America sneezes and Asia hands it a tissue : Why Davos is losing value

As there seems to be no end to the Western financial crisis, any number of conferences like Davos will not bring up answers. I say Western deliberately. It is a crisis of the Western economies caused by Western financial imprudence. Gone are the days when ‘When America sneezed and the world caught flu’. Now Asian economies have enough robust internal demand and domestic growth to ride out an economic depression in the US. To me the greatest indicator is domestic tourism. As people have more surplus income, those that take holidays and travel within their countries spread that income around and at the same time people become culturally inclusive. The boom in domestic tourism in India makes me wonder whether we need to now run a campaign called ‘Incredible India’ any more. It has not worked all these years any way as even Thailand gets more tourists every year !!

My recent travels to mainland China and Hong Kong confirmed this. In The Forbidden City at Beijing, Chinese tourists with the latest digital camera’s, baby’s and picnic baskets in tow, far outnumbered western tourists. In Hong Kong cooing and giggling mothers and daughters could not stop taking pictures of my daughter. She was surrounded by Chinese people and I realized they were all from Mainland China and had never seen an Indian child before – they just marveled at her big eyes.

(Of course there is a environmental issue in tourism that must be very carefully handled)

Back to why Davos is losing value. Because the fundamental issue with the Western Financial crises is that they can no longer afford the standards of living that they have become used to. Not only in absolute terms but also in relative terms. Because standards of living often are determined by ‘how the others live’. When I was being educated, our standard of living was mirrored by how an American family lived. Our education mirrored by American and British standards of education. Our cultural desires and aspirations too mirrored by American music, movies etc. I am sure that the rising number of billionaires in India, the incredible rise of telecom in India, the stranglehold of China on Rare Earths, that the largest search engine in the world in not Google but a Chinese co, and the huge investments China is making in resources in Africa, outbidding the US at every step etc etc, is all causing consternation.? For the West can no longer console itself by calling this a ‘rising potential market’ for it’s products. It is nothing less than a transfer of economic and therefore political power.

We are along long way from achieving those Western standards for all our people . Far from it. Because the western economies did attain a certain minimum standard of living for all, and for us in India and most of Asia, dis balanced and non inclusive growth is becoming a bottle neck. However the power of the Asian economies is rising so fast that at any negotiating table Americans and Europeans find themselves uncomfortable and unused to people who speak a slightly different economic language. Not only India and China, but now also Vietnam and Indonesia.

What is that different economic language ? That Asians have so long been living with tightened belts and higher saving/lower consumption patterns that in an economic downturn there is far far greater political manoeuvre room for the government than in the West. The political repercussions of President Obama saying that the only way now is for Americans is to forget the heady days of over consumption, and settle down to a couple of generations of lower benefits, loss of pensions, more unemployment and less goods, is political suicide.

The Western leaders are unable to state (or perhaps even to accept ) the truth. Till the voters in the West are able to accept these facts, all conferences like Davos will be just politcal and economic rhetoric.

Its is not that the West must now embrace China as a power, as the head of the World Economic Forum stated. It is that China must embrace the West. The rhetoric is all a little too late. The European economic doldrums can be lifted by China investing in the Euro and In Europe, not by the United States as was the case for the last 50 years.

The US does have pockets of economic resistance, fighting back. Mainly technology. Though it must be said that most new technology and high value business like Social Media and Computer technology etc does not generate high employment potential. It creates high wealth for the few, and if that is not is not invested back into the economy there is little value in it. Much of it is not. Most technology corps have moved their headquarters to tax havens, their production facilities overseas, and even their research centres abroad. They are in essence no longer US corporations.

