Tolstoy may have been right about families (“All happy families are alike; each unhappy family is unhappy in its own way”) but the opposite of his famous first line is true when it comes to countries: The world’s disparate unhappy nations are very much alike when it comes to the causes of their unhappiness.
That’s not immediately apparent: Austerity-strangled Greece, cheap-money America and military-ruled Egypt are all exhibiting quite different symptoms. But it is no accident that so many economies are sputtering at the same time, or that so many people around the globe are angry.
One reason for the synchronized gloom is the synchronization of the global economy. Another is that everyone is trying to figure out three big questions, the answers to which will shape the 21st century.
The first is how nation-states fit into a globalized world economy. Different countries are wrestling with different versions of this problem. Small states with their own currencies and open trade policies have just endured a version of the Asian crisis of 1998, and they have come to similar conclusions – survival requires a fortress-like national balance sheet and export-led growth. That’s why Baltic leaders, these days, sound an awful lot like Southeast Asian ones.
The rub, as Lawrence Summers, the former U.S. Treasury secretary, likes to point out, is that export-led growth can’t work as a policy for the whole world. Someone needs to be the net importer.
The truth of this is being experienced very painfully by south Europeans, whose economies are constrained not only by inflexible labour markets – which are being reformed – but also by a currency union that has lifted north European exporters, particularly Germans, and weakened everyone else. The euro, which was attractive to smaller European states as a shelter from global economic storms, turns out to be a perilous haven.
An effective global economy will require more than a World Trade Organization and free and fair commerce between companies. What shapes trade most of all is currencies, which are guided by national policies on exports, credit and government surpluses or deficits. If we want a global economy, we need to devise a way for the currencies of the world to work together.
The second question is even knottier. Global capitalism is the best economic system devised so far: Worldwide growth in the three decades before the latest financial crisis was astonishing, delivering, most strikingly, a huge rise in incomes to poor people in countries such as India and China.
But 21st-century capitalism is failing at one very important task – delivering jobs and rising incomes to the middle class in rich countries. U.S. families are no better off today than they were in 1992. Much of Europe is in the same fix, only worse. The rise of European tigers such as Iceland, Ireland and Spain now feels like a mirage.
The easy money of the pre-2008 world economy hid a multitude of sins. In the United States, the middle class thought it was rich because of cheap consumer credit; in southern Europe, the middle class thought it was rich because of state jobs, state pensions and state services financed by cheap sovereign credit. Now that credit has dried up.
As Lord Paddy Ashdown told a gathering of top Canadian civil servants in Ottawa this week: “You alienate the middle class at your peril. The middle class always leads revolutions.”
The third question is one we speak about the least and should probably worry about the most: Can rich women be persuaded to have children? Once a country achieves middle-income status, its middle-class women stop having many children. This demographic squeeze is another big contributor to Europe’s malaise, and is likely to become more severe.
The global family of nations will be unhappy until we find a workable new power configuration. The good news – and the bad news – is that we will only be able to figure that out together. “Everything today is connected to everything else,” Lord Ashdown said. “The most important part of what you can do is what you can do with others. There is no problem any more that is solvable alone.”
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