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Dr. Yılmaz Akyüz was the Chief Economist and the Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD) when he retired in August 2003. He was the principal author and head of the team preparing the Trade and Development Report, and UNCTAD coordinator of research support to developing countries (the Group-of-24) in the IMF and the World Bank on International Monetary and Financial Issues. He taught at various universities in Turkey and Europe before joining UNCTAD in 1984 and after his retirement, and published extensively in macroeconomics, finance, growth and development. He is the second holder of the Tun Ismail Ali International Chair in Monetary and Financial Economics at the University of Malaya, established by Bank Negara. He is now Chief Economist of the South Centre, an Intergovernmental Think Tank of the Developing Countries, based in Geneva.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Baltimore. We're continuing our series of interviews about the global economy. And now joining us from Geneva again is Dr. Yilmaz AkyÃ¼z. He's a former chief economist and director of the Division on Globalization and Development Strategies at UNCTAD. He's now the chief economist of the South Centre, an intergovernmental think tank of the developing countries based in Geneva. Thanks for joining us again.So let's pick up where we left off. I had said we were going to talk about the bubbles in the developing world. But before we get into that, let's just kind of go back to something from part one, where you suggested that what needs to be done now, at least in the northern countries, and particularly in the United States and Europe, is print money, and that that is not inflationary. So, I mean, one of the main arguments, I guessâand this is why the banks and those that own a lot of stuff don't want to do thisâis they think it's going to depreciate their assets, that, you know, if you own, you know, severalâwhat's thought to be several millions or several billions of dollars of assets and the government can simply print money, that it degrades what your assets are. Is that what they are afraid of? And is that a legitimate fear?YILMAZ AKYÃZ, CHIEF ECONOMIST, SOUTH CENTRE: I don't think it's legitimate. You see, how can assets be depreciating when incomes earned on the assets as a result of extra spending coming out of printing money is rising?Now, we're printing money and giving it to banks in the hope that banks will extend credit to consumers and the consumer will spend that money.JAY: And this is what'sâthey're calling quantitative easing.AKYÃZ: We're printing money, but it is not really translated into spending. And this is what we're complaining about. Now, what I'm suggesting is thatâprinting money and linking it directly to spending. And what's the difference? In both cases we have underutilized resources in the economyâunemployment, unused capacity in industry. And that money will actually create more income for everybody. And when incomes go up, the asset values go up. So I don't seeâI'm not suggesting printing money at times of a boom. I'm not suggesting it at times of full employment. We are in a terrible depression situation, and the way out of that is to increase spending. Now, we're afraid of increasing spending through the government because of the public debt problem. But how can you increase government spending without adding to government debt? It is simply by writing an IOU to the central bank, printing money for deficit spending.JAY: Which you're saying is already happening. It's what the Fed's doing when they call it quantitative easing. They're essentially doing that. But the banks are sitting on the money or they're taking it south, which we'll talk about in a few minutes.AKYÃZ: Exactly. And the consumer's not willing to borrow, because they're overindebted, and the business doesn't want to invest because there is no demand. So we have an impossible situation. We have monetary policy which is not effective. Printing money is not lifting the economy.JAY: Well, one of the things that this current printing of money is, the current quantitative easing, is it's helping facilitate the growth of bubbles in the south. What is happening there? 'Cause there seems to be this mood that if you have low wages in North America and Europe, they're going to export into these markets, and these are growing at such a rate, and that that's going to save the north, the global south is going to save the global north. What do you make of that?AKYÃZ: Well, first of all, I think the attention has so far focused on China as a problem in the south, freeriding, exporting its way out. But my estimates suggest that before the crisis, up till 2007, in fact, growth in Japan and Germany relied a lot more on exports than in China. Don't forget, Chinese domestic demand was rising at a rate of 7, 8, 10 percent per annum, whereas the domestic demand in Germany was stagnant and the only stimulus to German growth was export. And I actually estimated that before the crisis, about 80 to 90 percent of German growth was due to exports. And again, in the case of Japan, a higher proportion of Japanese growth was due to export than China. The difference between these countries and China is that China was actually expanding domestic economy. Domestic demand was risingâmaybe not as fast as it should be because of low wages, low household income, and the problem of underconsumption, but Chinese investment was rising and Chinese exports were rising faster. But still the extent to which China relied on export for growth was much less than Germany and Japan.JAY: And so what's the significance of that?AKYÃZ: So what I see as a problem, first of all, Germany should stop cutting wages and putting it behind productivity growth. And I feel that Germany is the main problem in Europe in