1. Plunge into silent Great Depression::
- Lehman crash in 2008 was a change of economic trend which had lasted two decades.
- Maximum economic crisis since WWII in the scale of crush of bubble economy.
- Credit bubble economy continued 2002-2008 had collapsed due to extreme expansion of credit leverage and soaring of real estate price in US and EU.
- Chain links of bubble collapse was expanding to east Europe and east Asia.
- Caused bad influence to the triangle trade; Japanese high-tech parts to China, then assembled and exported to US/EU.
- Comparison of the Great Depressions of last (1st) and now (Second Great Depression):
- Governments' active intervention:
- injected public fund to AIG, BOA, GE, etc totaling about $1T worldwide
- Increase of debt ratio is a driving force of capitalism; expanding scale of economy by more investment and consumption.
- Government took enormous intervention to avoid further economic collapse unlike in 1920s.
- In US, wages of top 10% increased 65% more than that of lowest 10%, with no increase in the middle class.
- Since 2001, Bush administration promoted 'Ownership society' of real estate through FNMA and FHLMC, rather than taking policies of tax reform and income redistribution.
- During 1990s US continued high interest policy to induce foreign fund.
- Stock of GDP is much bigger than flow of GDP.
- In 2007 US subprime loan amount was only 20% of total housing loan, but it was securitized and distributed around the world. (Financial epidemic, or financial worldwide supply chain.)
- Government pump-priming measures are usually after-treatment in Neoliberalism:
- Proactive measures are impossible, because it is too big and too rapid.
- By-product of monetary easing: currency competitive devaluation -> risk of currency war -> serious impact on emerging countries -> complicated crisis
- Globalization could not be destined.
- Youth bulge: increase of young generation causes unstable society (political instability, terrorism, revolution, civil war, etc.)
- Globalization is neither a linear process nor inevitable, when we observe history after economic depression.
2. Does globalization bring peace & prosperity?:
- What had been the Globalization-I?
- London in 1919: rich Englishmen consider how to invest their wealth to any global product, business, or resources; their global communication was always wired with their telephone.
- They believed the Pax Britanica would be sure and grow further.
- But actually a war (WWI) started in Europe in July 1414.
- Globalization-I has finished by the two wars - WWI and WWII.
- Globalization tend to cause more serious friction between nations.
- US enormous investment had escaped from Europe after crush of the stock market in 1929.
- Export of commodity ration in GDP (1820 - 2008): <figure>
- Now in Japan, there are rare discussions about possible fault of globalization.
- We have experienced twice of deglobalization after the wars; first was after the bubbly investment in US railways, second was in recovery investment in Europe.
- Liberalism-I emphasizing the merit of free trade and automatic adjustment mechanism of foreign exchange under the gold standard.
- Peace with capitalism; mutual investment and mutual trade dependance decreases war risk.
- Before WWI, though UK was the first expert partner of Germany, while Germany was the second export partner of UK, they entered into war in WWI.
- WWI was an event which was beyond expectations even for then sensitive investors.
- Many causes of WWI, such as:
- Competition of colonization by European major powers
- German ambition
- Decline of UK hegemony
- Internal class struggle
- Globalization-I had changed power balances of the major nations.
- Export drive by emerging countries:
- In 1887: 'Made in Germany' display became mandatory.
- Now: US 'China Free' movement appeared.
- Accelerating deglobalization, and then...
- What would be Globaliztion-II
- Present governments have more freedom in monetary policies; no more tight money policy under the Gold standard.
- Military expenditures:
- Only Europe decreased military expenditures; Asia and US are increasing.
- GDP Shares:
- In 19C: UK shared 9%; now US shares 25%
- After 208, geopolitical risks are changing.
- Further globalization may cause further unstable geopolitical situation.
- 軍事費の推移 (1990 -2010)
by Stockholm Int'l Peah Research Inst. (Iran=2007)
3. End result of economic war:
- Currency war mentioned by Brazilian finance minister at G20:
- Competitive devaluation.
- US quantitative easing policy and Chinese manipulation of exchange value are a kind of aspects of currency war.
- Beggar thy neighbor policy: US quantitative easing policy affects Brazil and other emerging countries to less competitive in exporting products to US.
- Similar devaluation domino phenomena in 1930s, tends to move to more bloc economy.
- 10% devaluation means:
- is equivalents to 10% custom tax as well as 10% subsidy for export.
- direct impact to exporting countries, giving inflation pressure.
- then backward flow of money, and collapse of bubble economy.
- Global imbalance:
- Currency war between advanced countries and emerging countries.
- Worldwide imbalance of current account; enormous current deficit of US.
- Quantitative easing policy; weaker US$ and €.
- Possible burst of bubble economy; like Lehman crush.
- Increase of Asian domestic demand is expected
- Competitiveness of US manufacturing industry
- De-industrialization, or hollowing industrial structure, could not be easily reversed:
- origin of competitiveness compose of:
- accumulation of technology and knowledge
- related knowledge and technology for design and manufacturing knowhow.
- tangible and intangible capitals of supporting industries including service and agriculture.
- US manufacturing assumes fabless industry, mostly outsourcing to Asia.
- US emphasizes in inducing foreign money than balancing own current account.
- Collapse of Breton-Woods System:
- a system to control Capitalism without protectionism.
- US$ is the key currency as the most credit power after WWII.
- But now US is the the most debt country, and has lost power to maintain world economical order. Pax Americana is challenged worldwide by many regional conflicts and wars.
