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18.12.2006

Between Euphoria and Panic - IUF Comment 30/2006

Sascha Tamm, IUF

Whenever large numbers, great fears and high hopes are concerned, good judgment is often lost. This also happens to people, who we otherwise would like to ascribe some common sense. A recent example of this is the association with China - a country with a lot of people and, as of late, very fett economic growth.  

 

On the one side, there are those who are afraid of China: They want to avert the Chinese danger - through new protectionist schemes or a transatlantic free trade zone. They are afraid of losing jobs and access to raw material reserves. A writer at Spiegel magazine and an advocate of the world war on prosperity, who can even present the theses of the German Chancellor, is supplying the intellectual know-how.  

 

Apparently, this type of argument is not eradicative: The global economy is a zero-sum game. If one wins, the other loses. The only area of competition is low wages, with which "we in the West" obviously cannot compete. This is amazing in a country that owes its prosperity for the most part to the buying power in other countries and in which both industry and the consumer profit from cheap imports.  

 

On the other side, there are those who are euphoric about China: For many, the enthusiasm about the gigantic market and the growth rate leads to an unyielding belief in the wisdom of the Chinese leadership. In Wirtschaftswoche magazine, tremendous support has been given to the Chinese leadership in light of its recent plans: To stimulate domestic consumption and reduce the savings rate, to cool down growth in order to accelerate or give more support to certain industries and less to others. The outlook for the growth rate appears undisturbed. However, could the extremely high savings rate be based on a deeply rooted public mistrust vis-à-vis the future of the country? Is there actually a paradox of saving as F.A. v. Hayek once asked?  

 

In the long-term, China will not be able to escape from the problems associated with a planned economy, which is still prevalent in many areas. Today, large state investments often fund unproductive projects. At the same time, however, productivity in other areas is continuously increasing. There will neither be long-term, inexorable growth nor a world market monopolized by the Chinese. Chinese companies are members of the global competitive market and, because of that, they are using every means necessary not to be closed out of this competition. Hopefully, those who advocate a new round of protectionism will understand that.  

 

 

Author:  

 

  • Sascha Tamm, Director of Politics IUF

 

The IUF comment appears regularly as the voice of freedom. We're pleased with getting comments about comments.  

 

 

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