There was a brief period in the 1970s when a similar transfer took place. But unlike then, the countries that are accumulating the capital are spending it not on consumption – remember the endless picture of Saudi princes buying up real estate on the Riviera – but on investment, infrastructure, education. Yes, there are bubbles here and there, whether it is real estate in Shanghai and Dubai or stocks in Mumbai, but there has also been serious long-range planning that is likely to position these countries in a strong position for years to come. Even China, which is trying to shift its economy more toward consumption to be less dependent on capital spending, has put in place an infrastructure of roads, power grids, ports, and railways that will serve its domestic economy for decades even as it can use it $2 trillion of reserves as a cushion when the U.S. and global economy sag. China may slow as its exports to the U.S. and Europe weaken, but it is less dependent on those for growth than most people assume.
The talk now is of a global recession that will be steep and prolonged. Perhaps, but the more likely scenario is continued stagnation in the United States and Europe and a more accelerated shift towards Asia. Few parts of Asia are structurally exposed to the credit implosion, and the balance sheets of Asian banks and companies are on the whole cleaner than their counterparts elsewhere in the world. Yes, many companies took on too much debt, and some countries, such as Korea, are more compromised than others. But China, which is the anchor, is not, and in a world where everyone else is falling down, the one left standing is that much taller.
The United States will remain a powerful part of a global system, but the task of the new president is to recognize lasting strengths and accept new limitations. President-elect Obama has shown pragmatism and realism, and seems to understand that acceptance of limitations isn’t weakness; refusal to acknowledge reality is. Let us hope that he can retain that wisdom as he and the country are plunged into the hard work that lies ahead.
Zachary Karabell is the president of River Twice Research and and associate fellow at Asia Societ.
Copyright: Project Syndicate/Asia Society