That’s Not the Goal I’m Working For

by John Brian Shannon

It was fascinating to read the Project Syndicate article by Former US Secretary of Defense Harold Brown on America’s trouble with China discussing some of the history and modern-day challenges to Sino-American relations.

Although I have the greatest respect for former Secretary of Defense Harold Brown, I respectfully disagree with his proposed solution to the present challenges. Starting a new Cold War to secure America’s future is a step backward — not a step forward.

Rather, as both Western and Chinese interests converge at so many levels in the modern paradigm, it is in our best interests to work on solutions together.

Instead of the “Win – Lose” thinking of the past, it is incumbent upon us to find ways to “Win – Win” as so much is at stake.

We survived the last Cold War, but that is no guarantee we would survive another one. It’s simply too big a risk to take — especially when there are better options available. And, there are.

The former Secretary of Defense states that; “China’s export-led economic model has reached its limits…” and I believe this is a most profound point.

IF China has reached it’s export-led model as he asserts, it has only done so because there are presently a lack of purchasers to purchase Chinese goods.

For years, China has manufactured products to sell around the world and as long as there has been plenty of disposable income in the West, there has been plenty of sales.

As the Western economies fell backwards — so did Chinese exports.

Funny how that works.

In case policy-makers haven’t yet reached the same conclusions as I, let me say the situation I describe above is easily verifiable and directly correlates with the economic events of the early 21st century.

Whether political leaders in the U.S. or China like it or not, the relationship has been, is, and must continue to be, a symbiotic one.

China NEEDS a healthy, stable and frankly, a wealthy Western world to sell it’s wares to — and the West needs a source of low priced goods to assist growth to continue at lower cost than otherwise would be the case.

The U.S. needs a large export market for its billions of tons of coal and millions of barrels of petroleum that it must sell every year to support those industries here.

By 2017 the U.S. will surpass Saudi Arabia as the world’s #1 oil exporter — according to the IEA — but in actuality, this may occur in 2015.

http://arabiangazette.com/us-top-oil-producer-2017/

Not only that, so many products are manufactured by American corporations in China at lower cost than they could be here — therefore personal happiness is enhanced on a massive scale by products Western consumers can afford. Thanks China!

And without a healthy China (and Japan) who will continue to buy all those T-Bills to float the American economy? Along with all of the other China-driven (and increasing yearly) investment and purchasing of American goods and services.

For the next few decades, the only politics that make over-arching sense will be the politics of economics. For now, more than ever, the politics of self-interest will be the politics of economics and the politics of economics will be the politics of self-interest.

The stronger the Chinese economy, the better the effect on Western economies and Western governments. The stronger the American and other Western economies, the better for Chinese exports.

Any other model will be a lesser model and will bring it’s own problems with it.

As for the long-range bomber advocated for by former Secretary Harold Brown. I too, want a strong, secure and freedom-loving North America — but let us hope the days of Mutually Assured Destruction (MAD) are over.

Instead of sabre-rattling and an ever-present nuclear threat, let us hope that our thinking as a species has moved on.

A Pentagon report laid it out in stark terms a couple of decades back, “it is not a case of if, but of when” a nuclear exchange will take place under the MAD paradigm.

If we can’t co-exist, if we can’t form and retain viable and symbiotic relationships with other nations — every one of us will be dead, eventually. And then, none of it will matter.

That’s not the goal I’m working for.

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Read more at: http://www.project-syndicate.org/commentary/from-competition-to-confrontation-for-the-us-and-china-by-harold-brown#yD3qLMzsctZhgiyR.99

JOHN BRIAN SHANNON

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Why African Resource Exporting Nations Need Tariffs

by John Brian Shannon

Many nations in Africa are presently experiencing a boom in resource exports. And that is truly wonderful news as exports of any kind contribute handsomely to national GDP and balance-of-trade figures. Not only that, millions of dollars of Foreign Direct Investment (FDI) often accompany resource exports.

For workers involved in the resource sector of a nation, it is unquestionably a positive development. Many other businesses and citizens at the periphery of the resource sector benefit too.

But does resource extraction benefit the rest of the society? It is heartening when one sector experiences strong growth – but when that rapid economic growth is limited to a small proportion of the population, tensions can become inflamed.

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

Rather than develop the resource sector to the exclusion of all else and hope the rest of the society holds itself together — it would be prudent to tax all raw resources which are leaving the country.

In that case, comparatively few people will still make a good living directly from the oil (or other resource) company, while the rest of the country benefits in other ways from additional government spending on programs like improvements to national infrastructure, such as airports, highway systems, rail transportation and hospitals and schools on account of the tariff revenue.

When governments take in additional multi-millions of dollars from raw resource tariffs they will have additional money to improve services across the country.

