On The Great Big Third World

Capitalism, especially under globalization, produces homogeneity. We’re quite familiar with the spread of McDonald’s and Frank Gehry around the world, but the most important aspect of this spread is an economic levelling. To be sure, capitalists exploit differences between local economies—for example, cheap labor in China—but as history progresses, these differences lessen.

Take, for example, Ireland, where I teach from time to time. Even though it has an English-speaking population and is conveniently located, Ireland lagged behind the UK and Anglophone North America due to a long history of British colonial oppression and, subsequently, government policies that stressed agrarian self-sufficiency. Thus, labor and land were underexploited and, when investment money poured in during the 1990s, the Celtic Tiger exploded. By the mid 2000s, the price of labor and land in Ireland had caught up and the Celtic Tiger entered into an artificial afterlife, extended by banks, businesses, and governments that didn’t want to face its end. By 2008, Ireland was considered the fourth most expensive economy in the world. The result is predictable: industry is moving out of Ireland rather and workers from Eastern Europe are returning home. The idea that Ireland will add one million new residents in a few decades seems preposterous again.    

But unquestionably, China is the real economic powerhouse of the last decade. For the most part, China’s been able to grow tremendously now due to centuries of underdevelopment. 21st century Chinese wonders like the CCTV building or the 300mph maglev trains are possible only because the vast majority of Chinese make around $2,000 per capita annually (see here) and a vast migrant labor force exists to keep labor prices down. As Chinese labor prices rise, it too will become less competitive. If the one-child policy has created a ready supply of male workers without children to support, when this generation ages a few decades from now, China’s workforce will collapse.

Back in the United States, I don’t see how we can pay for the massive borrowing that the Bush and Obama administrations have undertaken without a currency devaluation. This is unlikely to happen overnight, but rather I see it as being a period of double digit inflation (our current inflation rate is already much higher than official figures, thanks Alan Greenspan) and double digit interest rates.

Not only will this help with debt repayment, it will be a convenient way of devaluing homes. Let’s say  you have an interest rate of 5.9% locked in and a house worth 400,000. House prices are stable even as inflation is 10%. Your house is losing 10% value a year. You might complain, but at least you have a house so you won’t complain too much. A new homeowner is facing interest rates of 16% to get into the market. Your interest rate sounds like a pretty good deal in comparison. Five years of 10% inflation and no increase in house prices will pretty much take care of the overpriced housing market.

I’m old enough to remember the 1980s, which made me much more cautious than many Generation Y types when it came to the last boom. I remember when cyclical unemployment in big industry turned into structural unemployment and, like inflation, was written out of the system under the Reagan administration. If you’re unemployed for too long, the system says you’re not really looking for a job—even though you may be—and if you’re a freelancer or working part-time, you’re also not unemployed. So if we’re seeing 9.4% unemployment this month, you should probably double that to get a real picture of how many people aren’t being employed in traditional fashion. What if this continues for a few years? And what if we get the high interest rates that I predicted, eviscerating home values? 

I think the result is a country that approaches "Third World" status with a cheap labor force that will take on contract work without any guarantee of continuing employment for low wages. Take a look at this article from the Times on the troubles that freelancers face. I’m afraid that for higher-paid members of the service industries (media, education, architecture, art, finance, personal services) the 2000s are going to seem very much like the 1980s did for blue-collar workers.

Make no mistake, the EU is no better off. The Euro is not a stable currency and I’m not willing to put money down that it isn’t going to tank first or harder than the dollar.

The Third World didn’t vanish in the worldwide economic "boom," it spread everywhere. That’s what the last two decades have brought us. I knew that the Bush administration was alternately too stupid and too evil to point this out, but Obama had the opportunity to force Americans to face up to the crisis, as FDR did when he took over in 1933, but he took an easy way out. Now we’ll all pay the price. Welcome to the new, improved, much larger Third World.

Capitalism, especially under globalization, produces homogeneity. We’re quite familiar with the spread of McDonald’s and Frank Gehry around the world, but the most important aspect of this spread is an economic levelling. To be sure, capitalists exploit differences between local economies—for example, cheap labor in China—but as history progresses, these differences lessen.

Take, for example, Ireland, where I teach from time to time. Even though it has an English-speaking population and is conveniently located, Ireland lagged behind the UK and Anglophone North America due to a long history of British colonial oppression and, subsequently, government policies that stressed agrarian self-sufficiency. Thus, labor and land were underexploited and, when investment money poured in during the 1990s, the Celtic Tiger exploded. By the mid 2000s, the price of labor and land in Ireland had caught up and the Celtic Tiger entered into an artificial afterlife, extended by banks, businesses, and governments that didn’t want to face its end. By 2008, Ireland was considered the fourth most expensive economy in the world. The result is predictable: industry is moving out of Ireland rather and workers from Eastern Europe are returning home. The idea that Ireland will add one million new residents in a few decades seems preposterous again.    

