Ethnocentricity and Free Trade

Der Speigel recently printed a poll of former East Germans. In it 49% say: “The GDR had more good sides than bad sides. There were some problems but life was good there.” Another 8% say “Life there was happier and better than in reunified Germany today.” A full 57% defend a totalitarian, police state!

Typical of those polled is Thorsten Schon a 51 year old master craftsman who lives in Strasland on The Baltic Sea. Since reunification he has purchased a Porsche, traveled to Africa and by all measures has benefited from the fall of communism. “I’m better off today than I was before, but I’m not more satisfied” he says. He misses “that feeling of companionship and solidarity” and laments the rise in crime. “People lie and cheat everywhere today” and “today’s injustices are simply perpetrated in a more cunning way than in the GDR.”

Are these opinions merely looking back thru rose colored glasses? Or do they represent real questions we need to consider when assessing capitalism’s benefits and weakness’s.

InPen

Living in the southwest I’m often in contact with native American cultures. I once asked a Navajo gentleman what his definition of success was. A new car? A big house? “No” he said. His definition of success was to be “a good member of my clan.” Material things meant little to him. Family, friends and community were far more important.

He also felt that democracy was a mistake in native cultures. The corruption of so many tribal officials was a result of it. He felt native peoples would be better off if they returned to the old system of chieftains. His answers are remarkably similar to those of the former citizens of the GDR.

The poll reminds us not to be so judgmental when assessing a trading partners economic and political system. While human rights need to be adhered to, values may be very different. Modern capitalism has many benefits, but they come with a high price, a price that others with different value systems may not be willing to pay.

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Is The U.S. Doomed To Years Of Slow Economic Growth?

Maybe not!

shoppingMallGreenFor decades the US consumer has fueled the fires of economic growth. Spending like drunken sailors the consumer has drained savings and run up a mountain of debt. Today with their savings depleted, their investments pillaged and their homes devalued, it will take a decade before they can spend again. We must pay the piper and are doomed to a lost decade. Or so goes the current economic mantra.
But in a new report entitled “The New Normal Will Likely Be ….Normal“, Wells Fargo’s Chief Investment Strategist Jim Paulson argues our economic recovery will be far better than expected. Paulson argues the seeds of our recovery were planted in the midst of our decadence. In short:

A: For almost two decades US consumers have spent far beyond their means. But that spending has helped jump start third world economies around the globe. We helped create a new world of consumers who have jobs, savings and aspirations for a better life. As we destroyed our savings, we created an emerging class of consumers around the world.

B: During the last expansion (2003-2006) overall real GDP growth averaged 3 to 3.5 percent. That was comprised of about 3% from the household sector, 1% from the business sector and a “net loss” of about 1% from our trade deficit. Let’s say that in the next expansion consumer spending drops to 1% of GDP. Business still contributes 1%, but rising exports now contribute 1%. Overall, GDP growth still remains at 3%, but its composition has changed.

Paulson argues several things must be put in place to make this happen:

1. Emerging world economies must no longer be allowed to continue currency pegs at cheap (below market) levels. Many emerging nations currencies are undervalued and would appreciate considerably were this to happen. China immediately comes to mind.

2. Emerging economies must no longer be able to treat workers like indentured servants. Worker protections, minimum wages and benefit packages must be enforced.

3. Environmental laws will need to be enforced worldwide.

A more level playing field will be created.

Should these things happen, the absence of the US consumer need not be a “death knell” for future economic growth. To read the article in it’s entirety, go to http://www.wellscap.com