| Losing Control: the Emerging Threats to Western Prosperity |
| Stephen D King, Yale University Press, 2010, 304 pages, £20.00. |
| This is an important book that identifies serious dangers facing Europe and the US. But Stephen King’s conclusions are too pessimistic. The book analyses correctly the big forces driving the global economy: massive shifts in the balance of power towards Asia; the rising tide of state capitalism, particularly in China; the growing importance of capital flows; and acute risks resulting from surging deficits and debt. But the book’s dominant themes – the relentless threats to ‘western’ living standards, and the perception of unavoidable ‘western’ decline – are too gloomy. |
| On present trends, China will emerge as the world’s largest economy around 2025, and its GDP may be twice as large as that of the US by 2050. In itself, this is not a threat. If the world remains benign and peaceful, poor people will catch up, and differences in population will be reflected in relative GDP sizes. Losing one’s place in the pecking order may cause psychological unease. A new political and military power balance will inevitably emerge. Countries with a sense of entitlement will have to make difficult and unappealing adjustments to a new reality. But the future need not be a zero-sum game. Rapid growth in the emerging nations can have positive long-term effects if serious blunders are avoided. |
| King does not, though, give sufficient attention to the very real risk that China may not be able to sustain uninterrupted rapid growth in the next few decades. China’s progress faces many hurdles: explosive social tensions resulting from the huge gender imbalance; fast degradation of its environment; growing difficulties of maintaining political legitimacy in a one-party state; growing dependence on natural resources; and excessive reliance of its growth strategy on exports and investment. These factors are serious potential threats that could derail China’s advancement, unless radical and controversial policy changes can be implemented. |
| The book’s concentration on ‘the West’, as a cultural/political entity facing growing threats from increasingly competitive emerging nations, is problematic and obscures other critical issues. In spite of the affinity between the US and Europe, long-term economic and demographic prospects are clearly more favourable in the US. Indeed US demographic trends are superior to those of China, where the working-age population is forecast to peak in 2015 and then gradually decline. Amongst the BRICs, only India enjoys better demographics than the US. The risks of relative decline in the next few decades are most serious for Russia, Japan and parts of Europe, mainly because they all suffer from the effects of poor demographics. Focusing on ‘the West’ in this context is potentially misleading. |
| Global prosperity may be threatened by the emerging nations, whatever ‘the West’ does. The scope for future clashes between China, Russia, India and Pakistan is at least as big as the risk of conflict between China and the other BRICs on the one hand, and the US and the wider ‘west’ on the other. Stephen King is right to warn us not to abandon globalisation and not to resort to protectionism in a futile attempt to protect living standards. But by trying too hard to scare us with permanent decline, he risks triggering the harmful reactions that we all want to avoid. I have many reservations about King’s conclusions. But this is a stimulating and provocative book and is certainly worth reading. |
| David Kern |
| Kern Consulting and BCC Chief Economist |
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