The political philosophies espoused by former leaders Ronald Reagan and Margaret Thatcher will wither and die as the West watches its financial and political power ebb away to the East, according to HSBC’s chief economist.
In his new book “Losing Control, The Emerging Threats to Western Prosperity,” HSBC’s Stephen King argues that the growing might of China, India and the other emerging nations has killed off the assumption of continuously improving living standards for those in the United States and Western Europe.
And the new reality of the Western world is years of austerity with enhanced financial-market volatility, King writes.
- Watch the full interview with Stephen King above.
With the likes of China and India growing so fast and the West facing relative decline, King says big government is now the new normal for the US and Europe.
“Financial markets will become more and more dependent on the actions of politicians, central bankers and regulators,” King writes. “Economic outcomes will be heavily influenced not just by interest-rate decisions but also by pronouncements regarding the regulation of credit, which will affect the quantity rather than price of credit.”
“The trade-off between international cooperation and national sovereignty will be under intense scrutiny, particularly in the euro zone, where strains are becoming more and more obvious day by day,” he continued.
Forces Beyond our Control
In “Losing Control,” King argues that as our political leaders fail to address this fundamental shift in global economic realities the West will find itself increasingly losing control of its own economic destiny.
And, as more and more countries lay claim to the world’s limited resources, the West will become increasingly vulnerable.
“In the past the West’s economic success has had much to do with market forces, technological gains and productivity surges,” he wrote. “This is not the full story -- success has also depended on conquests, land grabs, state capitalism, slavery and, more generally, a willingness to rig markets for the benefit of a privileged few.”
“This ability to rig markets to keep its citizens happy is now under serious pressure, a direct result of the success of the emerging nations,” King said.
In addition, the economic future is “being bent, twisted and warped by economic forces beyond our control,” he argues. “This fundamental shift in global economic realities will have a massive impact on income and wealth distribution, economic stability, and market forces.”
What it Means for Joe Public
The implications of this thesis for the average Western man or woman on the street and the financial markets could be very worrying.
• Western savers will not be able to accumulate sufficient assets to allow a comfortable retirement.
• We can expect continued disruption to inflation, capital markets and trade by the gravitational pull of the emerging world.
• Policymakers will discover limits to their sovereign powers.
• As Western populations age they will run out of workers (we should welcome foreign migrants to our nations.)
• The growing links between the emerging nations suggest the rise of new alliances that will ultimately threaten Western interests.
• We face increasing emerging market ownership of Western assets and control over energy supplies.
King also warned that at current growth rates China would be attempting to consume the equivalent of the entire world’s current oil production by the middle of the 21st century.
The question for King is how the West responds to this new reality.
“While the global economy may grow rapidly the developed world’s share is likely to come under tremendous pressure and as its bargaining power wanes it will be confronted by a simple choice: should it grow old gracefully, accepting that the baton of economic progress is being passed to other parts of the world or should it resist, threatening to throw the world as a whole into a new age of protectionism and mutual suspicion?”