"House of cards" British economist's take on international economy

[TexasLawyer]

From Al Ahram (Egypt)

10 - 16 March 2005

House of cards

The British socialist economist Chris Harman visited Cairo last week. Wael Gamal interviewed him on the latest developments in the international economy


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The Chinese economy now is taking the place of Japan and Germany in the 1980s and the US and the Asian tigers in the 1990s. It is expanding with incredible speed attracting raw materials from elsewhere and adding value to them. But Harman considers this situation as unstable, characterising it as a house of cards. The Chinese companies are buying more and more expensive raw materials in order to sell cheaper and cheaper goods. "The Chinese then lend money to the Americans to buy their goods. A situation like that is not going to last indefinitely," he explains.

This unstable and chaotic nature of the current phase of international economy shows itself in the falling value of the US dollar. "The American boom was basically built on great arms expenditures and continued borrowing from the rich in the US. Now they are letting the dollar sink in order to make others cover the deficit. This could be fatal. The chaos it might cause can explode the situation if central banks in Europe and Asia began to sell their dollar reserves in fear of further decline," Harman suggests.

In fact, Washington Consensus policies failed in achieving their most crucial aim, that of economic growth. The last 20 years have shown a clear decline in growth rates compared to previous decades. This context made it harder for small economies to solve underdevelopment problems just by lifting restrictions or dismantling state expenditure. "Many countries crashed in the process of applying Washington Consensus policies, like Russia, Argentina and Mexico," says Harman.

Also, what growth was accomplished has not trickled down to all the population as promised. Harman refers to the American case where economic growth meant 25 years of falling real wages and longer working hours for US labour, which is 400 hours a year more than in France and Germany only to reach the same profit levels as in 1973.

http://weekly.ahram.org.eg/2005/733/ec2.htm