It has been my contention for some time that one of the flaws of the Libertarian “perfect market” model of capitalism is that the rise of globalization has tended to exaggerate the jagged rhythm of free market growth that inevitably leads to periodic crises of overproduction. These in turn generate social conflicts which even the most authoritarian governments are not able to contain. Case in point comes this morning from China.
After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.
The Dry Bulk Index is a chart of global shipping tonnage and is as good a proxy for world trade as I know. Here is what it looks like since before the crash of 2008.
Perfect Market theorists think these overcapacity gluts are quickly self correcting. But the housing overcapacity in the US, Spain, China and Ireland have been going on for five years now. The worldwide auto industry is running at about 50% capacity and yet China’s “auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.”
There is no simple solution to these problems. My greatest fear is that much of the world could devolve into a dystopian nightmare in which increasing productivity brought on by automation and a global labor arbitrage crashes up against a reality of an overstretched global middle class no longer hungry to spend their every waking hour at the mall or the car dealership. This global goods glut arrives at the very moment that a combination of climate change, population growth and senseless farm policies have led to a potential global food crisis. The brilliant financial analyst Jeremy Grantham lays out the challenge.
We are five years into a severe global food crisis that is very unlikely to go away. It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth. This threat is badly underestimated by almost everybody and all institutions with the possible exception of some military establishments.
As I have said before, the Americas are capable of avoiding this crisis. We have all the resources needed both in energy, food and goods production. Asia, Europe,the Middle East and Africa will fulfill Robert Kaplan’s prediction of The Coming Anarchy: Shattering the Dreams of the Post Cold War in which tribal, ethnic and religious conflicts combine with resource depletion to destabilize much of the world order. The key to our survival will be to pull back from our role as the world’s unpaid policeman, rebuild our own production capacity and manage our natural resources with a view towards sustainability. I do not see either political party confronting this possibility, but I do think the Neo-con vision of Romney and Ryan would make a bad situation worse.