A responsibility deficit

Here is my latest comment from Fund Strategy.

The world economy is suffering from responsibility evasion. Most governments are hoping that other countries will bear most of the weight of generating a global recovery.

Global imbalances are probably the clearest example of this trend. Most experts in America and Britain – trade deficit countries – take the view that it is up to the trade surplus countries, such as China and Germany, to boost domestic demand. In contrast, most experts in China and Germany argue it is up to the deficit countries to become more competitive.

Clearly neither set of economists is being objective. Each group is siding with its own nation state in suggesting that other countries should bear the burden of recovery.

Similarly, most large nations are hoping that net exports will power them out of recovery. But it is impossible for every country to bolster its net exports. Although one country can thrive economically by pursuing an export-led growth strategy it is not feasible for a large economic bloc to do it. By definition, global exports should equal global imports, so a surplus in one place has to have a ­corresponding deficit elsewhere.

Last week one economic commentator even remarked wryly on the suggestion by German ­economic experts that the eurozone should follow Germany’s lead and bolster its exports. He suggested that unless the earth could start trading with Mars such a strategy was unlikely to be successful. (article continues below)

Clearly, in a world of nation states there will always be competing national interests and also different interpretations of what constitutes those interests. But today’s tensions go beyond straightforward national rivalries.

Nation states seem particularly reluctant to address their own economic problems. Instead they prefer to prevaricate in the hope that a day of reckoning will somehow be averted.

This is clear in the British election debate. Although all the parties concede that dramatic action is needed to curb the fiscal deficit they refuse to spell out details of what should be done.

Even more striking is the reluctance of all parties to contemplate a restructuring of the economy. The overwhelming emphasis is on sustaining the recovery – essentially ensuring that the economy does not collapse. The possibility of encouraging restructuring to facilitate the creation of a more dynamic economy seems too much for any politician to take.

A bolder, more ambitious mindset is needed if the world’s economic problems are to be resolved.