Looking Inward

["Gary Santos" <evs@xxxxxxxxxxx>]

China is not complaining. It has the lowest labor rates in
the world and a remarkably dynamic manufacturing sector.
Its people save 25% of their incomes (the most recent
figure for Americans was less than 2%) and has linked its
currency to the dollar, so a falling greenback makes
Chinese goods even more competitive. Other nations will
have to lower their currencies too, in order to avoid
losing market share.
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First, that predatory trade (the trade structure that Henry was talking
about) might only give $0.18 to every dollar exported by them. Second,
the news the other day that Central Banks have and will continue increasing
reserves, might lead to the competitive devaluations which will only
exacerbate already weak exporting economies. Warren has pointed out that
this will also mitigate any relief to the US current account deficit. What
weak policy
responses to a situation that can only lead to further imbalance. Barbara
Tuckman's "A March of Folly" has another chapter.

But, I ask, should countries put less emphasis on globalization, abandon
this alleged "high growth" path and, instead, opt of a more sustainable,
"lower growth" strategy by looking inward? I don't know how much growth and
equity can be squeezed out of a set of "inward" policies but to pursue
devaluations, giving foreign investors 10 year tax holidays in the LDC's
where their long term contribution to the domestic economy is paltry and
sacrificing domestic manufacturing in the developed world and improting
deflation does not strike to me as better. There must be some other
alternative.

I know that there are anti-paradigms -- it may entail "selective"
protectionism in areas like food (US chicken can be sold at local production
cost same as corn) and thereby invite WTO sanctions, it might entail
stopping deregulation (not opening the banking, mining, etc. to 100% foreign
ownership thereby spreading the wealth around). Go through the Washington
Consensus enumeration and tick off the ramifications.

Is it not possible that a moratorium on trade and financial liberalization
be put in place? Is it not better to realign, by United Nations or whatever
decree, exchange rates to what they were way
before the Asian Crisis? Maybe Bush should put this on top of his agenda
instead of. The repercussions on the US economy will be cheaper than
otherwise? And, when things stabilize then the world may be better equipped
to address terrorism and its roots. (If the terrorists attack in the interim
or anyone else continues to pursue WMD's in the meantime, well, to hell with
them. Bush is right.)