the visible hand

it is the theory which decides what can be observed – einstein

decoupling or recoupling isn’t the question

Posted by ecoshift on July 31, 2008

While the current recession in the US will clearly hurt Brazilian and Chinese exports, and while recoupling arguments from Calculated Risk and Noriel Roubini carry significant weight I still find myself thinking that the distribution of power on the world stage has shifted. Formerly “Third World” economies seem to have the emerging domestic markets, the growing domestic managerial and manufacturing capacity and the low cost labor necessary not just to survive a global slowdown but to actually gain position and market share at the expense of northern economies in the process. I don’t see emerging economies as decoupled from the US economy, but I do see them as better equipped to cope and compete in an interconnected global supply chain. I believe the US recession will only intensify this process.

President Obama will be facing a different geopolitical reality than the one we have been accustomed to since the end of WWII. The assumption that we are number one due to the innate superiority of US entrepreneurial leadership could cause us to badly misjudge the dependence of emerging economies on US markets and the ability of US manufacturers (those that haven’t already moved to emerging markets) to compete on level global playing field — even with the declining value of the dollar. The message from China and India this week, coupled with the article below about Brazil’s compassionate economic successes, is that we are no longer able to insist on inequitable terms of trade with the “third world”. They want a level playing field and they believe the cost of insisting on equitable terms is less than the cost caving in to US pressure. US hubris could causes us to miss this transition point. They need us less. We need them more. They own our debt, they manufacture our goods, they breathe our pollution and they provide our raw materials. What is it that we provide again? Leadership?

Unless Obama can come to terms with these new geopolitical realities articles like the one below make me think real leadership will be coming from somewhere else.

Brazil Rides Wave of Growth as Larger Economies Struggle – NYTimes.com
By ALEXEI BARRIONUEVO
Published: July 31, 2008

…Brazil, South America’s largest economy, is finally poised to realize its long-anticipated potential as a global player, economists say, as the country rides its biggest economic expansion in three decades.

That growth is being felt in nearly all parts of the economy, creating a new class of super rich even as people like Ms. Sousa lift themselves into an expanding middle class.

It has also given Brazil new swagger, providing it, for instance, with greater leverage to push for a tougher bargain with the United States and Europe in global trade talks. After seven years, those negotiations finally broke down this week over demands by India and China for safeguards for their farmers, a clear sign of the rising clout of these emerging economies.

Despite investor fears about the leftist bent of President Luiz Inácio Lula da Silva when he was elected to lead Brazil in 2002, he has demonstrated a light touch when it comes to economic stewardship, avoiding the populist impulses of leaders in Venezuela and Bolivia.

Instead, he has fueled Brazil’s growth through a deft combination of respect for financial markets and targeted social programs, which are lifting millions out of poverty, said David Fleischer, a political analyst and emeritus professor at the University of Brasília. Ms. Sousa is one such beneficiary.

Long famous for its unequal distribution of wealth, Brazil has shrunk its income gap by six percentage points since 2001, more than any other country in South America this decade, said Francisco Ferreira, a lead economist at the World Bank.

While the top 10 percent of Brazil’s earners saw their cumulative income rise by 7 percent from 2001 to 2006, the bottom 10 percent shot up by 58 percent, according to Marcelo Côrtes Neri, the director of the Center for Social Policies at the Getulio Vargas Foundation in Rio de Janeiro.

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