5 trillion of the world’s wealth in 2004 (more than 7 per cent of world GDP), $25 was being spent on debt repayment in 2006 for every $1 provided in aid. Furthermore, 85 per cent of the world’s population still lived on $10 or less a day by 2005 (50 per cent on $2.50 or less), and an estimated 12 million American mortgage holders owed banks more than their homes were worth after many had already lost their homes due to unmanageable (and dubious) sub-prime housing loans (Rex W. Huppke, Chicago Tribune October 13, 2008).

And with recent moves by Western nations to restore confidence and well-being in their economies, as indicated by a greater willingness of the British government to basically take control of key banks in exchange for an injection of capital, the promotion of liberalism via freer trade will again be tested by their willingness to hold on to their influence and power (in financial terms at least).

Whether Western nations will be prepared to lose their economic dominance remains to be seen. After all, China and even India, have been able to develop industry at a much faster rate than the West as they exploit their own populations without the same limitations caused by effective pluralist societies which force government to give greater attention to social and environmental considerations.

And, though the promotion of freer trade does not hide the reality that many developed and developing nations still offer significant industry assistance despite lower tariff protection, Western governments are constrained as they continue to give much greater attention to social welfare needs forcing a greater reliance upon the private sector for many infrastructure needs.

No matter what rhetoric is offered by Labor or the Coalition, it is indeed getting much harder to meet a variety of economic, social, and environmental policy needs as governments have increasingly limited the growth of public outlays as a percentage of GDP; although extra spending will indeed by provided to offset the dramatic upheaval that may be caused by an economic recession.

So while Australian policy-makers will long look to Asia to boost its economic fortunes, a strategy that may prove instrumental in helping Australia maintain high levels of social welfare spending, what if China’s gain is to be made at the expense of other Western nations because its rich will long benefit from cheap labour with hundreds of millions of Chinese still earning less than $2 a day?

Economic success by China and other developing nations may also mean the further decline of domestic industries in Western nations, an ongoing possibility that will place even further pressure on wages and taxation levels.

To conclude, the competitive nature of international relations ensures that nations will long compete with each other in economic terms at least, despite many nations sharing cultural similarities that may aid co-operation.

For us Westerners, who take pride in the leadership role played by liberalism, the key question is either do we continue to accept freer trade in its present form, or do we temper its pace at the expense of poorer nations?

While the consequences of recent policy trends are now more evident after freer trade has been given decades to work, the alternative policy approach (greater protection and regulation) will never provide any magical solution, as may be suggested by many on the Left who urge much greater government intervention.