Wolf on China and globalization

God, I hate taxes.  Every year, I put off doing them later and later.  It’s not quite midnight on April 15th, but I am done, at least with filing for an extension.

In the meantime, I have been following Martin Wolf’s recent writing on China.  Martin, an Associate Editor of the Financial Times, is one of the most insightful analysts of globalization trends – for those of you who have not read his Why Globalization Works, I highly recommend it.

Martin is also an optimist regarding China’s ability to sustain its remarkable recent economic growth. He just wrote a column in the April 13 edition of the Financial Times on "China has further to grow to catch up with the world".  In this article, he puts China’s growth in perspective – it has actually grown more slowly than Japan, South Korea or Taiwan during their major growth periods in the second half of the 20th century. In fact, he castigates China for not growing even faster, attributing its shortfall in growth to the inefficiency of investment, with particular emphasis on the wasteful investment in China’s state-owned enterprises.  In an interesting twist, Martin views this inefficiency in investment as a major cause for optimism – there is significant headroom for more rapid growth resulting from the opportunity to increase productivity of investment.  Of course, this assumes that investment can be redeployed into more productive arenas – but there may be limits to this, at least in the short-term, given the reluctance of the government to redeploy funds away from China’s state-owned enterprises.

For those who wonder how important China’s growth prospects are to the world economy, Albert Keidel of the Carnegie Endowment delivered an interesting paper entitled "How is China Shaping Globalization?  Moving from the Engine Room to the Driver’s Seat?" on China’s G8 impact at a symposium in Shanghai last month.

More broadly, Martin Wolf also has a thought provoking lecture that he delivered to the Institute for International Economics earlier this month on "Will Globalization Survive?" contrasting the backlash against globalization in the 1920’s and 1930’s with the risk of a similar backlash today. He makes a compelling case that a number of factors mitigate against such a risk today, but he also acknowledges that

Globalization is not inevitable.  It depends on politics.  In today’s world, it depends above all on US politics.  Without successful US leadership at a time of huge upheavals, the present globalization may founder, just as the last one did. . . Progress or relapse – the choice is largely, but not entirely, the United States’.  History will judge. We can only warn.

For an optimist like Martin, these are grave words indeed. In this context, he cites one of my favorite foreign policy analysts, John Mearsheimer, who participated in an interesting debate in the January/February 2005 issue of Foreign Policy magazine with Zbigniew Brzezinski called "Clash of the Titans" regarding the potential for conflict between the US and China.  This is a real wild card that all business executives will need to focus on as they craft their global investment strategies.