A wide, wild world
An Editorial I wrote for BusinessMirror, Posted March 8, 2007
ANALYSTS attributed last week’s global stock market plunge to two major factors, namely the fall in China’s stock market after the Chinese government announced a crackdown on stock price manipulators and the recent negative data coming from the United States.
What many analysts did not focus on so much is that the event may signal that we are now in a “post-US” world that could prove to be full of uncertainties.
We used to say that when America sneezes, the rest of the world catches cold. These days, following last week’s stock market plunge, analysts are wondering whether or not the country will catch fever.
Concerns over the prospects of the economy saw the government and private sector analysts trying to spin the issue down. Our fundamentals, they say, are sound. The local economy, they say, won’t be hurt because only the rich play in the stock market. Our main drivers of growth are dollar remittances by overseas Filipinos. Recovery, they say, is going to be immediate.
Theirs is strange behavior because in reality no one knows how the markets globally would behave. Trading in the stock market is all about greed and no rocket scientist has yet figured out how to ride and predict the behavior of this unruly tiger.
The current scene is a sea change from a period when all an analyst would do to divine the country’s prospects is by just looking at America’s economic vitals. Is America’s consumer-confidence high? Are Americans building more houses? Are they buying more cars and gadgets? Is the American economy generating more jobs? These were the common questions asked. If the numbers look good, we were then also supposed to feel good, as it would mean rising purchases of our exports.
Now analysts are increasingly watching the moves of policymakers in China. And rightly so because, combined with Hong Kong, China these days accounts for 18 percent of the country’s merchandise exports. Many of our business elite are doing business there and local economic managers are hoping that by hitching our fortunes to the Chinese star, we might just grow out of our own misery. So overall, it’s a nice development since, with diversifying markets and global linkages, we could develop greater capability to deal with external shocks.
Indeed, China is currently the main driver of global economic growth. This trend is part of the ever-increasing spatial shift in wealth creation toward the Asia-Pacific region. Recent statistics show that the combined output of “emerging economies” now account for about half of the global output. “Emerging economies” here are actually mostly about China, India, Korea, Singapore, Russia. That means we are right smack in the vortex of these wealth-creating powerhouses. If we could play our cards well, we might yet achieve the higher growth levels and prosperity that we all desire. Or so they say.
With this spatial shift in wealth creation towards the Asia-Pacific necessarily comes a shift of political power as well. Observers wary of American dominance in global affairs are therefore happy that this trend may yet usher in a “multipolar world.” Certainly, a diversifying global market, coupled with the shift towards multipolar international relations, should sound like an ideal state for a globalizing world order. And yet, it’s in this situation that we are starting to raise our doubts about the future.
Why? Because of two things. First, it means that there wouldn’t be anyone to lead the global economy toward a meaningful conclusion of the Doha Round of Trade negotiations. There’s no doubt that expansion of global trade in the last two decades came as a result of the opening of markets with the signing of the Uruguay Round agreement. That agreement, which ushered in the World Trade Organization, brought wealth to the Asia-Pacific through greater flows of investments, trade in goods and services, and technology. Initially, the Europeans blocked the Uruguay Round but the leadership of America under Bill Clinton broke the deadlock. Specifically, European intransigence gave way to compromise when Bill Clinton pushed hard for free trade within the region through the Asia Pacific Economic Cooperation (Apec).
But the gains from the Uruguay Round agreement proved inadequate to address poverty in many nations; hence the Doha round emerged. But with President George W. Bush preoccupied with the “war on terror” and the continuing flurry of bad news in Iraq and Afghanistan, America has been distracted from playing a leading role in the negotiations.
Its war on terror and America’s worsening twin deficits have lowered its prestige and ability to exert positive influence. Without such leadership, it’s possible the world will descend into the chaos of regional trade blocs that distort the flow of trade.
And second, given the continuing flow of investments and the transfer of jobs to Asia-Pacific, some demagogic politicians in the West might yet resort to protectionist policies that will harm the global economy. Given the fact that close to 60 percent of the country’s GDP is accounted for by the globalized sectors, among the first to be hit by such policies would be the Philippines.
This is a very dark scenario, of course, but possible—given the fact that no one among the current global players and emerging ones has what it takes to lead the world toward a more liberal trading order. Not Europe, which is not capable of generating consensus on the reform of its own Common Agricultural Policy. It’s too fixated on its own navel to be an economic global leader. Not Japan, which is scrambling to address its own problems, including the graying of its population. Not China, whose main preoccupation is grabbing every available natural resource to fuel its own frenetic growth.
And certainly not Putin’s Russia. Because of rising prices of natural gas and oil, Russia has been experiencing rapid economic growth and accumulated quite a stash of cash to bully its neighbors. It certainly has gained a lot of economic clout but it’s the kind that sends shivers down people’s spines.
Consider this: Russia’s rise to power and influence came largely from the turbulence generated by uncertainties in the oil-producing region, specifically the Persian Gulf and the Middle East. Apparently, it doesn’t seem to have any economic incentive for a geographically stable Middle East.
A safer multipolar world? We should think again and figure out how to put up the Philippine economy’s defenses.