- Function of GATT, IMF and World Bank
- But this system is getting unstable according to US current deficit increases since 1960s.
4. Excessive globalization causes protectionism
- The Globalization Paradox: Dani Rodrik
- Among these 3 factors, only 2 factors could be chosen.
- New Breton-Woods System pursued:
- G20: Opening of Pandra Box.
- Karl Polanyi "Great Transformation", 1944:
- Globalization Scenario-1:
- Sacrifice of 'Democracy":
- Less competitive industry or faction; like agriculture or labor condition could be sacrificed by globalization.
- Globalization Scenario-1:
- Sacrifice of National sovereignty:
- Regional union like EU, finally aiming World government.
- In EU, why German taxpayers needs to bear to sustain Greek economy.
- Number of nations never decreases after WWII.
- Globalization Scenario-1:
- Sacrifice of Hyper Globalization:
- Globalization could not continue long; around 30years.
- Domestic labor and welfare policies are essential to defend from hyper globalization.
- Sudden unemployment destroy home and community, and land for agriculture.
- "Self-defence of society" against market economy
- Karl Polanyi mentioned:
- protectionism, fascism, and new deal policy were self-defence or pursue of national stability against market caprice; market principle vs. community principle
- land and labor are essentially foreign to market mechanism.
- Globalism vs. Protectionism;
- Direct protectionism; public aid; Buy America Law;
- Ingenious Protestantism;
FTA (Free Trade Agreement) or EPA (Economic Partnership Agreement)
- The Globalization Paradox
- Global political trilemma
5. Inseparability relationship of nation and capitalism
- Economic crisis in every decade: Capitalism may go without control.
- 1987: Black Monday
- 1997: Asian currency crisis
- 2007: Subprime crisis
- 2017: the next crisis?
- How to control Capitalism?
- Adam Smith (1723-1790): The Wealth of Nations
- Karl Marx (1818-1883): Das Kapital; may expand disparity and cause class struggle
- Max Weber (1864-1920): economic activity is only valued by money
- Joseph A. Schumpeter (1883-1950); Evolutionary economics; innovation
- John M. Keynes (1883-1946): capitalism emphasizing uncertainty; investment by half-rational people; the essence is debt economics.
- Fried rich A. Hake (1899-1992): business cycle
- Milton Freedman (1912-2006): government and pressure group which distort capitalism.
- Hyman P. Min sky (1919-1996): Financial instability hypothesis;
- accumulation of debt by non-government sector may cause bubble economy.
- collapse of bubble economy is called (Minsky moment)
- Capitalism grows by the leverage of debt, including consumption and investment
- Capitalism is both dynamic and unstable.
- National debt - an economic discovery:
- Origin: England Bank to accept national debt from the government; nationals became creditor.
- started as fund raising for war expenditure
- National debt market promoted to make Credit Market, and developed democracy.
- bank loan interests are connected with that of national debt as the benchmark.
- Globalization of corporations:
- High-level business is difficult to ship; which needs skilled human resources, organization and network.
- Simple labor and even R&D could be shifted overseas
- Globalization could not coincide with development of Capitalism and Nation; capital without national guarantee and nation without capital support.
- Minsky moment
6. Diagnosis of pathology of Japanese economy:
- Japanese 'Lost Decade' in 1990s or 'Lost Two Decades' (1990-2010):
- 2 decades of liberalization (deregulation and structural reform)
- Junichiro Koizumi (Premier 2001-06)
- Gradual decline of manufacturing industry:
- GDP share: 35% in 1970x to now 20% or less.
- Export dependence ratio: 10% in 1990 to 18% in 2007
- more than 20% in 1930s (15.7% in 1929 and 26.1% in 1936)
- Toyota grew through globalization: sales amount Yen 9.1T in 1990 to 18.9T in 2010
- But labor cost stagnated during two decades.
- Japanese economy became vulnerable by globalization:
- In advanced countries, only Japan suffered both minus growth in 1998 and 2009 after Asian currency crisis (1997) and Lehman crush (2008).
- Epicenter of Lehman crush was in US and Europe.
- Low growth of GDP is common among advanced countries, and is no problem.
- But it is problem that Japan became more sensitive or valuable to global economy due to increase of export dependency twice in last two decades.
- Violent price fluctuation or volatility may occur in natural resources and food material, which will sure give serious affect to Japanese economy.
- Furthermore, Japanese domestic disparity is also serous; over-concentration to Tokyo area (35.7M, 30% of total population after scrambling for HR and 34% of GDP) while other region decreasing population.
- Atypical employment is also serious problem in Japan, causing serious disparity among generations.
- Participation to TPP (Trans-Pacific strategic Partnership agreement) is also controversial issue in Japan as a conflict between industries.
- Globalization tends to require big government:
- People require safety net such as unemployment, deteriorating labor environment and welfare due to the impact of globalization.
- Japan had been a kind of small government, mainly due to lower export dependency ratio.
- Globalization and reduced budge are becoming unstable factor or contradiction
- Losing balanced economy: plunging into risky phase of economics
- natural and nuclear disaster in 2011
- aging and less children population
- enlarging disparity between cities, generations, gender, industries and size of companies.
- Efficiency first culture - Modern Mercantilism.
- It is unhealthy that expanding administration cost and shrinking community and family
- Strategic options:
- More globalization and more concentration and efficiency with bigger government.
- or mild (versatile) globalization and mid concentration and efficiency with mild sized government.