When the world’s biggest economy’s central bank, supposed to be the custodian of sound money, prints mind-boggling amounts of the stuff and flings it around, something has changed. The old “normal” is gone. But where and what is the new “normal”?
Nobody knows yet, though there is plenty of guessing.
One clue that something big is going on is that China is creditor to the United States, the reverse of “normal” relationship between a peak power and one on the rise. That alone suggests we are heading to a “new normal”.
Another clue is the confused politics in our sorts of countries: minority governments in Canada, Britain and Australia and Winston Peters-like success for the Tea Party in a muddled United States Congress — all in election systems which MMP’s critics say produce a “clear” result. We cannot be sure there won’t be a muddle here, too, later this year.
These voter shifts are not big swings between competing ideologies. They are symptoms of disorientation.
There was similar political instability in those five countries in the early 1930s. Then, as now, there had been a tectonic jolt in world economics and politics, long in the buildup and sudden in the event, taking the form of a huge financial crash but rooted more deeply.
So what are we in for?
Anatole Kaletsky, a London Times economic columnist, in a recent book titled “Capitalism 4.0”, reckons the crash is pitching capitalism into a fourth major phase, following the industrial revolution, the post-1930s mixed economy and the revival of classical doctrines in the 1980s. He is unclear what 4.0 will turn out to be, though he talks a sort of new keynesianism.
Kaletsky’s capitalism is adaptive, innovative and evolutionary, which is why it survives major disruptions. That fits with a line of economic theory that contexts economic activity in the complexities of individual and social behaviour which cannot be reduced to mathematical equations.
Innovation is at the heart of economist Carlota Perez’s identification of five 40-60-year economic “surges” since 1770: a new technology “irrupts”, speculative investment in that technology pumps a financial bubble which bursts (1793, 1847, 1890-93, 1929 and 2000-07), settling to a “mature” phase — in other words, a “new normal”. “Mass customisation” in a diverse, internationally integrated, fast-information world is a feature of Perez’s now emerging “mature” phase.
Alongside these changes — fed by them and feeding into them — are big political changes. After 1929 came the Nazis, the second world war, the cold war and the United States’ pre-eminence.
So alongside the big double-crash of the 2000s (the Federal Reserve’s loose money policy pumped a second bubble after the dot.com one burst in 2000) is a major reweighting of global politics.
Parag Khanna, writing in the Financial Times, foresees in 20 to 30 years numerous power centres: not just countries but “cities, companies, religious groups, non-government organisations and super-empowered individuals, from terrorists to philanthropists”.
Financial Times columnist Philip Stephens talks of “one of history’s swerves”. A long-predicted new balance “has rushed suddenly into the present”. “China is asserting itself in east Asia. India is building a blue-water navy. Turkey and Brazil are seeking to translate regional power into international kudos. Indonesia is hedging between Washington and Beijing. Europe battles against irrelevance; America with a burgeoning budget deficit and political gridlock.”
Asians have tracked the global rebalancing for some time, none better than scholars in Singapore, ranging from a triumphalist Kishore Mahbubani to a realist Simon Tay.
Muthiah Alagappa, now Sir Howard Kippenberger professor at the Centre for Strategic Studies, takes a long view (as he says China and India do): he sees Asia potentially the centre of the world order — and the biggest market — though gradually over 30 to 40 years and dependent on its economies continuing to grow and its governments managing the social change rapid economic development precipitates.
That in turn depends a lot on global security and prosperity, which are not guaranteed when history “swerves”. So east Asia’s peripheral nations want still-paramount United States engaged in Asia as a “force for stability” (code for a countervailing force to China). Singapore’s Minister for Education and Second Minister for Defence, Ng Eng Hen, an Asia New Zealand Foundation advisory board member, underlined this in an interview here in November.
So what is the “new normal”? We won’t have a clear definition for many years. But the economic writers cited above point to a more intricately connected phase of economic globalisation (about which more next week). Asia both feeds on and feeds into that new global economic order as it sets about changing the global political order.
New Zealand will have to run fast and think hard to keep up. That’s John Key’s job when he gets back from Hawaii.