terms of imbalances in the region. What has so far happened in Europe is that Germany was cutting wages, wages falling behind productivity, German competitiveness increasing. And interestingly, estimates show that German productivity growth was not the fastest in Europe, but German productivity wage differential was larger than most of the countries in the periphery. So Germans were exporting their way out, and German banks were financing the deficits of Greece, Spain, Italy, with Germany. And when the banks stop financing these deficits, then you had a crisis in that. But effectively the deficits of these countries were largely helping German industry to export its way out. So Germany was a problem, and this problem is still there. And the only wayâgiven that there is a single currency, the only way that the other countries can actually restore their competitiveness, either we need a higher inflation in Germany, higher wages in Germany, or still wage cuts in these countries. And wage cuts in these countries are not going to solve the problem. JAY: But the policies that are being followed by Germany and by the United States, and to some extent Canada and other parts of Europe, certainly Great Britain, is that they're lowering wages quite deliberately. They've made their decision where they're headed here. And they believe the markets, like, in China and in India are going to be the markets that expand, and they're going to export into them. So if you're saying that China has in fact increased its demand, what's wrong with that theory? What's wrong with the idea that they're going to have low wages here and have their markets over there? Yeah. I mean, why can't China become the market for the world?AKYÃZ: Well, let me tell you why. First of all, China has a very low level of consumption. The share of private consumption in China in GDP is in the order of 34 percent, and it's been falling since the mid 1990s. And this decline has been due to the decline of household income in GDP. And that decline in household income is due to the decline in the share of wages in GDP. So you have an underconsumption economy. I've estimated that Chinese economy is largely closed to import, except for investment in exports. In fact, the import content of Chinese consumption is a quarter of import content of U.S. consumption. And Chinese consumer market is about 5 to 7 percent of U.S. consumer market. And therefore China cannot really replace U.S. in any big way without achieving much higher levels of income and without having a much higher import content for consumption and without much higher household income.JAY: How sustainable is this Chinese growth?AKYÃZ: How sustainable? Well, you see, the problem that's really facing China is this. China is an underconsumption economy. I think this is established. Until the crisis, this problem was resolved by exporting to Europe and United States. And I estimated that the share of the exports in GDP growth was close to 30 to 50 percent, depending on the calculations, and it's much greater than the contribution of domestic consumption to growth. When the crisis happened, of course, the exports fell, and this decline in Chinese exports to the United States particularly is a permanent, permanent phenomenon. There is no way to go back to pre-crisis situation with the U.S. acting as a locomotive for the rest of the world and accumulating public, private, and national debt. So China knows that. Well, the Chinese response to the decline in exports was basically to increase investment. I argue that China should have increased consumption on a permanent basis. And the crisis gave a good opportunity for Chinese to get out of underconsumption, but they instead increased public investment in infrastructure. They went for a property pool. Now, as a result, they actually avoided a sharp downturn, and in fact in 2010, 2011, they achieved very high growth. But this is at the expense of overcapacity and increased indebtedness in state enterprises and local governments.Now we have another slowdown in China this year, as you know. It's coming down to 7 percent. And what I argue is that this policy of setting the permanent decline in the pace of exports of China by raising investment is not sustainable. And the longer this adjustment is delayed in China, that is, shift the consumer and wage-led growth, the moreâthe sharper the decline, the downturn will be, because they'll be accumulating a lot of debt, domestic debt, unpayable debt. They're accumulating a lot of unused capital stock. So China I do not think is sustainable unless they turn to domestic consumption led growth. This requires an increase in the level of household income through two means: government transfers and wages and change in income distribution. But it's a very difficult issue.JAY: Okay. Just to be clear, consumption-led demand means higher wages. And while there's been some rhetoric about that in China, and maybe a modest amount of movement, very little really significant movement.AKYÃZ: Well, you see, it is not that wages don't move in China. I think they move in China. Chinese standards of living are rising for everybody, including working classes.But because wages are lagging behind productivity growth, the share of wages [are] falling, and this is creating underconsumption problem, which China initially dealt with through exporting to Europe and U.S., now trying to deal with the problem through investment. And neither of these two strategies is sustainable; neither export-led strategy nor investment-led strategy in China is sustainable.JAY: So China is not going to save the global economy, at least not the way things are working now. Thanks very much. We're going to continue this discussion. Please join us for the next segment of our interview on The Real News Network.
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