The three questions of global importance
Tolstoy may have been right about families – “All happy families are alike; each unhappy family is unhappy in its own way” – but the opposite of his famous first line is true when it comes to countries: The world’s disparate unhappy nations are very much alike when it comes to the causes of their unhappiness.
That’s not immediately apparent – austerity-strangled Greece, cheap-money America and military-ruled Egypt are all exhibiting quite different symptoms. But it is no accident that so many of the world’s economies are sputtering at the same time, or that so many people around the globe are angry.
One reason for the synchronized gloom, of course, is the synchronization of the global economy. But the world is suffering from more than a shared summer cold. Rather, we are all, both together and apart, trying to figure out three big questions. Our answers to them will shape the 21st century.
The first is how nation-states fit into a globalized world economy. Different countries are wrestling with different versions of this problem. Small states with their own currencies and open trade policies have just endured a version of the Asian crisis of 1998, and they have come to similar conclusions – survival requires a fortresslike national balance sheet and export-led growth. That’s why Baltic leaders, these days, sound an awful lot like Southeast Asian ones.
The rub, as Lawrence H. Summers, the former U.S. Treasury secretary, likes to point out, is that there are no Martians. Export-led growth can’t work as a policy for the whole world: Someone needs to be the net importer.
The truth of this observation is being experienced very painfully today by south Europeans, whose economies are constrained not only by inflexible labor markets – which are being reformed – but also by a currency union that has lifted north European exporters, particularly Germans, and weakened everyone else. And so the euro, which was attractive to smaller European states in part as a shelter from global economic storms like the Asian tsunami of 1998, turns out to be a perilous haven indeed.
An effective global economy will require more than a World Trade Organization and free and fair commerce between companies. What shapes trade most of all is currencies, and those are guided by national policies on exports, credit and government surpluses or deficits. If we want a global economy – and most of us seem to – we need to devise a way for the currencies of the world to work, and to work together. Call it the 21st century’s Bretton Woods moment.
The second question is even knottier. Global capitalism is the best economic system humanity has devised so far: Worldwide growth in the three decades before the financial crisis was astonishing – delivering, most strikingly, a huge rise in incomes to poor people in countries like India and China that, just a generation ago, development economists had all but given up on. Latin America has benefited, too, and even Africa, the perpetual bridesmaid, seems to be on the rise.
But 21st-century capitalism is failing at one very important task – delivering jobs and rising incomes to the middle class in rich countries. U.S. families are no better off today than they were in 1992. For ordinary Americans, it is as if the post-Cold War windfall and the technology boom never happened. Much of Europe is in the same fix, only worse, with even higher unemployment rates and a less forgiving mortgage default system. From today’s vantage point, the rise of European tigers like Iceland, Ireland and Spain feels like a mirage.
A popular meme in Western societies at the moment is to lament the mulish unwillingness of democratic majorities to support sober, centrist political leaders. Much of this refusal to follow the erstwhile wise men can surely be traced to the failure of the policies of the past few decades to deliver for the middle class.
This shortchanging has been going on for some time. If it seems new, that is because the easy money of the pre-2008 world economy hid a multitude of sins: In the United States, the middle class thought it was rich because of cheap consumer credit; in southern Europe, the middle class thought it was rich because of state jobs, state pensions and state services funded by cheap sovereign credit. Now all that credit has dried up.
As Lord Paddy Ashdown told a gathering of top Canadian civil servants in Ottawa this week: “You alienate the middle class at your peril. The middle class always leads revolutions.”
The third question is the one we speak about the least and should probably worry about the most – can rich women be persuaded to have children? Rich, here, doesn’t refer to the wives of the plutocrats, who continue to have plenty. But once a country achieves middle-income status, its middle-class women stop having many children. This demographic squeeze is another big contributor to Europe’s malaise. On current trends, it is likely to become more severe.
As countries, as middle-class individuals and as families (or as women who choose not to have them), we are struggling to find our place in a world that is in the midst of convulsive change. Lord Ashdown said that some eras are times of stability. Ours is not: “We are living in a period of history when power shifts.”
The global family of nations will be unhappy until we find a new power configuration that works. The good news – and the bad news – is that we will only be able to figure that out together. “Everything today is connected to everything else,” Lord Ashdown said. “The most important part of what you can do is what you can do with others. There is no problem anymore that is solvable alone.”