Shekhar

22 Responses to “America sneezes and Asia hands it a tissue : Why Davos is losing value”

  1. […] This post was mentioned on Twitter by Nahum Gershon, Alan W. Silberberg, Jimit, Ali Sikandar, Deepak Vijay and others. Deepak Vijay said: RT @shekharkapur: America sneezes and Asia hands it a tissue. Has Davos lost its credibility? http://tinyurl.com/47frgml […]

  2. kavitha says:

    “We are along long way from achieving those Western standards for all our people …” — more than aspiring to achieve western standards, India should be aspiring to re-engineer and put itself back on track to the equitable standards of living that existed pre-colonialism.

    and,

    When America Sneezes….Asia should be handing it, not a quick fix tissue, but ayurveda, yoga, and tai-chi 🙂

  3. Janita says:

    The financial crisis was(only thoughts, i dont know if right or wrong,no warranty like a Gedankenspiel) of voracity for more money, power, the lack of control over banks,shortage of real equivalent- corresponding counter- value(for example stock exchange )and speculation- driven.Now there are problems like inflation, lot of debts(private and banks),commodity of prices are rising, Hedgefonds, too little transparency, egomania(save me first) plus pollution of our environment, demographic change, technological change,rising prices for food and unrest in different countries…

    I don t even know one politician who is known by his/her reputation for honesty.

    Economy should be done with diligence, care for all, sustainability, social equity , fairness and self-regulation.
    I feel sick listening to people who are talking about human resources ,like talking about a thing and not about us.
    I don’t like the word career, financial stability or soundness of a currency
    .-It’s only printed paper, it s not worth what we think.
    To print money cost less than 1% of it’s value. It? worth because we assign it a value.

    Right China, India and Asia in general – the power of the Asian economies is rising very fast.
    I can accept this true well.

  4. mukand says:

    What supports that claim?
    Why would it be in the best interest of the Chinese government and economy to invest in European markets and industry compared to the United States?

    Things maybe more expensive and select incomes may achieve higher revenues when compared to the United States, but that is only matched by the living standards in the respective country and or environment. In many respects, the EURO is losing its affluence as a direct result of lesser developed economies being honored to the organization. The situation in Portugal and Greece demonstrate these liabilities.
    Therefore, it seems that an accumulative investment must be directed towards Western Europe as a whole, which means the Chinese government and economy cannot afford to take the risk of investing merely in one European country. This causes greater problems economically, each country has its unqiue economic precondition. A sudden downfall in one country presents a shortcoming that another member must cover in order to avoid a fall in the value of the EURO.
    Therefore, the umbrella of influence becomes continental, compared to the United States, you have the ability to avoid between one major system and which ever state sphere seems to be more stable, the additional investment can be made accordingly.
    In the end, this does leave us with an interesting situation that highlights that vast economic liabilities that have plauged Europe for decades. At the dawn of the twenty -first century, especially when we observe the developing economies out of the former Soviet bloc making their entry into the European Community, a shortfall is only bound to happen.
    he European Union hopes to outsource labor to lesser developed countries on the continent similar to what American corporations are doing in the Far East. The underdevelopment of infrastructure naturally creates a wide disadvantage to the nation in question. In turn Western European corporations seek to resort to the same tactic observed by American corporations.

  5. KayEm says:

    Hi Shekhar,

    I enjoyed this post. Just yesterday Obama addressed both houses and the American people in a televised speech. Much of it was about what the Democrats were planning etc.

    First of all, he always speaks well. But two statements struck a chord with me. When he said nobody would want to be in any other nation, I thought he was quite mistaken had to reject that notion. Ask the citizens of any other nation, is what came to mind

    But when he said “We do big things” I had to agree whole heartedly. They do. They have. And I like and admire them for that.

    But you are right. Today, there are other great economies to admire. Also, we have so many challenges of our own to occupy us. The people below the poverty line as you mentioned, the environment, corruption, bribery etc. Re the environment, whilst I hope our government has the will to address this issue, there is so much we, the ordinary people can do. Simple things like plant and nurture one tree, convert our organic garbage to a reusable resource like compost (it is easy), cut down on our use of electricity, appliances, our cars and UNITE in action against corruption. After all, whose voice is stronger – a billion lone individuals or a billion strong force?

  6. Chaitali Shah says:

    Obama makes more of normative statements..

  7. brahmastra says:

    Watching Obama’s State of the Union the other, it was almost unbelievable that the circus clowns sitting in that hall with all their shallow, stupid and facetious theatrics really hold so much power in this world. These ignorant people go on and on about bringing change and solutions giving each other false hope while they are inside a sinking Titanic, because they can’t reach the core..they can’t get to the roots of their lust for greed, indulgence, addictions, fear and domination. US Capitalism and Chinese Communism are the result of causes that range from a bad diet involving pigs to faulty belief systems. Of course, this is now true of all countries in the world.

