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How the West Was Lost

Submitted by on 07 Jun 2011 – 12:18

By Jemima Felton

How the West Was Lost is one of a deluge of books to come out of the global economic crisis which seek to account for the position in which the West finds itself after the crash of 2008. It is not, however, simply an account of the banking crisis, but rather a treatise on the many ways in which the economic demise of the West over the last fifty years has been the result of flawed policymaking and thus largely self-imposed.

The book analyses the way in which the West has effectively given away its lead through the misallocation of the three key ingredients for economic growth: capital, through unproductive investment in the housing sector; labour, owing to a predilection for services over productive industries; and technology, which has been employed in the endeavour of making money faster, rather than solving the increasingly pressing issues of energy, food security and healthcare.

Moyo paints a damning picture of the follies of Western policymaking, and when juxtaposed with China and the other emerging economies – the Rest – the book makes for fairly gloomy reading (unless, of course, you’re Chinese). Individuals and governments in the West have recorded record debt while China and the Rest are saving at an incredible rate. American children spend far less time at school and doing homework than their Chinese counterparts. Graduates of science and engineering – of which there are more in China – would rather go into go into the banking and consultancy sectors in the West while in China they head into manufacturing or science. Infrastructure in the US and UK is at best deficient while China is investing billions in road, airports and high speed rail.

Moyo is correct to point out that countries like China have access to greater quantities of cash stored centrally and can therefore respond more quickly to crises, unlike the US whose still vast wealth is more widely dispersed among private companies and individuals.  However, while China’s rise is indubitably spectacular, Moyo’s enthusiastic admiration for the Chinese model of capitalism – which forms part of the basis for her recommendation for a government-led capitalist approach – betrays a bewildering simplification of reality. In exemplifying the myriad ways the Chinese state can decisively and effectively control outbreaks of disease, build modern new infrastructure and even control the weather, Moyo glosses over the problems China will undoubtedly encounter in the future. She makes a cursory nod to the issues of democracy and corruption but brushes them off as ‘not insurmountable difficulties’.

The question of democracy in China could have a huge impact on its future economic success, given that without any real internal opposition, there can be no challenge to the shortcomings of the Chinese model. Moyo states that freer people are more productive over time and this could be a decisive factor in future political development in China.

A rosy picture is painted of the benefits of a centrally-planned economy and the government’s ability to make decisions regarding national savings ‘in the interest of the state at large, over and above purely individual motivations’. Surely this is naïveté in the extreme, effectively discounting the rampant corruption which exists in many emerging economies.

Moreover, despite outlining the dire demographic problems facing the West, China’s own demographic issues are ignored. China’s population growth rate is actually declining, and with more boys being born than girls. Coupled with a dramatic ageing of the population, China is heading for a demographic crisis of its own.

Moyo’s admiration for the Chinese system is abundantly clear in the book but it is important not forget that we have been here before. Twenty-five years ago, the world was convinced that Japan would overtake the US as the world’s largest economy but since then, its bubble burst and its economy has been stagnating for the last twenty years.

In reality, China will have to deal with the same issues as the West in the future in terms of food security and resources. These are not uniquely Western problems. The vast numbers joining the middle classes in China and across the developing world will have to accept that they cannot expect to enjoy the same lifestyles as those in the West because the resources simply do not exist. Their governments may have the ‘political mettle’ to deal decisively and effectively with problems now, but there is nothing inevitable about this continuing to be the case in the future.

Moyo’s ‘nuclear option’ of the US defaulting on its debts finally underscores the symbiotic relationship between America and China, a mutual dependency which goes largely unmentioned in the book.

How the West Was Lost is a damning treatise on the individualism and short-termism of the West but the story is by no means finished. There is still a lot to play for.