The Case of China’s Economic Miracle and Germany’s Trade Surplus: An Age of Discontent
In the fifties of the last century the Italy’s economy grew at such an incredible rate that everywhere became popular the expression the “Italian Miracle”.
Helped and sustained by the diffusion of Italy’s everlasting fascinating culture (a lasting addition was neo-realism in movies) Italian products in fashion, processed foods, visual arts, leisure travel, the country reached top acceptance levels in world trade. Additionally, Italy also developed many powerful industrial sectors and reached a surprising high international level: 7th industrialized country in the world — much more industrialized (which meant a higher GDP) than the USSR, China, India, and South Korea.
That story would be incomplete if we didn’t point out that for several years the top economic growth rates were those of Italy, Germany (west for the moment) and Japan, the three defeated countries in the most stupid, pretentious and vulgar world war ever made. By the way that was not the Second World War, because the First World War was not that one at the beginning of XX Century, but that of Peloponnesus War that saw the rise of the best historian, Thucydides, after Herodotus, more able then the last one for moving his stories from chronicle to history, which is a bit more boring, but certainly a more concrete political tool.
Our 1940 – 1945 war was not the Second World War, because as Thucydides’ story makes clear, we have a world war when no country can refuse to fully engage on one side of the fighting. And in that Greek war, for the first time in history, no state was allowed to stay out of factually sponsoring one of the two contenders as some fascinating diplomatic speeches reported by Thucydides made clear, each country had to be participating friend or fighting enemy, and that made the first world war.
But to go back on our economic “Miracle” issue, we all reckon that “general miracles” are such because they defy common recognized laws, usually referred to physics, occasionally medicine. In both cases it is possible of course that common knowledge is incomplete and therefore astonishing results could be produced and assumed under the word “miracles”.
In physics to see a ball that runs spontaneously upward is helped by special colors and converging lines of side walls. This helps create a ‘Miracle’ (in sight). In medicine, at one time it was thought that productivity with regard to the extremely long hours of harbor workers could be increased by the massive distribution of cocaine among workers, which was specially praised by Freud. Obviously he didn’t know its side effects and later on Sigmund had some problems to discontinue his suggested miraculous medicines. Not so much with regard to the harbor workers, which was a problem of management, but with Freud’s stirred-up patients that loved very much his medicines and wanted more and more.
But helping miracles had to be discontinued in any case. Of course if you take out those adjusted colored walls and the exaggerate furniture of cocaine, balls manifest themselves going down and the workers stopped working altogether.
This is to say that “Miracles” must (or can) be helped, but to endure for the long range we must not forget that they cannot last forever with one specific caveat in economy: what in the physics of medicine can be partially at least temporally be mastered, in economics that is not possible. This is because there is an iron rule that by no means can be forgotten: “Economic miracles need always to be helped”, and if a country wants them to last, help must be revised or at least updated.
The Italian economic miracle depended on two immanent inner dynamic factors and one external occasional cause. Total deregulation of labor (southern Italy was China, providing cheap labor for northern Italy) and at the same time a dramatic raise in education. These were the two inner factors of that economic miracle. People were working every single minute of their life and at the same learning a lot every free minute after work. When the first impetus was running out to keep the economic miracle continue, Italy needed a political class that had to make a double transformation job: to transform the natural working impetus for satisfying basic needs, in a state coordinated regulated production system (as Germany did) and then to transform the hunger of education of common people in a modern well-functioning social texture that would lay down better chances for all future generations.
None of those transformations happened. Working relations were fast moving in a realm of continuous confrontation in which both entrepreneurs and unions shared the genuine lack of vision needed for transforming miracle in a stable economic organization, while the educational system was maintained in an absurd old fashion hierarchical discriminating approach led by conservative clerical inspiration that soon produced violent eruptions by incoming disappointed young generations. Since those fundamental components of the “economic miracle” failed to be properly updated, that maximized the abrupt reduction of the fundamental external miracle component – which was the financial support of the Marshall Plan. The Marshal Plan’s economic meaning was overshadowed by political in-fighting. Its impact on the economic miracle was not properly appreciated, which is exactly the same mistake that looms ahead with regard to China’s economic miracle.
