NDN Blog

Writing in the Financial Times about the four things that stood out to him about the G-20 Summit, Philip Stephens points first to "China’s, albeit reluctant, embrace of multilateralism:"

Beijing is at last owning up to the fact that it is a leading actor on the global stage. A year or so ago, China was still clinging on to an essentially passive role in international affairs. Western injunctions for it to act as a responsible stakeholder in the multilateral system were met with protestations that such demands were premature: China was still a developing country, and it prized non-interference above western concepts of mutual dependence.

The global economic crisis upended that strategy by showing that Beijing cannot detach its domestic from its international interests. True, China has had a good crisis, demonstrating that it can continue to grow while the west is in recession. But the collapse of its exports has served as a potent reminder of the inextricable ties woven by globalisation.

This interdependence is taken for granted in western capitals. For Beijing it carries the uncomfortable implication that states have a legitimate interest in the framing of others' domestic policies.

This interdependence led to, as Stephens points out, China's headline grabbing climate change announcement, an important marker on the road to Copenhagen. Frankly though, that work by China, in the interplay between domestic and international politics, was a fairly easy calculation. China has already made a strategic decision to develop a home-grown renewable energy industry, this was a logical move.

Rather, the heavy lift for China will come in the commitment to balanced growth from the G-20. China’s consumers are notoriously reticent to, well, consume. And it's virtually entirely due to policy. As Michael Pettis, a professor at Peking University, writes in the New York Times:

The Chinese save such a high fraction of their income largely because of long-standing policies aimed at promoting and subsidizing domestic investment and manufacturing.

These policies inevitably require households to foot the bill, primarily through sluggish wage growth, low interest rates on their bank deposits, an undervalued currency and a weak social safety net. Since total savings is just the difference between what is produced and what is consumed, subsidizing producers at the expense of household consumers necessarily causes savings to rise.

Since, as NDN's Rob Shapiro writes, there is little chance of the U.S. bailing the world out of the great recession, there is, as Pettis says, a scary possible outcome to rebalancing:

As the U.S. rebalances its economy toward higher savings rates, China has no choice but to rebalance toward higher consumption rates. This can happen either because of a sharp pick-up in consumption growth or, more likely, a sharp slowdown in GDP growth. I worry that China will find it difficult to generate the kind of consumption growth that will take up some of the American slack, and we may be locked into a period during which the world adjusts by growing more slowly.

This G-20 seems to have been more successful than many would have thought, but the real crux of the global economic recovery may lie in getting the world's rising powers to connect their people to the global marketplace. As China adjusts to the responsibilities that come with others having a stake in their domestic economic policies, it will inevitably do what everyone else does: balance that responsibility with domestic politics. (Perhaps Chinese leadership will see fit to develop a social safety net in the form of universal healthcare; all the socialists are doing it these days.)

More from the G-20:

20 heads are better than 7 – NYT: Global Economic Forum to Expand Permanently

FT: World Leaders to Expand G20 Powers:

Rich countries will agree to give up 5 per cent of the total voting shares to be distributed to under-represented countries, including rapidly growing emerging economies such as China. The aim is to increase the legitimacy of these institutions. The leaders have agreed to put aside disagreements over the representation in the governing bodies of these institutions.

Lula – Rising powers doing their part (let them do more by concluding Doha):

Policies adopted by countries in the Global South have created tens of millions of new consumers, who will drive the recovery of the global economy.

WSJ Environmental Capital blog - Fossil-fuel subsidies to be phased out in the "medium run."

Developing countries—many of the same ones that are demanding that rich countries underwrite their transition to a clean-energy economy—spent $310 billion in 2007 to subsidize fossil-fuel consumption, the International Energy Agency says.

Stop spending so much to keep gasoline, diesel, and electricity artificially cheap, in other words, and you’ll have the cash to promote clean energy at home.

For those of you who have followed NDN for a while, television's must-watch shows hosted familiar faces last night. Jon Stewart hosted Vali Nasr, a professor at the Tufts University and adviser to Richard Holbrooke. Nasr was promoting his new book, Forces of Fortune: The Rise of the New Muslim Middle Class and What It Will Mean for Our World, which sounds like an important entry into the newly forming canon of books on the "rise of the rest." Simon interviewed Nasr, the footage of which can be found below the Stewart interview. 

Beneath that, you can find Shai Agassi, the founder of Better Place. An electric car startup that seeks to radically change transportation, Agassi appeared at NDN's "Moment of Transformation" conference last year. His appearance on Colbert last night is a good update on their progress. 

Nasr on the Daily Show:

Simon interviews Nasr:

Agassi on the Colbert Report:

Agassi at "A Moment of Transformation:"

Experience shows that an important key to growing a vibrant renewable energy sector is a strong domestic market. Germany’s feed-in tariffs have helped it become a world leader in solar energy production. China has long been focusing on building their domestic renewable energy industries, and just announced they are upping their efforts to build domestic renewable demand. 