The one thing governments shouldn’t do is add a tariff when resource prices are high! The major powers in the world will not let that happen as prices begin to skyrocket because that will add to uncertainty in the stock market and huge pressure will be brought to bear against any government attempting such a thing.

The time to add a small tariff is now, when prices are comparatively low and therefore, complaints will be few. Prices won’t drop much anytime soon. Due to the supply and demand equation they will be more often rising in the coming decades.

As we know, many African nations export significant amounts of unrefined oil, raw metals (ore and ingots), minerals or uncut and un-mounted gemstones. When African nations implement a 5% tariff on every exported tonne of resource — or barrel of oil — their economies will fire on all cylinders and with little complaint from rapidly growing and resource-hungry nations.

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Why Resource-based Economies Need Tariffs

by John Brian Shannon

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

The usual solution to the inevitable slowing of a resource-based economy is to facilitate ever more extraction — in the hopes that more resource dollars will stimulate growth and compensate for the lack of progress in other sectors.

Time and time again this fails to work and to make matters worse, other sectors of the economy grow weaker in almost direct correlation with mounting resource exports. Manufacturing often takes the greatest hit.

Moreover, resource-rich countries often do not pursue sustainable growth strategies. They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer. Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments. — Stiglitz

The government line on this is usually; “We should concentrate on what we do best.” Which is fine except that in so doing, the rest of the economy slowly slips toward the day when the government must then announce; ‘The majority of the resources are gone, we now must rebuild our economy from scratch.” This is when economists are finally consulted and listened to — but are then expected to solve the entire problem by the weekend, with nothing more than a magic wand and an algebraic/transcendental incantation.

Resource-based economies should commit to robust and long-term economic development throughout the economy well before such cantrip is required.

Real development requires exploring all possible linkages: training local workers, developing small and medium-size enterprises to provide inputs for mining operations and oil and gas companies, domestic processing, and integrating the natural resources into the country’s economic structure. Of course, today, these countries may not have a comparative advantage in many of these activities, and some will argue that countries should stick to their strengths. From this perspective, these countries’ comparative advantage is having other countries exploit their resources.

That is wrong. What matters is dynamic comparative advantage, or comparative advantage in the long run, which can be shaped. Forty years ago, South Korea had a comparative advantage in growing rice. Had it stuck to that strength, it would not be the industrial giant that it is today. It might be the world’s most efficient rice grower, but it would still be poor. — Stiglitz

The problem of course, is how to fund the necessary investment in the non-resource economy. And what level of funding do non-resource sectors enjoy at the present? Less than you might imagine.

Of all solutions, the simplest usually work best. Which is why a nominal export tax is a necessary ingredient to any resource-based economy to assist the national economy maintain a quantitative balance.

After all, taxing natural resources at high rates will not cause them to disappear, which means that countries whose major source of revenue is natural resources can use them to finance education, health care, development, and redistribution. — Stiglitz

There is little need for domestic resource taxes in nations where the majority of resources are exported. Such ‘recycling’ of citizen’s money adds little ‘new money’ to the economy and irritates voters, while the most efficient economic performance enhancement available comes from export tariffs and FDI.

Both export tariffs and FDI revenue streams represent new money entering the system which means unlike domestic taxation, citizens are not paying for other citizens employment programs — foreign interests will be paying that bill.

When resource-based economies implement a 5% to 8% export tariff on every exported tonne of coal/metals/minerals, or barrel of oil, their economies will fire on all cylinders — and with little complaint from the rapidly growing and resource-hungry nations.

John Brian Shannon

Export nationalism — MY COMMENT

by John Brian Shannon

Read Hans Kundnani’s article here.

The solution for more success cannot be aiming for less success!

But this is one of the counter-intuitive prescriptions being offered up to Eurozone members in order to stabilize an imbalance presently occurring between uber-successful Germany on the one hand — and the (economically, at least) failing Eurozone member nations on the other hand.

The astounding post-WWII success story named Germany is one that other nations in Europe should be emulating.

Instead of Germany trying to slow down to the speed of the other Euro nations — those nations should be gearing-up with German assistance, to become full partners in Germany’s success. Which will then become their success!

Let me say it another way. When one finds a good working model, one does not abandon that model – he seeks ways to improve on the performance of that model.

There is nothing wrong with the German model. I quote your words, Hans, to prove my point: “Germany will have a trade surplus of $220 billion in 2012 – bigger than any other country in the world, including China. (The institute predicts Germany will also have a trade surplus with China for the first time since 1988.) If there is a new “economic miracle”, it is one produced by exports.”

What needs to happen in Europe is harmonization with Germany — not the other way around, for such would be a slow spiral of economic death for the continent.

How would that work in practice? In this post, I describe but one way out of many possible ways to accomplish that goal.

