The balance of the world’s economy has tilted on its axis and Europe faces decades of comparative hardship.
There is an irony in at least one aspect of the European economic crisis. It is that, having used cheap labour from East Asia to produce a plethora of goods throughout the boom years of the latter part of the twentieth and early years of the twenty first centuries, governments are now going cap in hand to the Chinese and asking for our money back.
In order to understand how this situation has arisen we need to first understand two things that some people seem to have lost sight of. The first is the inherent nature of money and the second is the history of trade and development.
Money has no intrinsic worth. Its value lies in the fact that it can be exchanged for goods and services. Supposing someone is mad enough to pay me to write an article, I use that money to by food and clothing, to heat my house, run my car and so on. The people from whom I purchase those things then use the same money to obtain the goods and services they need. International trade is no different. A country, let’s call it Ireland, buys raw materials, goods and services that it is unable or unwilling to produce for itself. In return the supplying country buys goods and services from Ireland.
Natural Resources Plundered
At least since the industrial revolution the countries of northern Europe have plundered the natural resources of the countries in Africa and Asia that it colonised, using those resources to produce goods which they traded amongst themselves. Until the middle of the twentieth century the indigenous peoples of these non-European countries were poorly rewarded for the effort they expended in reclaiming those resources. More recently control of these resources was ceded to the indigenous people whose leaders behaved every bit as despicably as had the colonists towards their fellow citizens; often more so.
Meanwhile the nations of northern Europe had discovered two things: they could use the same cheap labour to do the manufacturing and they could pay for it with a fabulous form of alchemy they called “financial services” which basically amounted to printing money. The result is that all of us here in northern Europe have unimaginable numbers of gadgets and appliances, all with the built-in obsolescence we designed into them, whilst the nations of East Asia, especially China, have lots of paper money. In the traditions of trade as described above it might be expected that the Chinese would use that money to buy goods and services from us Europeans. The problem is that we have very little that the Chinese need. So, instead of being able to sell things to them we face the ignominy of holding out a begging bowl asking for our money back.
Commodity Prices Rising
What are the Chinese doing with that money? Using it to further exploit the same natural resources that we originally laid claim to and, in the process, pushing up the price of those commodities in international markets thereby making things even tougher for us.
In short, the economic balance of the world has tilted on its axis. We in Europe are no longer in control. China and the countries of the Pacific Rim are. If I am right we have to get used to the fact that in future we must either pay more for, or find ways of doing without, those resources that are not available here in Europe. That, in turn, means that the “austerity measures” now being introduced by governments across Europe and resisted by ordinary people are but a cool breeze in comparison with the icy blast of reality that is yet to come.