From the AP's coverage of the U.N. Summit on Climate Change:

Chinese President Hu Jintao said his nation will continue to take "determined" action. He laid out new plans for extending China's energy-saving programs and targets for reducing "by a notable margin" the "intensity" of its carbon pollution — carbon dioxide emission increases as related to economic growth.

He said China would greatly boost its forest cover, "climate-friendly technologies" and use 15 percent of its energy from renewable sources by 2020.

That 15 percent renewable energy by 2020 sounds like a Renewable Electricity Standard. It also sounds similar to the one in the ACES bill that passed the House in June, which mandates 20 percent renewables by 2020, but that generally allows for 5 percent of that to come from energy efficiency (which it undoubtedly will, as efficiency is way cheaper than renewables). In fact, the ACES standard can be weakened even further, all the way down to 12 percent renewables in some cases.

So now China's ahead of the United States, and, even if we pass ACES as is, will have a comparable or slightly stronger RES in an economy whose energy use (and therefore said sector) will grow much faster over the next decade than America's will. We'll have the price signal that cap and trade offers, but it’s not nearly as strong as it could be. (China is unwilling to agree to cap emissions and certainly won't ahead of the U.S.) 

Much of the opposition to domestic climate change regimes comes of the idea that American action on climate without China going along hurts the U.S. economy and does nothing to slow climate change. Now, basically the opposite could play out. With China stepping up on an RES and limited movement from the U.S. Congress toward passing a strong climate bill, some Americans seem willing to let China take a leadership role on perhaps the most pressing global governance challenge of the young century and develop an export-capable renewable energy sector that passes ours, thereby surrendering a high potential economic sector to world's most important rising power.

With the G-20 approaching next week, I'm pleased to present this backgrounder on some of NDN's most important thinking on the changing global economy. We are at a decisive moment in the global economic debate - a truly international recession rife with structural imbalances, climate change, and a U.S. - China trade spat are all likely to be at the top of the agenda. Here are some of our recent thoughts on these and many other important economic issues.

• Bhagwati Weighs in in Chinese Tires; China Plays U.S. Politics, September 14 - Jagdish Bhagwati joined NDN and the New Policy Institute on September 8 to discuss the future of the global economy. He discussed his opinion of the tire trade issue and the administration's response.

• The Key to the Fall Debate: Staying Focused on the Economy by Simon Rosenberg, September 3 - Huffington Post. Simon argues that in order for President Obama to reverse his and the Democratic Party's recent decline in public approval, the President must make the struggle of everyday people his primary rhetorical and governing concern.

• The Fault Lines in the U.S.-China Relationship by Dr. Robert Shapiro, July 30 - Shapiro argues that the divisions between the world's most powerful nation and most important emerging power matter a great deal, and, while they often remain unseen, can flare up at anytime. This relationship, an adversarial symbiosis, will be crucial to the future of global prosperity and security.

• Trade and Carbon, by Michael Moynihan, July 22 - Moynihan writes that we should be wary of using trade policy as a tool to combat climate change.

• Shapiro Speaks on G-20, Need for Global Economic Action, April 1 - At an NDN event on "The G-20 and Beyond: Challenges Facing the Global Economy," Shapiro delivered wide-ranging comments on the global Great Recession, its causes, and the global leadership necessary to combat it. The event also featured U.S. Rep. Adam Smith, Foreign Policy magazine Editor-in-Chief Dr. Moisés Naím. 

• U.S. Rep Adam Smith at The G-20 Summit and Beyond, April 1 - Ahead of the G-20 Summit, Smith, a Congressional leader on trade, terrorism, and international development, speaks on international trade and the need for a globally coordinated development strategy.

• The Fallout of the Great Recession for Trade by Dr. Robert Shapiro, February 11 - Shapiro argues that the world is currently experiencing the economic symptoms of protectionism without actual protectionist measures being put in place, which could have dangerous consequences for the global economy.

• Recovery Without E-verify and Buy American by Simon Rosenberg, February 10 - Rosenberg advocates for the removal of "Buy American" and E-verify provisions from the stimulus, provisions that will not stimulate the economy and will do more harm than good. 

Yesterday, the U.S. House of Representatives overwhelmingly passed H.R. 3221, the Student Aid and Fiscal Responsibility Act. Included in the legislation were provisions proposed in H.R. 2060, The Community College Technology Access Act, which would offer free computer training to all Americans through the nation’s community colleges. Sponsored by House Democratic Caucus Chair John Larson, H.R. 2060 was based on a 2007 NDN paper by Globalization Initiative Chair Dr. Robert Shapiro entitled Tapping the Resources of America's Community Colleges. These provisions are designed to increase worker skills in a 21st century economy in which facility with and connectivity to the global communications network are prerequisite for success. A companion bill, S. 1614, has been sponsored by Senator Chuck Schumer.

"Community Colleges reach every corner of this country with over 1100 in urban, rural and suburban settings." Larson said. "The legislation we passed today takes a bold step to expand the mission of our community colleges – making them a hub for training our workforce by opening their doors to provide the public with the basic computer training skills our workers need to succeed in a modern economy. I would particularly like to thank NDN and Dr. Robert Shapiro, for their hard work and advocacy on this issue as well as Chairman George Miller for including our language in his legislation."

