The "global economy" has in recent years become a common journalistic buzz word. But the global perspective such a term presumably warrants has been conspicuously absent. Reporting on the economy remains as flaccid, dull, and incomprehensible as bad conceptual art. However, with a couple of references, a willingness to read between the lines, and the occasional helpful coincidence, economics can achieve a remarkable clarity.
Consider an editorial last summer (July 3, 1996) in the Seattle Post-Intelligencer. This editorial made the brave and principled point that the Seattle public, having helped to pay for a brand new "quasi-public" international trade conference center on the waterfront (the Bell Harbor International Conference Center) ought, on occasion, to be allowed a peek inside.
Meanwhile, the business section carried an article on the first conference to be held at the new center. The article's focus was the emerging economies of the Third World and their phenomenal success, which can be attributed to "free market" policies. The article asserted that First World nations have become comparatively stagnant with "expensive social welfare systems" and "burdensome regulations."
Leaving aside the irony of a publicly subsidized conference center hosting another round of attacks on "government spending," let's look at some of the economics involved. First we have the claim that various "emerging nations" are economically out-performing the wealthier nations of the First World. What's the evidence for this claim? Simply that growth rates in the emerging nations are higher.
It is relatively easy to challenge this presumption. Smaller entities, if they're growing at all, usually grow at a faster rate than larger ones, when that rate is expressed as a percentage of their total size. If I start a new religion and sign up five new members in the first year and 25 members in the next, my new religion is growing at the phenomenal rate of 500 percent annually. Voila: the fastest-growing religion in the world, far outstripping Islam, Christianity, and all the rest. The growth rate is merely a factor of my small size, relative to the number of new converts.
The same holds for economic growth rates, measured as a percentage of a country's Gross Domestic Product (GDP). The nations mentioned in the article have an average GDP of $885 billion, ranging from China's almost $3 trillion to Chile's $97.7 billion. (These are very rough estimates, but they give an idea of the relative size of the economies.) The U.S., by contrast, weighs in at $6.7 trillion - more than twice that of China's, with a work force less than one quarter the size, and over seven times the average. So it's no surprise that Thailand, for instance, with a GDP one twentieth the size of the United States', should have a growth rate twice as high.
In addition, growth rates vary substantially from year to year. While 1995 and early 1996 figures are low, the 1994 US growth rate of 4.1 percent was not substantially lower than the developing nations. The Philippines' growth rate was 4.3 percent, while China on the high end had a growth rate of 11.8 percent.
But what does this mean in real numbers? Since the 1994 U.S. GDP was $6.74 trillion, its growth rate means that an additional $276 billion was produced in that year. Compare Thailand, whose growth rate is twice ours - but their GDP is only $355 billion, so the amount added to the economy is $28 billion, or one tenth of what we add. Looked at another way, the increases amount to about $910 per worker in Thailand, compared to $2,100 per worker in the U.S. Clearly the issue is more complex than a quick glance at growth rate alone would suggest.
Where does the money go?
A look a comparative economic growth rates also prompt other questions. Can an economy sustain a high growth rate beyond an initial spurt? Where does the money go? Does it end up in school teachers' salaries or in some colonel's Swiss bank account? Moreover, a country can have a high growth rate and still be an economic basket case. The Mexican economy is doing poorly despite the best guesses of the free market gurus. We had to bail out the Wall Street investors who took a bath there, under the guise of rescuing "the economy."
When a government decides to "invest" in its economy, keep in mind that not all government spending is created equal. Government spending - as the Bell Harbor conference center itself proves - runs the gamut from powdered milk to cruise missiles. Whenever one program is chosen, we should ask, "Why that one?" In fact, the nations held up as paragons of leanness turn out to be much better at meanness, thanks to very heavy government spending indeed.
Consider China, the biggest economic miracle of them all. Those evil commie bastards, whom we spent trillions defeating in the Cold War, are now held up as an example of how to do capitalism correctly. But much of the business press ignores the fact that the People's Liberation Army, a thoroughly government-funded institution, is itself a major player in the Chinese economy. The PLA controls entire industries. And, of course, China's prison labor represents a huge government subsidy, in the form of subsidized factories, management, equipment, training, and, of course, artificially depressed wages.
Then there's the environment. A few years back, when capitalist China was still a novelty, there was a flurry of reports on the ecological catastrophe facing China due to its hyper-development and almost total absence of environmental protections. According to the CIA, environmental degradation is "one of the most dangerous long-term threats to continued rapid economic growth" in China. But none of this is relevant, apparently, to the lessons about "burdensome regulations" that China can teach us.
Rarely mentioned in most business reporting is the political history of nations such as Indonesia and the Philippines, and the role of a heavily subsidized military in enforcing the "free" market. Here our allies (the Philippines, Indonesia, numerous Latin American governments) could give the communists a few lessons in government control of the economy. In many of these countries, trying to organize a union is a good way to get yourself fired, beaten, or "disappeared." Other types of politically incorrect activity - agitating for the rights of minorities, for environmental safeguards, or for political freedoms - are similarly hazardous to your health.
School lunches or cattle prods?
Regulatory regimes of this sort usually come courtesy of military repression: soldiers on the government payroll. That's a kind of "burdensome regulation" we don't read about in the papers. So again, it's not a question of government vs. no government. It's a question of what kind of government spending you prefer: school lunches or cattle prods?
All this means that when business leaders get together and tell us that government spending and regulations are bad for the economy, a good journalist ought to be on guard, digging deeper than the sound bites.
A truly global analysis would help us see how we are connected to the international economic and political system. Conventional economic wisdom tells us that we ought to imitate governments like those in Mexico, Indonesia, China. Real journalism would ask why that is.
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