In Italy’s case, after World War X (whose number, as I said before, I rather leave it here undefined) the US distributed lots of dollars to Italy’s war-destroyed economy that the Yalta agreement left under its influence. That was at a time when the US could print all the dollars it wished without any control outside of its wish and/or its factual printing capacity — a printing capacity that they honorably used to its fullest extant (in the case of the Vietnam war even at a bit stretched length).
Printed money was intended to produce Miracles of course. But, were many Miracles produced? Sure, but following the iron law of economic miracles they were helped by the Bretton Woods agreement that made the Federal System a unique emission bank for the world and made other currencies just divisional parts of the dollar. In other words, Miracles were helped. When that help ended, financing the Vietnam war had its role, each economy had to revert to its own home capacity to continue to produce miracles, not forgetting that economic miracles do not last if help is not adjourned.
Italian politicians did not understand that, as apparently German politicians do not now understand that either. And exactly the same problem faced by Italy – with due consideration of demographic dimensions – is the one facing the Chinese Economy: miracles were helped and now help must be adjourned. That very low cost totally unregulated labor, and the natural rush for industrial education do not suffice to maintain China’s economic miracle to continue working.
We should keep in mind, as I am sure the political leaders of China do, that the powerful underlined key factor for its miracle was the Marshall Industrial Plan (I invented the name to make clear the concept) made official by Mr. Henry Kissinger, but in reality made possible by President Richard Nixon who made the most dramatic historical change in American policy that no other President probably will be able to do, or possibly would dare to do.
Kissinger was authorized to pour into the Chinese economy, for the foreign political goal of checking the expanding USSR influence, thousands of American working forces (through transplanting factories), highest modern knowledge (by way of intense knowledge in built products) in addition to enormous corporate financial aid. Without that Marshall (Kissinger) industrial plan China’s economy would not have been able to skyrocket the way they it did. Miracle, in other words, was very much helped leaving open the problems of adjourning it in the near (?) future.
Of course some of us were very happy to see China back in the international arena. It was not acceptable for many of us that such a wonderful country with the most extraordinary cultural heritage had to live outside of the world’s trade transactions and cultural exchanges. Forcing China outside western world relations because of its communist regime, was a big foreign policy mistake for the US, or at least to say a military mistake, and Nixon had the guts to mend both of them.
While some of us don’t like Nixon for many things, and utterly dislike him for many others things, we should at least remember the extraordinary contribution he made to a better and safer world by going himself to China. That was a wonderful chapter of history we should keep in memory. But as we are still happy that thanks to Nixon, China surged in economic standards and interacted on all cultural as well as political levels with the western world, we must recognize the costs on our countries and beware of not making those costs become tragedies.
Here is where a wrong vision of globalization and free trade comes into the picture. In a limited – very limited – vision of globalized and free trade world there are people that sustain free trade and free movement of working factories without any restrictions, or perhaps better said, without any mutual concession that would make globalization and free trade be sustained by mutual development. It is now evident that this is not a sound globalization strategy, neither for countries that lost jobs nor for those who gained excessive surpluses. In the first case it enhanced the resentment of common people, and in the second case it promoted narrow-minded politicians who were able to provoke terrible damages.
In the rush to grasp immediate benefits subsequent to the falling of political and physical walls, short-sighted people forgot that equilibrium and common growth are proper stages of globalization, that is if we don’t want the process to end in tragedy. Italian politicians were not wise enough to establish a proper mutual accepted employers-unions industrial system and even worse they didn’t modernize the educational system. Therefore, when the happy uncontrolled flow of Marshall Plan money was reduced or minimized by the fall of the Bretton Woods monetary system, and the declining of other countries’ acceptance of the US printing dollars as it felt free to print, not only did the Italian economic miracle end, but the Italian economy entered a very difficult declining stage that continues, and which is difficult to check if not to reverse due to the emergence of limited intellectual political forces.
Latins say “mutatis mutandis” and in gentlemen English, one would say “once the necessary changes have been done”, that scrapping of the Italian miracle would happen also to Germany and to China. Germany is a country to which to the present Lady Chancellor, if nothing else at least with respect to the gentleman style — nobody would dare to suggest that Latin expression “mutatis mutandis” — that she should be invited, in proper English form of course, to change her strategy to keep alive the German economic miracle without destroying its “friends.”