    But still, the US of A is a good country which is evolving well because of multi-culturism, and one should hope that they maintain their domination over the world in alliance with India, else the Chinese and Taliban are going to make you pray namaz in Mandarin.

  8. brahmastra says:

    ..in your mining hat.

  9. Horst Vollmann says:

    Shekhar,

    there isnt a great deal of arguments I could find that would refute what you are saying. When you speak of the west I am sure you predominantly are referring to the U.S. America has now reached a watershed in the way economical and social precepts are viewed and applied. Much will depend on which political party is given the power by the electorate to write the pages of the next utterly crucial 10 years narrative of Americas way of life. It appears that 50 % of the U.S. populace is on a lemming gallop towards the symbolic cliff and the other 50 % are not yelling loud enough to make them stop. I dont think there has been such a polarization, not just of the political parties but also of peoples opinion in many decades. Never has there been so much anger, even hatred among people who speak the same language, have the same customs and often live on the same street, sometimes in the same family since the times of the civil war. There is a martial tone that has entered public discourse, civility has become a word that is being sneered at. There is a rawness to the emotions that right- and left wing demagogues are churning up among a populace that clearly has lost its way and needs to agree on a huge time-out.

    I believe the ranks of those are shrinking who still cling to the juvenile and naive notion that America has its best days ahead of it. Even the calculated optimism, practiced by those who do not understand the rudimentary laws of economics has lost its shrillness. There is a lot of whistling in the dark going on by those who definitely know better.

    There is a fork in the road America has come to and decisions will be made that more than 100 million voters will only marginally have the power to influence. I believe that Barack Obama has the right ideas but not enough power in the congress to implement them. What amazes me is the fact that highly educated and sophisticated people vastly differ in the choice of remedies to bring their country back to the glory days of the last century, to the days when their middle class was sound and well. It is stunning how unwilling even Americas intelligentsia is to criticize utterly mediocre demagogues who are sprouting up in a climate of heated rhetoric.

    As America goes through an exceedingly difficult phase in its at times tortured history those countries that are storming ahead to turn their societies into lands of plenty will unquestionably stumble into their own home-made crises, will experience their own waterloos. No nation has ever accomplished a smooth and linear run from second and third to first world status without having to cope with the birth pangs of establishing capitalist societies. There will be a host of traps and deep falls from dizzying heights. I have little doubt that the advances in nanotechnology, information science and molecular biology as well as the search for alternate energy sources will have many challengers to Americas claim to be the leading contender. But I strongly believe that the U.S. will not settle for too long for a diminished role in leading the world in most of the categories that are now challenged by China, India and a few south-east Asian countries.

    America may find its way again in as little time as two years when all the promises made by the winner of the midterm elections will turn out to lack substance and foundation in sound economic principles. The timing might just be right for Barack Obama to win a second term through a sobered up populace which will give him the mandate to make good on those promises he so eloquently presented at his last state of the union address.

    Could I sing a more somber song with a less than optimistic ending, with a U.S. that will slide through all the stages of decline into irrelevance, eventually even losing its military dominance? Could I conjure up a scenario that will see America putting on the heavy mantle of ignorance and fundamentalist dogma? Yes, I guess I could. Could it likely happen? No way. And I dare say that the world would not be a better place for it if I were wrong.

  10. brahmastra says:

    America’s problem is very simple and the same as what is plaguing the other countries. Indulgent lifestyles have given rise to totally unethical corporations and social leaders that are destroying the younger generations. All this complicated talk about economics and politics is so in vain.

    The simple fact is that America’s younger generation has been on a steady and rapid decline..they don’t get enough education, they have growing addictions to legal and illegal drugs..forget about alcohol, they live in a synthetic world of video games and social isolation, there is no stability in the family structure with more than 50% divorce rates, it’s just a growing mess – and blame games intensify as a result..very few people want to reflect. Nobody every addresses the roots of the problem.

    The only hope for America or the world is if India goes back to its Vedic roots and establishes a new world order!!

