Summary:
John Thornhill argues that if the world does not become more like Europe then Europe will be in trouble. But if the world does become more like Europe, the world can only gain. We seem to be entering a more adversarial world, where a global scramble for resources is permanently changing the balance between supply and demand. Europe in danger of being the only vegetarian economic power in a world of carnivores. The Anglo-Saxon model of capitalism is in decline. Many different forms of a capitalism have evolved. May result in clash of capitalisms. Europe's model most vulnerable: configured for economic peace. Biggest challenge will be maintaining its welfare state (built to neutralise the social tensions that fuelled aggressive nationalism). But it's model of "permanent negotiation" could be an advantage. Needs to marshal its forces more effectively. (Published: 24/07/08)
Notes:
- if regions resembled stock market investments over the past few years:
- US is a racy (leveraged) technology play
- Asia is an explosive growth story
- Europe is a defensive utility stock happy to bumble along and throw off big social dividends
- appear to have reached that point in the stock rotation cycle when dull is good
- may explain strength of the euro and the fact that Warren Buffett, the legendary US investor, has recently been sniffing around Europe for value investments
- but: this may not be a standard economic cycle
- frightening about the current situation is that commodity prices have been surging while demand in the US and Europe has been slowing
- global scramble for resources is permanently changing the balance between supply and demand?
- entering a more adversarial world?
- Europe in danger of being the only vegetarian economic power in a world of carnivores?
- France's Cercle des économistes
- argue that the apparent ascendancy of Anglo-American capitalism has been an illusion
- i.e. philosophy of a small state, minimal regulation and capital market finance
- proven by the US-originated credit crisis that has been distributed to the rest of the world
- global financial markets may have encouraged many companies into mimicking Anglo-American behaviour in emphasising shareholder value
- but: striking how resilient other forms of capitalism are and how potent some of the new mutations are becoming
- different forms of state capitalism evolving in China, Russia, the Middle East and South America
- vibrancy of family capitalism and private equity
- fear that globalisation will bring about a clash of capitalisms
- cfr fuss over sovereign wealth funds
- each capitalism is desperate to assert its own superiority in a process akin to economic natural selection
- clear that new rules of the game need to be established if there is to be efficient and equitable use of resources, fair competition and an adequate response to global challenges such as climate change
- worry is that there are few supranational bodies capable of enforcing reciprocity
- most of the multilateral organisations are viewed as occidental clubs that have limited legitimacy in the developing world
- will Europe be vulnerable in a more conflictual world?
- European Union is configured for economic peace
- has abandoned the arms of war
- naive in running liberal trade, competition and exchange rate policies
- Europe is in danger of becoming the "idiot in the global village"
- according to Hubert Védrine, France's former foreign minister.
- but: Europe could itself play a big role in shaping the new economic order if it could only marshal its forces effectively
- 27-member EU is now the world's biggest economy thanks to enlargement and the euro's strength
- also the world's biggest single trading bloc setting many of the world's de facto regulatory standards
- McKinsey Global Institute: Europe's capital markets have probably now outgrown in size those in the US - if you throw in non-EU countries such as Switzerland, Russia and Norway
- corporate Europe
- in many areas European companies may be doing a better job of moving up the value chain than their rivals in the US or Japan
- European companies have maintained their share of the aggregate market capitalisation in the FT500 ranking of global companies over the past decade
- US companies' share has dropped from 57 per cent to 38 per cent
- Europe's companies have held steady at 32 per cent.
- Europe's biggest challenge
- whether it can afford to maintain its welfare states in a hyper-competitive world
- only sure answer to that question is: we had better hope so
- welfare state was built to neutralise the social tensions that fuelled aggressive nationalism
- European model is an arbitrage between capitalism's winners and losers
- as a result, Europe has been light on the accelerator but heavy on the brakes
- considerable handicap when careering along the straight
- but has its advantages when steering round bends
- Europe's example may be of particular use in a world currently experiencing such a scary ride
- EU's model of "permanent negotiation" has been remarkably successful in establishing common economic rules between once-warring nations
- if the world does not become more like Europe then Europe will surely lose. But if the world does become more like Europe, the world can only gain