All manufacturers know about ‘just-in-time-delivery‘ of parts to a manufacturing location. It is the time-tested method (and really, the only method in use nowadays) for cost-effective and profitable manufacturing, whether it be ‘white goods’, cars and trucks or electronics — among other manufactured goods.

The Euro nations need to produce billions of parts for German manufacturers and reliably deliver them in a timely fashion to German companies. This way, nations become part of their own solution and part of Germany’s success — which leads to an even greater Eurozone success story.

The ‘have not’ nations of Europe must become part of the solution, becoming ‘have’ nations in the process. And they can if they follow an outstanding (and longstanding) German success model.

In a larger context, the next 24 months may well be Europe’s coming-of-age moment, the place where it shakes off U.S. post-WWII control and direction to become a fully-fledged sovereign entity with a semblance of shared success and wealth – or it will begin a long, slow regression into what it once was, a collection of fractious, medieval states.

John Brian Shannon

Related articles

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

Another Bank Bailout – MY COMMENT

by John Brian Shannon

MY COMMENT ON PROFESSOR PAUL KRUGMAN’S ARTICLE BEGINS…

The great sucking sound that everyone is hearing these days is the sound of capital leaving the Western economies by the billions – perhaps trillions of dollars – over the past few decades.

Money goes where the investments pay the best returns – and these days that means the BRIC countries (Brazil, Russia, India and China) and other rapidly developing economies. As uncountable billions leave the Western economies, the jobs attached to those mega-billions go with them. Is it any wonder then, that some of the weaker Western economies have been in free-fall for some time? No, it is not.

A great deal of lamenting has been gone on in recent months – but the geomacro-economy has been changing and will continue to change as it reflects the new and evolving reality, for one simple reason – “If we continue to do what we have been doing, we can continue to expect the same results.”

And what is that result, exactly?

I quote Professor Paul Krugman – arguably the leading economist alive today: “An old routine plays out in Spain, with the banks getting help while the unemployed continue to suffer.” Read Professor Krugman’s excellent article here…

Bought anything lately that ISN’T Made in China? Clothing labels or manufacturing stampings could also read Made in India, Indonesia, or any number of other fast-growing economies.

Our consumers demand lower-priced goods and services, so foreign nations have gratefully fulfilled those requirements – effectively transferring Western wealth to third-world nations in huge, glorious gobs of U.S. and European bank notes!

It is said in China these days that one must watch the sky carefully for all the Manna falling from Heaven – which is falling in the form of chunks of gold large enough to take out entire city blocks!

Lest you think this is a recent development, it all started in earnest about 1973 shortly before the Arab Oil Embargo, when oil prices suddenly shot up and Detroit’s thunderous, but thrilling V8’s became unaffordable for millions of workers in nations used to interstate highways serving distant suburbs, spirited driving on the autobahn, and long summer vacations involving hundreds of miles of travel.

Japan at the time and still to this day, exports huge numbers of cars to the West and enjoys a growing market share of (mostly) fuel-efficient vehicles – and the ones that can’t boast good fuel economy, can certainly brag about outstanding reliability and brand-loyalty.

Since the 1990’s, South Korea, China, Indonesia, India and others have also stepped up to fulfill the wants and needs of American and European consumers with everything from home appliances and personal electronics, to tools, clothing and just about anything else you might purchase. Lower labour rates and production costs in Japan, then Korea and now, China, India and Indonesia, allowed more R&D spending, better products and lower prices for consumers and business alike.

Of course, those are all great things. It has been a decades-long bonanza for consumers, businesses and even the governments of the Western world are able to lower their costs by purchasing cheaper and often, more reliable goods from Asia.

American and European corporations have gladly followed this trend and contributed mightily to those developing nations attempting to service the wants and needs of Western consumers. If you doubt me on this – just do a Google search on Apple Computer for just one of many examples of U.S. companies which have elected to have their goods manufactured in China or other rapidly growing nations, instead of the U.S. Check Apple’s stock price in 1990 (mostly U.S. production) vs 2011 (mostly Chinese production). Impressive by any standard but not unusual, in fact, this Western-inspired trend is well established and continues to this day.

One day soon, there will be no manufacturing capacity in the U.S., Canada or Europe. It is dramatically cheaper to have it all done inside the BRIC countries and export those products to the West. Costs are so low, that shipping millions of products thousands of miles across entire oceans, becomes a tiny factor of the final price paid at U.S. or European cash-registers.

The “real price” of that huge manufacturing shift continues to play out in the daily media – higher Western unemployment rates, longer welfare rolls, lower domestic production, real-estate bubbles, bank failures, bank bailouts and so far, about one decade of destroyed dreams for families and small businesses.

But, man, did I get a great deal at the mall today!

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