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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.


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He's right about China. I've lived and worked there (as a student and then as an expat lawyer), a good proportion of my social circle here in London is composed of Chinese expats, and the one thing that everyone - everyone - who has any knowledge of China agrees is that corruption is a major bottleneck. 60% of GDP certainly isn't out of whack.

As to Jeremy's comment about China being a major economic power, well it is and it isn't. China's economy is large, but the country isn't wealthy in the way that the US, Japan, Europe or Australia is and there is no sign that it's getting there fast. Wealth per head is still pretty low - and it's hard to see China continuing to grow at its present rate without overheating.

Don't even get me started on the structural problems. Investing in China at the moment resembles nothing so much as a pyramid investment: I wouldn't be surprised to find that most money being made by, for example, private equity houses is being made by having Chinese companies list and sell their shares to new western investors - who are themselves hoping to hold onto the shares for capital growth and sell them in due course.


China will economically fail? I wonder if he has actually been there. The tranformation is stunning.

Overall i find it hard to agree with him about his views on China and India. They are just a facet of his wishful thinking.
As for expounding Germany, one years real growth in 15 is not a model for everyone else to follow is it?

the criticism of the US seems a little fairer by comparison. But we have been here before, remember Japan in 1989 - all set to buy the Yanks out?

I find it interesting he did not mention Russia or the Middle East; surely the two parts of the world that are keen on war and terror, having failed so dismally in the economic race.

Welshcakes Limoncello

Gosh, what a lot to take in! I'm no economist, but India seems to be doing pretty well to me. I think WH has a point in what he says about the US. If I were there, I would be tempted to ask him if he has ever read "The Good Women of China"? What does he predict for them?


Firstly, you have my boundless admiration for sitting through that nonsense on stilts.

Where to start? Well, I think Norway counts as a Nordic country, they who 'take care not to create "perverse incentives"', so how about this item from Aftenpost (in English), headlined 'One in four don't work':

"It is simply too favorable to be out of work," argues Professor Kjell Gunnar Salvanes at the Norwegian School of Economics and Business Administration. Salvanes told financial newspaper Dagens Næringliv (DN) that as much as 25 percent of the employable population between the ages of 18 and 67 are not in work, having opted for early retirement deals, disability benefits or are in rehabilitation. "The great challenge for the Norwegian economy is the great segment of employable people who choose to opt out of working life," Salvanes said, and he claims this is because the difference is not rewarding enough.....There are many job openings in the Norwegian labor market now, and not enough unemployed to fill the positions. The number of Norwegians who must work to finance those out of work is steadily decreasing. Salvanes urges politicians to take up the challenge, even though changing beneficial schemes could clearly hurt political popularity".

Jeremy Jacobs

Another federalist living in la la land. Anybody who thinks this "He dismisses the idea that Europe is not capitalist, describing it as "a place of freedoms, as enshrined in the EU Treaty"., IMHO, is mentally deranged and extremly dangerous.

As for China and India not becoming economic power houses? What planet is he on?


I have a lot of time for Hutton as a thinker, not sure about 60% of China being corrupt, but the extreme penalties for corruption including death, means that they do have some problems. India has huge growth because the labour force is cheap and western companies are out sourcing because they think they can make a few more cents. The Indian elite appear to be only looking after the Indian elite, they will export their new won capital to europe the moment political instability occurs.As to the Muslim world, without oil, they have no real economy, national allegiance is illusory and Islam is more at war with itself than the west.

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