Western myopia and US triumphalism
dominate this year's World Economic Forum
by Philip Bowring
Davos: Western Economic Forum might have been a better title
for this year's Davos annual meeting of the World Economic
Forum. Asia, and indeed most of the rest of the world, was
barely on the screen. The Asian crisis was assumed to be last
year's story, and the next Asian challenge not yet on the
With its high powered delegation headed by vice-president
Gore, Treasury Secretary Rubin and assorted technology
wizards, the US was, at least in public, brimming with
optimism about its internet inventions, its growth rate, its
role as driver of an otherwise sluggish global economy. Europe
was more muted but still smugly satisfied with euro launch and
the prospect of increasing Europe's weight in world affairs.
All of which may have been fair enough given the state of the
world today. But what about the future? The fat years do not
last forever. Many recognise that internet stocks are a bubble
and the US economic expansion may be in its final phase. But
what will happen to the rest of the world if the bubble bursts
this year and takes the US economy with it? Curiously, there
was scant discussion of the subject though Davos is supposed
to be forward-looking to future shocks and opportunities.
Western feelings of comfort notwithstanding, in so far as
there was a consensus, it is by implication quite a gloomy
one. Without the US consumer the world, it is assumed, would
be in awful shape. European demand is flagging despite the US,
Asia has, at best merely stabilised, and most of the
developing world has been set back by falling commodity prices
and the deflationary impact of currency and debt problems in
Russia and Brazil.
If that it is the correct analysis, one would have expected
the assembled leaders to take more seriously the need both to
spur European growth and reverse the illiquidity facing
developing countries as a result of capital exodus and IMF-
driven high interest rate aimed at currency stabilisation.
The west's endless criticisms of Japan's inability to escape
from recession would be taken more seriously if Europe itself
was not continuing to run a huge current account surplus and
doing little to stimulate capital flow to Asia and elsewhere.
The west badly needs revival in Asia and the developing world.
The US expansion and trade deficit are dangerously
overstretched. Europe's demographics suggest it could have
almost as much difficulty as Japan in promoting domestic
So much for gloomy global scenario. One can sketch two
contrary ones that are gloomy for the US, but not Asia.
Both involve paying more attention to the non-western world.
The first is that a bursting of the US bubble will, contra
most assumptions, be a stimulus for Asia and even Latin
America. Capital will stop flowing into the US and will move
back to Asia, Brazil etc enabling currencies to strengthen,
interest rates to fall and local demand to revive. The gains
from resurgence of domestic consumer spending could more than
offset weaker exports caused by US market contraction.
The other possibility is that Asian consumer demand will, of
its own accord, pick up this year much more than is assumed,
causing a reversal of deflation in prices of cars, chips and
even primary commodities. That would bring to a sudden end to
the rosy assumption in the US that wages can keep growing at
4%, money supply at 10% and prices at 2%. Such a reversal in
the benign terms of trade the west has been enjoying would
send a shock wave through Wall Street and a lesser one through
Frankfurt. It would also mean that IMF would have to read
their lecture notes back to Mr Rubin -- an unexpected triumph
Viewed through the Davos prism, the west looks suspiciously
like southeast Asia three years ago, Japan in 1990 OPEC in
1980. The party may just last through the millennium. But the
unsustainability of today's imbalances was the ghost at the
1999 Davos feast.
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