But unquestionably, China is the real economic powerhouse of the last decade. For the most part, China’s been able to grow tremendously now due to centuries of underdevelopment. 21st century Chinese wonders like the CCTV building or the 300mph maglev trains are possible only because the vast majority of Chinese make around $2,000 per capita annually (see here) and a vast migrant labor force exists to keep labor prices down. As Chinese labor prices rise, it too will become less competitive. If the one-child policy has created a ready supply of male workers without children to support, when this generation ages a few decades from now, China’s workforce will collapse.

Back in the United States, I don’t see how we can pay for the massive borrowing that the Bush and Obama administrations have undertaken without a currency devaluation. This is unlikely to happen overnight, but rather I see it as being a period of double digit inflation (our current inflation rate is already much higher than official figures, thanks Alan Greenspan) and double digit interest rates.

Not only will this help with debt repayment, it will be a convenient way of devaluing homes. Let’s say  you have an interest rate of 5.9% locked in and a house worth 400,000. House prices are stable even as inflation is 10%. Your house is losing 10% value a year. You might complain, but at least you have a house so you won’t complain too much. A new homeowner is facing interest rates of 16% to get into the market. Your interest rate sounds like a pretty good deal in comparison. Five years of 10% inflation and no increase in house prices will pretty much take care of the overpriced housing market.

I’m old enough to remember the 1980s, which made me much more cautious than many Generation Y types when it came to the last boom. I remember when cyclical unemployment in big industry turned into structural unemployment and, like inflation, was written out of the system under the Reagan administration. If you’re unemployed for too long, the system says you’re not really looking for a job—even though you may be—and if you’re a freelancer or working part-time, you’re also not unemployed. So if we’re seeing 9.4% unemployment this month, you should probably double that to get a real picture of how many people aren’t being employed in traditional fashion. What if this continues for a few years? And what if we get the high interest rates that I predicted, eviscerating home values? 

I think the result is a country that approaches "Third World" status with a cheap labor force that will take on contract work without any guarantee of continuing employment for low wages. Take a look at this article from the Times on the troubles that freelancers face. I’m afraid that for higher-paid members of the service industries (media, education, architecture, art, finance, personal services) the 2000s are going to seem very much like the 1980s did for blue-collar workers.

Make no mistake, the EU is no better off. The Euro is not a stable currency and I’m not willing to put money down that it isn’t going to tank first or harder than the dollar.

The Third World didn’t vanish in the worldwide economic "boom," it spread everywhere. That’s what the last two decades have brought us. I knew that the Bush administration was alternately too stupid and too evil to point this out, but Obama had the opportunity to force Americans to face up to the crisis, as FDR did when he took over in 1933, but he took an easy way out. Now we’ll all pay the price. Welcome to the new, improved, much larger Third World.

4 thoughts on “On The Great Big Third World

  1. nope
    please don’t make the united states part of the third world. that will just bump the ‘real’ third world into fourth place, and we’re already in pretty bad shape as it is.

  2. Certainly some parts of the

    Certainly some parts of the ‘real’ third world are likely to be worse off, but I think that at some point soon there might be an awful lot of similarities between the US and the third world. 

  3. The Chinese Dream
    Since I’m sitting in a Starbucks in Nanjing reading this, I thought a comment might be in order.

    In their recent book “The Chinese Dream: A Society Under Construction”, Neville Mars and Adrian Hornsby point out that the largest problem facing the Chinese is that their government is literally holding a leaky bucket of US Currency (leaky in the since that the dollar continues to lose value on the GCM). The Chinese are not yet the big spenders that Americans are, and have a savings rate of roughly %50 of their income. What American corporations currently seem to be trying to do is separate the newly minted Chinese middle class from that nest-egg (the results of which surround me in the Starbucks).

    What remains to be seen however, is whether or not the Chinese government can deal with the collapse you predict. The recent national silence surrounding the anniversary of the Tiananmen Square massacre and heavily controlled access to information suggests that they can.

    The US however is a different story. While I suspect things may not become as dire as your post suggests, I do think that a larger portion of Americans will realize that the form of Democratic Capitalism practiced in the US is only stifling a more sustainable quality of life. The problem as I see it is that because of the socio-economic and class-structure changes brought about by Post-War consumerism and economic policy do not lend themselves to dynamic social change. Likewise the shear size and population in the US precludes us from becoming a Social Democracy like Sweden.

    In short, if things transpire as you predict they will, we’re kind of screwed.

  4. why yes

    Why yes, I think that we’re kind of screwed.

    Moreover, I’m beginning to get the sinking feeling that evil—e.g. authoritarian regimes—are the only means of coping with the kind of economic crisis and economic complexity that we’re getting today. None of this makes me happy. 

    To end on a positive note and—speaking of Starbucks in Nanking—I just came back from dinner at Grand Sichuan in Jersey City with Jen, the kids, Melanie (one of my new interns) and her daughter. Highly recommended. They now have "Dishes Popular in China,"  "Classical Sichuan Food," and "American Chinese Food" (by which they mean a vast improvement over what the typical US Chinese place offers). 

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