We are more than five years on from the global financial crash. Economists and politicians talk still of “recovery”, implying a return to a former state. Actually the global economy has been reshaping, along with global society and politics. We are not going back.
The short focus politicians, bank economists and central bankers favour is on the United States fiscal tangle and Eurozone debt. “Expert” forecasts for 2013 swing from expecting things to come right to apocalypse.
But whatever 2013 brings, the trek out of the mud the rich North Atlantic economies fell into in 2007 will be long. The Bank of International Settlements estimated last June that for rich countries’ governments to get back to their average debt-to-GDP levels of 2007 they would have to run fiscal surpluses (net of interest payments) of 2 per cent for 20 years.
That would be a huge turnround from the past 20 years’ deficits (New Zealand and Australia are partial exceptions). It would require big social and policy changes which can only partly be muted by modern technologies’ massive expansion of available petroleum supplies, even in gas-rich United States.
And that comes on top of serious strain. For example median United States household income fluctuated around $US55,000 (in October 2012 dollars) for some years up to 2009, then plunged to fluctuating around $US51,000. That is a big financial shock. It has translated into volatile politics, only temporarily soothed by Barack Obama’s re-election and pushback against the Tea Party. And deep-seated fiscal problems remain.
In Europe there is strain in France and serious strain in Italy, both too big to rescue. So far muddle-through (a skill imported from out-of-zone Britain) has worked, may go on working and in due course cement a more unified Eurozone and even Europe. But that is a long project. And facture cannot yet be ruled out. (One sideshow: Britain is mulling a referendum on European Union membership. Scotland is mulling one on whether to stay in Britain.)
Meanwhile central banks, pursuing “recovery”, have gone delinquent from their duty of financial propriety. The latest to join in “quantitative easing” is the Bank of Japan under heavy pressure from the new government.
The saver for Australia and New Zealand is China, plus other rising east Asian economies. But is China stable?
This decade the new leaders will be tested by the expanding middle class expecting some freedoms (for example, on the internet which China fearfully controls, for now), by a working class demanding better wages, conditions and social support, by endemic corruption and by chronic pollution.
There is a real risk of military tension with Japan and some south-east Asian countries — all allies of the United States, itself “re-engaged” (hence its much greater interest in New Zealand) but now on the long, winding, potholed road from undisputed top dog to first among equals, a route history says is seldom travelled in peace.
So the first stress tests of our still (just) independent foreign policy may come this decade. And, since Murray McCully (backed by John Key) has damaged our foreign ministry, we may not be equipped to navigate such turbulent and uncharted waters.
And is China’s economy stable? Its mix of state and capitalism has worked so far. Maybe the technocrats will manage the adjustment without major disruption. But that will need proactive reforms: the new leadership is by reputation more reactive than proactive.
Three huge economic challenges loom over China. One is water (at home) and raw materials (from abroad), without which agriculture and industry can’t go on expanding. Hence China’s intensifying interest in our water, fossil fuels and minerals. How will we manage that interest? Just saying no won’t work.
China’s second economic challenge is demographic. The one-child policy of recent decades will bite in the 2020s.
Its third challenge is the changing nature of work due to rapid technological change and global rebalancing.
Some United States firms — most recently Apple — are bringing some production back home. New levels of computerisation and robotisation and cutting-edge technologies such as 3D are making some rich-country manufacturing competitive again.
But the new manufacturing doesn’t need so many workers, as the United States is finding. How will that affect China?
Right now the global economy is going through rapid organic change. A very loose parallel is the transition from small local economies to national economies driven by the industrial revolution. But then there were national governments able to set national rules. Now global institutions are fragile and early-stage.
The frenzy of plurilateral (such as the Trans-Pacific Partnership) and bilateral trade talks are in effect behind-the-play. They are imperfect institutional catchups trailing the global re-formation.
This 2010s world is exciting and unnerving. It is not in “recovery” to a familiar past. Hang tight.