Back in August of last year, before the Lehman bankruptcy, and before the beginning of the financial meltdown , I tried to summarize how I saw, from my perch in the world, the world had fared in terms of globalization, and what specific long-term trends had gotten us to where we were. This was close enough to what became more or less a common consensus.
I then speculated as to what was to come next. With the exception of further financial meltdown due to the fall of Lehman, I could say that we are more or less on this path I foresaw.
My speculation was an optimistic one, optimistic in the face of the growing uncertainty of the third quarter of 2008. I remain convinced that the stage we are in is part of a longer-term secular global rebalancing, and we will eventually stabilize at a new more balanced equilibrium.
I just want to reiterate that this global rebalancing will be the greatest source of growth, as well as the greatest challenge, for capitalism in the coming decade. The developed world needs to rebuild its manufacturing base, while the developing nations need to develop a thriving consumer economy. Much capital investment for production needs to be rebuilt in the developed countries, while much more advanced distribution chains and financial networks need to be established in the developing nations.
Developed countries need to rediscover the original source of their development – a strong and vibrant producer economy that provides ample employment for their domestic consumers. Developing nations need to do the mirror image – to develop a domestic consumer base that will enable their local manufacturers to thrive even in the face of a slowdown in the rest of the world.
For these rebalancing efforts to continue advancing towards their objectives, two requirements need to be addressed. First, the capitalist investors and business men in the developed countries need to be assured that their investments will not be endangered by undercutting from foreign competitors organized only for maximum producer efficiency. Second, the capitalist investors and businessmen in the developing countries need to be assured that the government will provide enough safety nets for their local populace, such that a more consumerist mentality will take root, and that the government will be there to help them in the crucial but likely costly project of enriching the locals, to enable them to become more active buyers of their end products.
The success of this global rebalancing will probably lead to this much longer-term result. But to achieve this result, which I consider the final end and epitome of globalization, we need to do the ironic thing first. We need to rein in globalization at this time.