Posted by: CS | November 14, 2011

Germany cannot outrun the Chinese bear. But doesn’t need to

Source: I don’t have to outrun the bear — just you.

Yesterday, I compared those in the West stunned by the current financial and economic crisis to passengers on the sinking Titanic who thought it safer to stay aboard the supposedly unsinkable ship than to be set adrift in a tiny lifeboat upon the dark and icy waters of the North Atlantic.

Failing to comprehend the nature of their peril, most in the West believe it possible to continue enjoying a higher standard of living than the majority of humanity while sticking without reflection to the failing economic policies of the past.

Meantime, the West sinks into stagnation, depression and horrendous debt, while the economies of China and other developing nations expand with astounding rapidity.

Why?

Labor costs and globalization.

Wages in China are a tenth of what they are in Germany and, in manufacturing, only a twentieth (US$134 per month in China versus $2336 in Germany).

We are experiencing now, what Jimmy Goldsmith warned of when the GATT agreement, which opened the way to unrestricted global movement of goods and capital, was signed on to by the Western nations in 1994.

Speaking before the Senate of the United States, Sir James Goldsmith said:

I believe that GATT and the theories on which it is based are flawed. If it is implemented, it will impoverish and destabilize the industrialized world while at the same time cruelly ravaging the third world.

Sir James, then in the prime of life and embarked on a political crusade against globalization, died very shortly thereafter from a remarkable swift-acting form of cancer.

Today, we see the environmental carnage and ruthless exploitation of labor in the developing World that Goldsmith predicted. In China, Apple Corp.’s contract manufacturer, FoxConn, requires that employees sign an agreement not to commit suicide, several dozen having embarrassed the saintly Steve Jobs by leaping from the roof of FoxConn’s highrise factory. The agreement, it appears, is being honored in the breach as workers continue exercising their right to die rather than work six or seven days a week, twelve hours a day assembling the wonderful Apple i-Pad.

And in the West, we see verification of Goldsmith’s prediction in real unemployment rates of 20% or more in Britain, the US, Greece, Spain, Slovenia and other countries, and unsustainable growth in national budget deficits, as the design capacities of welfare safety nets are vastly exceeded and government revenues contract.

Meantime, the zombiefication of Western economies continues as the disaffected and the unemployed demand governments: “share the wealth” and the US Government crafts an insurance industry rip-off called “healthcare reform” to further burden the 99%.

But, some might say: Look at Germany. The economy is strong; unemployment there is falling nor rising; all that’s needed is for the rest of the West to emulate the Germans.

But that is the mistake made by the guy who said “you can’t outrun the bear.”

Germany doesn’t need to outrun the Chinese bear, they need only outrun the rest of the Eurozone nations. For Germans, this is not hard. Germany’s manufacturing industries are better than those in the rest of the Eurozone, which means that they capture a disproportionate share of the Eurozone’s export trade. The better Germany’s trade balance, the higher the exchange rate for the Euro and the tougher it is for the rest of the Eurozone to to compete internationally. The more poorly the rest of the Eurozone does in international trade, the lower the Euro and the better Germany does in international trade.

Germany’s success is contingent on the failure of Greece and the rest of the Eurozone.

The Germans are smart, they work hard, they have wonderful discipline.

The result?

They do extremely well in harness with a bunch of losers.

If the Germans revert to the Deutsche mark, they will not have it so easy, although they will still do well relative to most of the rest of the West because they are harder working, more disciplined and better organized.

While they will continue to dominate in mechanical engineering, they will thrive also by designing and snapping together cheap components outsourced to Asia and low-wage Eastern Europe. But this is a negative sum game that, by definition, not everyone can play.

See also
The Independent: [UK] Jobs market faces ‘slow, painful contraction’
The Guardian: Fight for the right to work

Advertisements

Responses

  1. To those unclear as to how a currency union stiffles the economies of the weaker units, I recommend this article about the work of Jane Jacobs (see the section entitled: How to stifle your cities).Thanks to Trefoil on the Elite Trader forum for the link.

  2. Specifically, from the above-cited article:The idea that economies belong to nations rather than cities is not merely an intellectual confusion; it hinders economic development– that is, city development. "One way is through national currencies. The value of a currency is a feedback mechanism. If a currency starts to decline, this acts as an automatic, temporary, calibrated tariff: imports become more expensive, exports easier. This should spur import substitution and the development of new export work. …National currencies, however, are a smeary blur of the economies of all the nation's cities. This is particularly bad for a depressed city in a booming nation, because it gets precisely the wrong feedback. A strong currency allows cheap imports, reducing the depressed city's impetus to replace them, and simultaneously weakens the city's exports."Substitute the word "nation" for "city" and "currency union," or "Eurozone" for nation and you see how the Euro is stifling the weaker economies within the zone.

  3. Goldsmith was correct!- Aangirfan


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: