Blaming China Won’t Help the Economy
By ANATOLE KALETSKY
London
IT is a safe bet that Asian currency intervention was not on the minds of Republican primary voters in Delaware this month when they selected a Tea Party favorite, Christine O’Donnell, as their Senate candidate. But the pendulum swings in American politics are a key concern of Wen Jiabao and Naoto Kan, the prime ministers of China and Japan, respectively, who both met with President Obama in New York on Thursday, with the loss of American jobs to Asian competition high on the agenda.
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With Chinese economic policy now serving as a model for other Asian countries, Japan was faced with a stark choice: back United States criticisms that China is artificially keeping down the value of its currency, the renminbi, or emulate China’s approach. It is a sign of the times that Japan chose to follow China at the cost of irritating America.
Japan’s action suggests that, in the aftermath of the recent financial crisis, the dominance of free-market thinking in international economic management is over. Washington must understand this, or find itself constantly outmaneuvered in dealings with the rest of the world. Instead of obsessing over China’s currency manipulation as if it were a unique exception in a world of untrammeled market forces, the United States must adapt to an environment where exchange rates and trade imbalances are managed consciously and have become a legitimate subject for debate in international forums like the Group of 20.
Market fundamentalists who feel that government interference with free markets is anathema should be reminded that, by today’s dogmatic standards, Ronald Reagan is one of the great manipulators of all time. He presided over two of the biggest currency interventions in history: the Plaza agreement, which devalued the dollar in 1985, and the Louvre accord of 1987, which brought this devaluation to an end.
The fact is that the rules of global capitalism have changed irrevocably since Lehman Brothers collapsed two years ago — and if the United States refuses to accept this, it will find its global leadership slipping away. The near collapse of the financial system was an “Emperor’s New Clothes” moment of revelation.
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Which brings us back to Delaware. What if America decides to ignore the global reinvention of capitalism and opts instead for a nostalgic rerun of the experiment in market fundamentalism? This would not prevent the rest of the world from changing course.
Rather, it would make it likely that the newly dominant economic model will not be a product of democratic capitalism, based on Western values and American leadership. Instead, it will be an authoritarian state-led capitalism inspired by Asian values. If America opts, for the first time in history, for nostalgia and ideology instead of pragmatism and progress, then the new model of capitalism will probably be made in China, like so much else in the world these days.
Anatole Kaletsky, the chief economist of a Hong Kong-based investment advisory firm, is the author of “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis.”
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