About Me

Jul 2, 2011

Free Market Is Not Free: Why Our Future Belongs To a Disaster

 Free market is not free is a point I want to make. A price must be paid to free market for every country taking Capitalism. Free market, as Adam Smith described, is guided by invisible hand. Individual freely pursuits his/her own dream and the competition is always fierce. There’s no question that fair competition leads to a more innovative, prosperous, creative society.
The only big problem is that free market carries risks and challenges. Most countries in the world are of capitalism system. China and Vietnam are communist in name only. Some countries are developing at a neck-breaking speed. There are Brazil, China, India, Russia, Turkey, Vietnam, and Indonesia and so on, all of them are capitalists. Do you ever think what would happen when Capitalisms collide?
I’m talking on the decline of world consumers. US have been gigantic consumers for the world until the housing bubble burst. They are not spending more because they don’t have money. They got themself into debts by buying inflated house(s) during the boom of housing bubble in the hope of getting profits. Unfortunately, the bubble burst before they could make enough profits. The crisis started in 2007 was caused in part by both excessive spending and excessive borrowing.  
Learning from this lesson, I think they won’t spend the money irrationally, especially on foreign goods, at least for somewhat period.   As I mentioned in previous articles, investors are moving back to America. US consumers will mostly buy home- made products. US goods are now cheaper than before with virtually the same quality before the economic crisis came. The point is that we can’t depend on US consumers. We can’t also depend on emerging markets’ export markets. Emerging markets are export-oriented countries. Advanced countries can sell only medium and heavy industries products to fast developing countries.
My previous pieces suggest that neither developed countries nor developing ones are the losers of global economic contest. US will remerge again and developing economies will keep developing faster and faster. However, not all countries will succeed and the successive ones will fail after they succeed. We will have problems in both medium and long term. European countries are implementing austerity measures. They are not going to spend more too. At the end of the day, global export market is usually small. US now contain loads of “Zombie Consumers” and that’s the problem the whole is having.
Stephen S. Roach, authored The Next Asia, expressed an impressive view on the death of America consumers.[1] Advanced nations can’t depend on China for export markets because Chinese people’s saving rate is amongst the highest ones in the world. Chinese Communist Party’s11th Five Year Plan stresses the importance of domestic consumption given the diminishing export markets; the West won’t very much benefit from the Plan thanks to high productivities of Chinese people. 
Increasingly smaller market with bigger exporters. Who will survive? Maybe only the weak. Those are the challenges we are facing now. What about the future? The more they develop the more risks they carry with. Capitalism is new to emerging markets. If we look at the history of Capitalism in America, we see that US have a lot of severe economic crises. The effects were limited for most crises. For present day, we are living a globalized world. It turned the world to a global village in which the Systematic Risk is both potential and far-reaching than ever. The crisis of 2008 is an undeniable example. If we strictly regulate the economy it will stifle the economic growth. If we don’t, the economy will be risky. Well, we can’t have the cake and eat it.   
If China succeeds, she will fail after that, India also. There will be a severe economic crisis from emerging markets some day and it will keep coming.[2]  We are having problems with dead consumers . In the medium and long future, we will have problems with economic crises coming from emerging markets. Each crisis is not a small one, I guess. Each country’s economy is getting more and more connected. When an economy fails, the rest will suffer especially, the one that comes from major economies.
Emerging markets will fail one by one but they can reemerge as countries in the West did. We don’t need to avoid unavoidable. We can manage manageable by reducing risks in global economic system by regulating without compromising growth.