The middle class alone can overcome the crisis in the U.S.. And in China
by Wei Jingsheng
The crisis that has hit the world is of a financial nature. To defeat, rather than saving the financial giants focus should be placed on domestic production and the creation of an internal market. Beijing and Washington are divided on many points, but they have made the same mistake that must be remedied before it is too late. The analysis of the great dissident.
Washington (AsiaNews) - The recent turmoil in the stock market did not spare Asia and China.
As the economy in the United States and Europe declines, it also has an impact on China's exports. The depreciation of the U.S. debt results in China's foreign exchange reserves shrinking as well. All these dependencies illustrate that it is unreasonable for the "patriotic angry youth" in China to rejoice and gloat when they see other people's misery. Nowadays, the economic integration and correlation of the world is very high. That kind of selfish policy of the Chinese government will ultimately harm China itself as well. We often hear the politicians singing this high-pitched tune, yet in fact they do not necessarily recognize the truth. Especially these politicians and the so-called economic experts in China do not see the interdependence.
The average people sometimes also have this way of thinking: do not you think what we gain is what they lose? But this is a closed, original way of thinking, which does not represent the facts. The current situation is exactly reversed. As the U.S. economy slipped into recession, China's economy fell into recession as well. It is a lose-lose situation, rather than a shift as you gain on the advantages of other's misfortune. Therefore the so-called "China Model" is really harming the others and at the same time harming the Chinese.
So what is the so-called economy? Many people interpret it as money. This interpretation is wrong. For each individual family or business, economic success means making money. This is because money is the intermediary between production and consumption. Using a scholars' more obscure term, it is an equivalent. Put bluntly, money moves in the opposite direction of commodities in the market, thus facilitating the exchange of other commodities.
So, when we say the money in your home represents your wealth, it is not necessarily representing wealth in a country or the market. For example, when the currency is devaluating, money in your pocket remains the same, but with less wealth. An even more extreme situation is when the economy collapses or when the government invalidates its currency; then all the money in your pocket is of no use. Such things have happened in the world many times. Even in the last century in China it occurred more than once. When the economy collapses, the government has to replace it with new currency. Old money that did not get changed can only be kept as a historical heritage. Maybe after a few hundred years it could be sold as antiques.
So what represents wealth and what is the economy in a state, or society, or the market? That is the consumption. Only the consumed material wealth is the real wealth. Money represents wealth only when the economy has a normal operation. People who want to consume wealth must have money to buy consumer goods in the market. In order to make money, it is necessary to produce consumer goods. Money and consumer goods move in the opposite direction, which is the market economy.
This consumption includes the investment and accumulation for the purpose of increasing production capacity, which is another kind of consumption. It needs to maintain a certain ratio with the consumer goods. When the ratio is too low, it will result in lower production capacity. When it is too high, it will result in an insufficient market .
The economic recession now in both China and the U.S. is due to the same reason. It is due to too much accumulation and too much money flowing into the hands of the investors. At the same time it produces an enormous gap between rich and poor, it also results in economic imbalances. Or putting it in another way, the Chinese workers produce many products, but they only get small wages. The money from these products sold in the U.S. did not create the corresponding Chinese market. Meanwhile, the U.S. workers lost their jobs, and the capitalists who made money from the Chinese goods will not give their money to these workers for consumption. Thus, the U.S. market is reduced while the Chinese market did not expand. As a result, the combined consumer market of both China and the U.S. is reduced, so production is reduced accordingly. This vicious cycle is the recession, or more seriously the economic crisis.
Of course, the situation is much more complex than this theoretical description. It includes the rich people in both China and the United States lending money to the U.S. financial markets in an effort to help Americans' over-consumption, eventually leading to the huge U.S. debt and also delaying the accumulating economic crisis. This series of many secondary reasons are all very important. However, most important is that the income of the working class in the United States had reduced, while the income of the working class in China has had little increase, accompanied by a lack of corresponding investment for technological advances to consume the excess accumulation. The excess accumulation first resulted in the financial crisis, and following that caused the slowdown of the overall economy. The fundamental reason is that the so-called "China Model" resulted in a money surplus with insufficient consumption.
Before China had access to the Western market economy through free trade, the Western market was able to maintain a normal ratio of consumption and investment with the normal regulation of the Western governments and social institutions. Under the premise of no lack of investment, it was able to rapidly develop its consumption, which is the basis for economic development. There was a small number of abnormally developed authoritarian countries that could not cause major economic upheaval. Therefore, during the post-war decades, the Western economy was able to develop stably and fast leaving the Communist countries with non-market economies way behind, which was the root cause of the collapse of the Communist states.
However, after China, a big country with a low human rights standard and semi-market economy, joined in the free market economy the Western capitalists found a new way to earn excess profits. For more than one decade, exactly these excess profits broke the balance between accumulation and consumption, and restrained the expansion of markets. Even though the Americans were borrowing money to maintain their consumption, it had come to an end. These excess profits force the economy to shrink, to walk into a crisis or recession.
The so-called China model put the whole world back to the capitalist state before the two world wars. Excess profits caused a relative decline of consumption. Production that lacks markets has to either contract synchronously or find new markets. In today's world, initiating war cannot bring the expansion of the market. Therefore, both the Chinese and the United States governments are facing the same issue, which is how to expand their effective consumption domestically. However, the two countries have opposite conditions.
China must improve the working class wages while reducing exports and increasing imports. The United States must increase its production, to reduce the deficit that was maintained by borrowing money.
Small countries like Switzerland can maintain their revenues by playing with finance and charging services fees. But a populous country like the United States cannot. So President Obama's policy of saving the financial sector but not the production was completely wrong. Without the rise of the working class, there would be no prosperity in the United States in the past, the present, and the future. The same is true for China.
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