  11. Janita says:

    Dear Horst,
    you understand a lot of economics and the the system which is standing behind.
    What do think of Mr. Obama monetary print ?
    Gelddruck ohne realen Gegenwert zur Sicherung des wirtschaftlichen Aufschwunges?
    Janita

  12. Gilsch says:

    The Millennial generation will likely be the one to decide if America stabilizes amid a shift of economic power to Asia or ends up sliding towards perpetual decline and even breakup. The excesses noted by brahmastra are more on the shoulders of the Boomers and Xers. The cycle of history, as noted in the book “The 4th Turning” are repeating.

  13. umar says:

    Conferences can’t sove crises just as debating societies cant’t. u r bang on dere. thnk og mkng movie on dat a la wall street meet dala would b e fun but w/o spl; effects in liz2 plz .

  14. Horst Vollmann says:

    Dear Janita,

    der reale Gegenwert ist der wirtschaftliche Aufschwung, der zu hheren Steuereinnahmen fhren soll. Barack Obama is not printing the money, nor is he ordering the printing. The Federal Reserve, independent in its actions, uses quantitative easing as one of various tools to stimulate the economy. I have no problem with such methods, particularly at a time when the risk of inflation as a result of newly printed money is definitely manageable. The current inflation rate of 1.5 % is well below the alarm threshold set by the FED. The more profound question is whether or not such steps bring the desired results. The Keynesian macro management theory has for sure enjoyed a comeback from the days of Milton Friedmans micro economics with Paul Krugman being a strong adherent. According to him Barack Obamas stimulus package was woefully inadequate in its scope. If it had been up to the Republican party there would not have been a stimulus at all but rather a stern austerity program. We are lucky we did not have to find out the results of such ill-conceived plan. Still, the Democrats, who back in 2009 had the necessary voting power, did not have the political courage to go all out and implement a stimulus with the emphasis on rebuilding the crumbling infrastructure rather than wasting a crucial percentage on tax cuts for those who did not need them. The result was a watered-down version that by October 2010 showed $ 148 billion spent so far on re-building infrastructure and $ 244 billion having gone to tax breaks. No wonder that the desired outcome could not be achieved and that Barack Obama was maligned as a failed President, unfairly so to be sure.

    Had Barack Obama had the backing of his often gutless party that stimulus plan would have been closer to what Paul Krugman had suggested and a very significant portion would have gone towards infrastructure rebuilding. I dare say that the unemployment rate today in the U.S. would be significantly lower, the Democrats would not have lost their majority status at the midterm elections and Barack Obama would have been hailed as a visionary, being virtually unbeatable in 2012.

    So ist das Leben.

    Horst

  15. Janita says:

    Thanks for your reply.

  16. srivats says:

    I would accept with your title, it is literal. Unless China makes them ‘Bounty’ Americans cannot wipe themselves.

  17. AJ says:

    TV and videos: not for my baby

    Think outside the box.

    Babies tend to learn best through interactive activities that engage as many senses as possible. Whether youre playing peek-a-boo or just chatting with your baby, youre teaching skills that help develop your babys brain.

    So how does watching TV contribute to babys development? The truth is, no one knows. No TV show, video, or DVD has ever been proven to help babies develop. But there is some evidence that watching or even listening to TV could disrupt your babys ability to concentrate and possibly slow her language development.

    Commercials aimed at young children are remarkably effective. And half of all ad time on childrens shows is for food; mostly candy, snacks, cereal and fast food. It might not surprise you to hear there is a strong association between the amount of time spent watching TV and childhood obesity.

    When it comes down to it, time spent watching TV is time that could have been spent on other, more valuable relationship building and exploration activities with your child.

  18. Maha Gyani says:

    Shekhar ji ,
    If 18th century saw Renaissance or cultural revolution in Europe
    20th-21st century saw Industrial and Information revolution in America

    The new Age will see a Spiritual Revolution or Human Revolution which will be lead by Indian thinking and Human Race will again ask the age old Question of TO BE OR NOT TO BE and eternal quest of life and death and highest purpose of life and that quest will lead closer to nature and god .

    Thanks
    Maha Gyani

  19. Janita says:

    Iit already started in Egypt.

  20. Kesav Menon says:

    It aint losing value. it never had value.

    Journalists are some of the most pompous folks you will find. This event was created by
    a journalist.. The swiss locales attract people in power and news media is just eager to carry it.

    It draws strength from the need of some people to publicize

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