"I salute the House of Representatives and especially Chairman John Larson for passing legislation that taps the resources and technology of community colleges to provide America's workers with the information-technology skills they'll need to succeed in a very competitive U.S. and global marketplace, particularly during tough times," Shapiro said. "Tens of millions of Americans entered our workforce before computers and the Internet became so ubiquitous. Many of them now are in what should be their most productive and highest-earning years. As non-wired jobs become increasingly rare, Americans without solid IT skills will find themselves economically marginalized. This legislation will help millions more American workers thrive in our idea-based economy."

Last week, Professor Jagdish Bhagwati joined NDN to discuss the changing global economy. At the G-20 in Pittsburgh next week, sure to be discussed is the impact the Great Recession has had on the international trading system. Here are Bhagwati and Dr. Rob Shapiro discussing that very topic:

According to the Financial Times, the G-20 will also address global economic imbalances (Bhagwati and Shapiro discussed that topic as well), a timely topic in light of the ongoing U.S. - China tire spat. 

A couple of interesting notes out on wages today: As background, we've long argued that getting wages and incomes up was the primary governing challenge of the day, going back to the Bush economy that saw wages stagnate and incomes decline. 

David Leonhardt from the New York Times points out that wages are actually increasing in the recession for those who are employed. But those who aren't are having an incredibly hard time finding a new job. Employment churn seems to be at quite the low.

Mark Thoma excerpts the latest Economic Outlook from the San Francisco Federal Reserve, which sees "anemic recovery" and "weakness in wage growth." Not good.

For more on the politics of incomes and wages, take a look at Simon's recent essay on focusing national attention on creating a new economic strategy for America. 

A new Washington Post-ABC News poll says a few things about the politics of the economy that are important to know as we head into the fall. A few points:

Painful personal experiences over the past year continue to dampen the outlook of many Americans. About two-thirds of those polled say they have been hurt financially by the recession, with extensive reports that job losses and pay reductions are hitting home. 

…

Nearly six in 10 Americans are now concerned about job or pay losses in the coming months, little changed since February, and there has been no increase in the percentage who see the federal government's stimulus efforts as having an impact, even as the pace of layoffs has eased in recent months. 

Americans feel like their incomes have decreased because they, in fact, have. So what does this polling data mean? As Simon recently wrote:

Getting incomes and wages up in this new economy of the 21st century is in fact the most important domestic challenge facing the country, and one the American people are demanding a new national strategy for. This fall is the time for the President to make it clear to the American people that he understands their concerns, has a strategy to ensure their success in this new economy, and will make their success the central organizing principle of his Administration until prosperity is once again broadly shared.

Things may be headed that direction. The President spoke Monday about new financial regulations, and, with more and more of the funds from the stimulus being obligated everyday, it shouldn't be too heavy of a lift to increase the number of those who see the stimulus as having a positive impact.

Last Tuesday, September 8, Professor Jagdish Bhagwati joined us here at NDN and the New Policy Institute to discuss the major international economic challenges facing us in the months since policymakers confronted the worst economic crisis in the modern era. I'll be posting segments of his talk with Globalization Initiative Chair Dr. Robert Shapiro over the next few days, but, in light of the growing U.S. – China trade spat, I wanted to begin with the part of the discussion focusing on rising powers and trade policy.

As you can hear at about 7:40, Bhagwati doesn't think the selective safeguard mechanism was particularly wise to include, but is sympathetic toward the President's desire to act on the provision agreed to by the Chinese. The Chinese retaliation, directed toward American the auto industry and chicken, is certainly unfortunate – hopefully the upcoming G-20 can smooth all this out and prevent a trade war – but it is certainly politically astute. It's hard to imagine a more politically sensitive industry right now than automobiles, and one might notice that the brand new chair of the Senate Agriculture Committee is from Arkansas, the home of Tyson Foods.

NDN has long pointed out that median household income dropped by roughly a thousand dollars during the Bush era, creating a middle class that was weakened even prior to the great recession. Now, Census Bureau data tells us that household income has again dropped, meaning that everyday Americans have taken a loss over the last decade. From the New York Times:

In another sign of both the recession and the long-term stagnation of middle-class wages, median family incomes in 2008 fell to $50,300, compared with $52,200 the year before. This wiped out the income gains of the previous three years, the report said.

Adjusted for inflation, in fact, median family incomes were lower in 2008 than a decade earlier.

"This is the largest decline in the first year of a recession we've seen since the Census Bureau started collecting data after World War II," said Lawrence Katz, an economist at Harvard University, referring to household incomes. "We've seen a lost decade for the typical American family."

Coupled with rising costs, specifically in health care (I'm sure you've heard about this recently), energy, and pensions, dropping incomes mean that the economic wellbeing of everyday Americans is significantly worse than a decade ago. Add in all the wealth destroyed by the systemic financial meltdown and the collapse of the housing market, and we're talking about an economically crippled American middle class.