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The Conventional Wisdom

Ex-Guardianista Will Hutton is currently addressing the conference I am attending in Paris and challenging the conventional wisdom that Europe is an economic, political and demographic basket case. In particular he dismisses the idea that India and China are tiger economies which will change the world, says that the USA's economic position is untenable, and suggests (this is a real estate conference) that European properties are "underpriced" because Europe's future is much brighter than generally thought.

He points out that the private sector in China is only 15% and argues that the Communist Party is still firmly in control under a style of government he calls Corporate Leninism. He claims that productivity is currently, despite all the hype, "lower than under Mao". He points out, more plausibly, that there are no Chinese brands in the world's top 100 and that, of the Chinese companies rated in the world's top 100 by turnover, all are loss-making state enterprises.

Interestingly, he points out that 200 million peasants have moved from the Chinese countryside to the East coast cities, in the world's biggest-ever migration. While Chinese exports are now $1 trillion p.a. and growing 25% per year, he predicts that will slow down. Even with such growth, China is delivering only 11 million jobs per year, when 24 million are needed.

He undoubtedly has a way with words and I enjoyed his observation that

Capitalism is more complicated than either American neo-conservatives or Chinese Communists think.
Of course, he went on to spoil that by arguing that the the lack of complication is to do (in both places) with the absence of a European-style "cradle to grave" Welfare State.

He suggests, surprisingly, that 60% of Chinese GDP is corrupt. How can that be measured? More seriously, he linked China's recent test of satellite killer weapons to an anticipated invasion of Taiwan, which he points out has always been a PRC objective. He suggests that the satellite killer techology will be used to render America's military "blind" while China moves 20 divisions of the PLA across the Straits of Taiwan. He further predicts that the next generation of Chinese leaders will preside over a period of major political change leading, after much turbulence, to political reform.

As for India, he points out that it is producing the same level of growth as China on half the amount of savings available for investment. However, he predicts that India will be held back by the caste system and illiteracy. He says the Indian government does not have "a single Enlightenment idea in its head" and that it can never generate the 30 million jobs it needs per year in order to achieve "social stability".

On the US, he says that in some ways the US undervalues its own business model. It has, he says, "a trade deficit with itself" because of its ownership of the world's top brands which produce much of their product overseas. He describes the US as "one of the strongest knowledge economies," but says it has "all kinds of downsides".

He predicts big fiscal and exchange rate adjustments and suggests US consumers cannot sustain continued economic growth by consumption. There is, he says, "real fear" in middle class America because of job losses arising from continual mergers and acquisitions. This, he says, is building "economic nationalism" as the 30 million US workers a year affected by such upheavals seek to blame foreigners. He criticises the Democratic Party of "playing with fire" by pandering to this isolationism.

Predictably, he also criticises the US for massively wasting energy and "failing to understand" the climate change issue. He describes the US as "the most protectionist, inward-looking country in the developed world"

His conclusion is that Europe is "the place to be". Germany is recovering after a decade in the doldrums which he ascribes to re-unification and entering the Euro at too high a rate for the Mark. Germany is a third of Europe's GDP, and is widening the gap between itself, the world's leading exporter, and the USA which is the runner up. It had the fastest growth in industrial production of any G7 country between 2005 and 2006. Crucially, by Anglo-Saxon standards at least, it has "no consumer debt" and a commitment to a "building business culture." He is convinced that the Rhineland/Nordic model works.

Less than 5% of German 18 year olds have no academic or vocational qualifications. In the US, the equivalent figure is 43%, which is much worse than 100 years ago. He calls that "...a disgrace and a betrayal of the Founding Fathers of the Republic".

Social spending, in his view, is good for growth, as long as it is well-designed. The Germans and the Nordics take care not to create "perverse incentives" and "poverty traps." Unsurprisingly, he didn't comment on the British government's amazing creativity in that respect.

He dismisses the idea that Europe is not capitalist, describing it as "a place of freedoms, as enshrined in the EU Treaty". He praises Europe's "Enlightenment Infrastructure." He concedes that badly-designed taxation destroys jobs, but he argues that European governments are quite good at designing taxation systems. Again, I find it hard to imagine he includes Gordon Brown in that sweeping praise.

As for the problems, he acknowledges the demographic issues (no European country is breeding fast enough to keep its population stable), but believes immigration can solve them. He praises Europe as an emergent "knowledge economy" and describes London, Barcelona, Munich, Helsinki, La Coruna, Nice and Bologna as ideopolises; cities which major on "knowledge economy" output. Conveniently for his political position, he sees "knowledge workers" as people who are particularly fond of "social inclusion" and "equality."

He wound up by listing the key threats to globalisation as; the Democratic Party, the "squeezed middle classes" in America, Chinese and Japanese nationalism and a predicted revival of India's traditions of protectionism. By comparison with all of these, he say, "Europe looks open."

Finally he cited the advantage that Europe was innoculated against war by WWI and WWII and predicted that the most likely place for regional conflict was in Asia, perhaps with the US and Japan "squaring up against" China over Taiwan.

A member of the audience asked the question I had in mind, which was "what about the Muslims?" This, Hutton fudged, saying that the Islamic world wanted to help write history, but seemed currently to lack good ideas. Interestingly he ascribed Iran's "swaggering" on the world stage to its support from Communist China.

I have blogged this "live" as he speaks, throwing in only the occasional comment of my own. I would be interested to hear what my readers think of Mr Hutton's ideas about the future.