Germany cannot continue to export its goods to ailing European economies while at the same time pretending a strong discretionary control of their budgets. Germany wants European Latin countries to lower pensions, less occupation, less public money, but in its vision these countries should keep buying lots of German goods. In Italy there is a saying that you cannot have “la botte piena e la moglie ubriaca”, which is a format for happiness, rendered in English in a weak way to mean “you cannot eat your cake and keep it”. Italians say that it is not possible to have – a barrel full of wine and wife drunk – in the easily shared assumption that having a barrel full of wine obviously is a good thing, where it is not so clear why a drunken wife should be such a good thing too. (Perhaps more possibility for fooling her? We have to think on it).
That principle applies to our case. If economic miracles have to be maintained, Germany and China must go back to common economic sense. They must pursue a more balanced economic growth with that of their clients. They cannot pretend that their miracles can keep demolishing other economies and at the same time be able to keep selling them their goods. That southern European countries, in the case of Germany, could look for other market relations is a reality proper to be pursued; that the western industrialized world, in the case of China, could rearm their industries to compete on knowledge based economies, where the western world has a clear hedge, must be properly taken by China into the picture. Southern European countries could very well try to reach out on their own to the Russian market or other Asian countries, in addition to America, for selling their knowledge and culture that is embodied in their goods. China should be aware that Vietnam, India, and so many other countries would be happy to produce the new technological home robot novelties that American ingenuity is going to launch on world home market. The fridge and the dishwasher of tomorrow’s middle class are home robots cooker, tapestry and floor cleaner robots, and for the young TV-addicted kids, the teaching robots, not to mention self-guided autos. That means that to maintain alive its economic miracle, Germany should recognize that the 4th Reich cannot be built at the expenses of other European countries. And China should recognize that cannot keep destroying other economies.
Why they should change this attitude? Because they both are very similar as their prolonged miracles were inaugurated an age of discontent that cannot be left to deteriorate in tragedy.
Going now to America, if we like Trump or not is not the issue. We must recognize that Trump has properly understood that Americans cannot accept that discontent becomes a tsunami in their own country, and he wants to halt it. We can discuss the means he wants to adopt to halt it, and properly give some differentiated contribution, but we have to recognize Trump’s proper attitude: economic miracles need help, some countries had it, and now help has to be adjourned. That help in the Italian miracle was the Marshall Plan and it was not adjourned. In Germany it was, and still is, the subordinate financial and production system of European countries, and it also needs to be adjourned. In China what I called the Marshall Industrial Plan needs a revision. Growth of Germany’s economy should not be based on an excessive surplus of balance of payment if they don’t want that miracle be discontinued by further Brexits, and China should recognize that since the real origin of its miracle is the Marshall Industrial Plan (say Kissinger’s strategy to control URSS from its flank) for the future it should properly be accepted, as I am sure its leaders are ready to do it, a more balanced growth facing the American economy.
But in addition to general trade terms of discussion, in economic miracles it should be kept in mind a very fundamental factor often neglected even by economists and surprisingly enough even by those claiming more balanced development. At the turn of XIX China had by far the highest GDP in the world. Almost double of the sum of GDPS of western countries. That position was completely changed not by industrial revolution, which was the effect and related to an intellectual mistake, but by the massive production and mass distribution of western knowledge applied to production, which was the cause.
Now in a more balanced globalized world that must be recognized for its proper MASS PRODUCTION AND DISTRIBUTION strategical role. On a world scale to assure a better and more balanced globalization, to focus just on trade terms it is not enough, the globalized world needs to assess another notion of nation’s wealth, that of MASS PRODUCTION AND DISTRIBUTION OF KNOWLEDGE. India is strongly considering the calculation, first in the world of the GDKP of a country, (Gross Domestic Knowledge Product), which goes along that direction. Lots of work has been done and now the final decision is at the desk of the ministry of statistics and that of the of PM.
There is no doubt that the quantitative notion of GDKP, with the model explored by India, which is much more then just the traditional Knowledge economy metric, would provide strong fuel for maintaining economic miracle alive (including that of China) . Let’s hope that the the new UN Director of Asian statistics, who had a fundamental role in promoting GDKP of India, will be able to promote in his new responsibility a diffusion in Asia of the GDKP notion. Such a measure would be a strong support toward lasting economic miracles in Asia, as well as in other parts of the planet.
In conclusion, let us assume that economic miracles need help, but at the same time let’s make clear to all, that miracles won’t survive if basic underlined help is unheeded for excessive ego assumptions.