All animals are equal…
SwissInvest strategist Anthony Peters looks at challenges for incoming governments
SO FINALLY THE US Presidential election is upon us and at the time of writing nobody knows for sure who will be inaugurated in Washington come January. On the balance of probabilities, it will be the incumbent – but all is still to play for. At the same time, the street sweepers will be out in force in Beijing as the city prepares for the set-piece congress of the Chinese Communist party. What is to play for there is pretty obvious, but how it is played for remains as much a mystery as the election of a pope in Rome. Two countries, two systems.
However, one theme that stalks both societies is the increasing difference and distance between the rich and the poor, and commentators of all hues will be pointing to the need for the next administration – be it the four-year one in Washington or the 10-year one in Beijing – to “do something about it”. Oh, yes, the eternal fight to eradicate poverty.
In this country, poverty is not just a state of material misery, it is a clearly defined state of material misery. The government created a definition along the lines of “household income below 60% of median income”. Therefore, poverty is somewhere on the left hand side of the bell curve and no matter how you swing it, a portion of the population will always be earning less than 60% of the median and therefore poverty will always be there, irrespective of how much or little that particular sector of the population receives.
Therefore, the more the upper echelons earn, the more at the other end of the spectrum are pushed into statistical poverty. On the same note, no matter how much is handed out to those less fortunate than ourselves, they remain statistically impoverished.
AS WE KNOW, President O’Bama and Governor Romney clash over how to tackle poverty, which in US election-speak translates as “helping hard-working American families”. One wants to use the machinery of state to carry money from the top of the pile to the bottom while the other favours saving the frictional cost of civil service intermediation and hopes for the trickle down to do its bit.
More to the point, the President believes in setting targets and objectives for helping the weakest in society, which brings with it costs that he hopes, one way or the other, will be recouped by a mixture of increased fiscal revenues from a growing economy and from taxing higher income earners more heavily. If fiscal revenues don’t add up to the funds necessary to meet the costs, one borrows. The end justifies the means.
Romney is simpler – don’t tax where you don’t have to and let enough cash slosh freely around society so that those who want to grab some of it and fulfil their aspirations can do so. Those who can’t be bothered to stand up and attempt to trap the goodies that should be there for the taking can go and whistle. Geddit?
The Chinese conundrum is significantly more complicated but, in some respects, much simpler too. China, despite supposedly being a communist country, is not lumbered with legacy social welfare and healthcare commitments in the same way that Western industrialised – and in the case of Greece, semi-industrialised – countries are. However, it does have to face up to the staggeringly unequal distribution of wealth and in doing so will have to ask itself whether economic success and social responsibility might not be mutually exclusive.
I’m not so sure that running China for the next 10 years is a much more attractive task than running the US for the next four
It is not without reason that the communist countries of South-East Asia collapsed after economically flat-lining for decades and that as they swung from one ideological extreme to the other, their economies took off like rockets. The Eastern European counterparts that tried to hang on to the social welfare model are still stuck in the mud.
IT MIGHT BE argued that the capitalist West is now in many respects more socialist than the formerly communist East. And where’s the growth to be found? China must, therefore, not decide on how, over the next 10 years, it is going to spread wealth more evenly but whether it is even going to try to do it at all.
It is pretty clear that the geography of China doesn’t lend itself to the trickle-down – key wealth generation will remain nailed to the coastal strip and trying to bring 100,000,000 people in the middle of the country up above subsistence income might look like a futile diversion of resources. Forget not that it was the self-same communist party, albeit in a slightly different guise, that unleashed the cultural revolution with no more regard for human cost than did Stalin’s communist party with its political purges of the late 1930s.
Irrespective of what happens over the coming days, the fact that the global economy is running on stimulus, be that in the US (QE), in the UK (QE), Japan (QE), the eurozone (the entire known alphabet) and in China (many shapes) remains and whoever emerges wearing the mantle of power in the world’s two largest economies, the catalogue of problems will remain much larger than the catalogue of solutions.
I’m not so sure that running China for the next 10 years is a much more attractive task than running the US for the next four, but I do believe that the range of options available is larger. If not lumbered with the legacy costs of attempting to attain social equality, it would be.