Behind a simplistic presentation of the global competition, we must remark different economic approaches in the US and Europe taking into account the growing role of China.
The dominant “ economic culture” of the US and Europe has been for some years based on two fundamental tenets. The first is that the economy is world-wide, the national boundaries being no more relevant. The second is that “globalisation” rules , which means strong competition among countries and groups of countries. These two axioms will bring two major consequences. The first , that countries , or groups of countries , have to compete with each other on the “global” market place. The second is that labour intensive industries will move to poor (or ex poor) highly populated countries while capital and science intensive industries and services will rapidly grow in rich countries, who will bank not on the number of their workers, but on their skills and scientific culture. This is a somewhat simplistic presentation of reality, as the newcomers find very soon the way to upgrade their productions, often helped by he advanced production units created in their territory by the “relocating” mature industrial companies. However, let’s for the moment fully accept those tenets , and see what kind of policies, and politics, should result from them.
The first and immediate consequences should be that countries would compete, that is, they will make every effort to beat their competitors. To that effect, the rich countries would pursue two basic objectives : defend as much as possible the old industries, as they keep a lot of people in employment ; develop quickly the advanced industries and services, moving large amounts of capital in investments on science and devices that increase productivity , like modern transport , electronics etcetera.
That would help to get quickly out of economic downturns, and to keep high the level of internal demand , the basis for any economy. In short , all countries should do their outmost to develop their economy , to muster as much as possible the abilities and culture of their workers in order to maintain their leadership in the “global” competition, and not to disappear from the rich markets of the world. This is not utopic. The way the US has been trying to climb back from the bottom of the crisis has given the world and Europe a lesson on how to get out of the crisis: bail out not only the banks , but also the “traditional” industries, like the car industry, reducing the loss of jobs and giving a strong competitive answer to the expansion of the once poor countries .
This is exactly the opposite of what is happening in Europe. The basic tenets are the same : there is competition among countries, and consequent globalisation, but the universally accepted answer in Europe is the opposite: reduce public expenditure , increase the cost of capital , reduce the services given to the citizens irrespective of their income level, thus reducing consumer’s demand and investments. In a word, do nothing that would increase your capacity to compete and let the speculators on bonds, currencies , raw materials and energy to rule the roost . It is difficult to understand on what economic and political principles this strategy has been dictated : it has a number of negative political and economic effects. It implies a fight against the Trade Unions, which get involved in a rear-guard battle and are permanently mocked by the papers following the European gospel of retrenchment , and of the disappearance of the State. It therefore reduces the strength of the only instrument available to keep internal demand high by avoiding wages from falling too low.
In Europe, the capitalist entrepreneurs close their factories and move them to cheap labour areas , with the effect of filling their original market with a flow of goods that the original clients have no money to buy, which pushes the prices down, cancelling a good part of the advantage of the low labour cost. The financiers request the maximum possible freedom to do whatever they want to do, which is to increase the income of investors that is, of the rich people, whose contribution to aggregate demand is negligible. Finally, the State cuts the services that it used to give to all citizens , increasing the divide between a small group of extra rich , and a large majority of people on the verge of poverty .The latter will reduce their spending even beyond the minimum , because of their fear of the future , and that reduces further the aggregate demand. To top it all, the States cuts the education money , ignoring that the Universities and the cultural institutions are the only instrument to guarantee the long term development of their economy.
All this will have a certain result in the medium term: it will lead the old Europe to a definite economic defeat , and to a loss of political leverage. The old colonisers will from now on be colonised. Nor can Europe hope for a reduction of the aggressiveness of the poor, or former poor, countries of the world. China is looking to a change the rhythm of its economy , catering more to the needs of its large population , to improve the difficult position of the peasants , to increase the level of consumption, in a word , to make China a modern country , with a reduced difference in the economic level of the various strata of the population. However , that country will still need to export a large share of its production , in order to keep at work the great investments operated until now , which will grow exponentially in the next years. It stands to reason that China will not reduce the share of its production exported, actually, it will probably try to increase it. Moreover , the Chinese economic plan is singling out high technology and innovation, the areas that the US, Japan and Europe are , or should be, jealousy nurturing. International competition will be stronger than before . China wants to become not only a rich country, but a modern one, and it will need even a bigger share of the world trade in order to keep all its productive capacity working.
One final observation on a non marginal point .Among European Countries there is one, Germany, whose capacity to export is solidly based on a strong industry , with workers and entrepreneurs who find , when needed, the ability to share the pain of any downturn , and therefore to get back to growth before everybody else. This country seems , at least in its printed press, to follow the regressive lines of the other European countries. However, the impression it gives, is that , behind the words and the lessons of economic wisdom, lies a different strategy, based on industrial development , and on maintaining internal demand satisfactorily high.