Thursday, 4 January 2018

Predictions for 2018 - Part 5

The EU Becomes The Global Leader

The German Foreign Minister, in a recent speech talked about the extent to which the US, under Trump, is abandoning its global leadership role, and the extent to which that void is being filled by China, Russia and the EU. Britain remained a powerful global force into the 20th. century, decades after its economic hegemony had disappeared, with the rise of Germany, France, the United States, and Japan. No one should underestimate the extent to which the US will do the same, even as its economy takes second place to the EU, and in the near future to that of China. But, Trump is deliberately walking away from the US's place in the world, and that place is indeed being filled by these other players.

China has played the part, in extensive areas of the globe, of an old 18th, or 19th century colonial power. In the same way that Britain, in particular, turned itself into the workshop of the world, and in the process relied upon its old merchant and financial companies to bring in food and raw materials from across the globe to feed that growing industrial production, whilst sending manufactured products in the other direction, so China has done over the last thirty years. As Chinese industrialisation burgeoned, its insatiable appetite for raw materials led it to establish strategic ties with existing producers of those raw materials, and then to provide the investment, or investment financing required to establish new sources of primary production in parts of Africa.

More recently, China has followed the path of the other industrialised economies, from the latter part of the 19th century, which was to move away from that mercantilist/colonial model to that of industrial capital/imperialism. In other words, as Chinese wages rose in many of the manufacturing industries it established, creating a squeeze on profits, which could no longer be so easily counter-acted by rising productivity, so it has begun to invest productive-capital in industrial production in those newly industrialising economies it has previously built up a strategic relationship with. That means that China has been able to move its own production up the value chain, whilst not only being able to supply itself with semi-manufactured, and low-value manufactured products required for its own production and consumption requirements, but being able to maintain its own global exports, from these foreign subsidiaries.

In the Pacific region, the specific gravity of the Chinese economy has made it, along with Japan, into the hub of a web of economic and trading relationships. Many of the economies in the region are now dependent on China for their own economic well-being, including, despite the frequent public discord between the two, Japan. Its notable that after Trump took the US out of the TPP, the other Pacific economies pressed ahead, and China was more than happy to fill the gap in that development that the US had created.

The growing links between China and Russia, and with both sharing strategic interests in Central Asia, and the Middle East, and a growing synergy between them and Turkey, is driving towards a new axis of power. The rapidly growing economy of China, and the vast resources and land mass of Russia, mean that these countries are likely to be the dominant powers in the next few decades, as China provides the capital to develop the Russian economy. But, they are not at that stage yet.

As described in Part 2, Trump's economic policies are likely to send the US economy into a repeat of the 1980's twin deficits crisis, and possibly will act as the trigger for the next financial crisis, whose inevitability follows from the conservative economic model developed over the last 30 thirty years, and the use of that same model to resolve the financial crisis of 2008, by simply printing money on an even larger scale, so as to inflate asset price bubbles to ever more ludicrous and unsustainable levels. The outbreak of such a financial crisis need not mean that it causes lasting economic damage. On the contrary, as Marx showed such financial crises have no necessary consequence for the real economy, and, as I have argued previously, in the present circumstances would actually provide the conditions required for a faster period of growth.

In 2018, the global economy looks likely to grow at something above 4%, as we now have synchronised growth in all parts of the globe. Again, as I have set out previously, this higher global rate of growth is itself likely to be a factor in bringing about the crash in financial markets, as rising wages and material prices cause a squeeze on profits, and as a rising demand for money-capital causes interest rates to rise, and the capitalised prices of revenue producing assets to fall. The countries most likely to suffer in such a scenario, if only in the short term, are those economies that have the largest amounts of debt. Included in that might also be China, which although it has vast amounts of financial assets, built up by its buying of US bonds etc., it has also built up vast amounts of domestic debt, as it has used credit to finance investment, but also to finance a large property and financial market bubble.

Brexit, and the election of Trump, and his subsequent pulling away from the US's post-war orientation to Europe, has given the EU an incentive to get its own house in order. The similar decision of Britain to leave the EU, whether it actually happens, in the end, or not, also provides the EU with the opportunity to consider the requirement to pursue more decisively its own interests as separate from those of the US, and of Britain, which has acted in the post-war period as a proxy for US interests within Europe. The strengthening of the EU economy, amid a strengthening global economy will create the conditions for social-democratic forces in Europe to reassert themselves, and to begin to press forward with the project of a greater integration of the EU, on the way to establishing a United States of Europe. Until now, European politicians have been reticent to say openly that that is their goal for fear of alienating conservative and nationalistic elements. Already, that is changing.

Germany's economy has notably strengthened, and it forms the powerhouse of the EU economy. The old Franco-German alliance that powered the EEC and then the EU forward, in the period up to the 1980's, and 90's, looks set to take the reins once more, as this process of integration pushes forward. With the US withdrawing from the global stage, and with its own internal economic and political problems to resolve, and with China not yet at the stage where it can assume the role of global leader, that role will increasingly fall to the EU, on a whole range of issues. That fact itself will feed back into a drive for the EU to speak with a common voice, and the need to develop democratic structures to make that possible.

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