Is globalization enough carrot for staus qvo?

For those visiting contemporary Greece, it may become apparent that the height of a civilization is no guarantee in and of itself for how long that civilization lasts.

For some time now, more precisely since the collapse of the Soviet Union, we have been dealing with increased anxiety regarding the course of our society. For now, clustering economies and trading blocs seem to emerge as part of a first stage in the opposition to a "uni-polar" world. Military re-arrangements on the geo-strategic map do not seem to be too far off either. The public can now see in the EU arms-trading overtures to China what has probably been in the minds of military chiefs of staffs for some time.

Contrary to all this, it seems, runs globalization with its powerful advocates and mighty interests. It is commonplace observation to notice how the tide of globalization raises most nation-boats. The temptation is to say that there is too much interest in globalization and free trade for anybody to run contrary to it. Moreover, there is too much to be lost by all players would the current global system collapse or come under threat.

So, in such a world run by so many accumulating contradictions, where is one to find the equivalent to a visit to Greece? In Sinking Globalization, an article published with Foreign Affairs, March/April 2005, Niall Ferguson gives the reader a comparative reading of the history. This may help one realize that there were times in the past when players, well-informed of the cost of war/collapsing global systems, could not avoid the unimaginable losses of letting the hell break loose. So, history tells us, through the voice of Niall Ferguson, that bad things can happen despite our having either a huge vested interest in status qvo OR the potential for huge losses.

Here is Foreign Affairs' summary of Niall Ferguson's article:
"Could globalization collapse? It may seem unlikely today. Yet despite many warnings, people were shocked the last time globalization crumbled, with the onslaught of World War I. Like today, that period was marked by imperial overstretch, great-power rivalry, unstable alliances, rogue regimes, and terrorist organizations. And the world is no better prepared for calamity now."

Drucker on the course of (some) things to come

Many a time, when analyzing the future, we see the various macro-trends that would place an industry, economy, nation or bloc of nations, on a competitive map zig-zagging beyond our ability for classification and sense-making.

Peter Drucker, this thinker whose output resists classifications, shows us his version for the near-term future in an interesting piece, 'Trading Places,' published with The National Interest. His attempt is made interesting by its multi-dimensional scope of analysis. On one hand, Drucker looks at several key sectors of our economies, and on the other, by leveraging an acute sense of time, traces his points deep into history.

Here is the gist of his analysis:
"The New world economy is fundamentally different from that of the fifty years following World War II. The United States may well remain the political and military leader for decades to come. It is likely also to remain the world's richest and most productive national economy for a long time (though the European Union as a whole is both larger and more productive). But the U.S. economy is no longer the single dominant economy.

The emerging world economy is a pluralist one, with a substantial number of economic "blocs." Eventually there may be six or seven blocs, of which the U.S.-dominated NAFTA is likely to be only one, coexisting and competing with the European Union (EU), MERCOSUR in Latin America, ASEAN in the Far East, and nation-states that are blocs by themselves, China and India. These blocs are neither "free trade" nor "protectionist", but both at the same time.

Even more novel is that what is emerging is not one but four world economies: a world economy of information; of money; of multinationals (one no longer dominated by American enterprises); and a mercantilist world economy of goods, services and trade. These world economies overlap and interact with one another. But each is distinct with different members, a different scope, different values and different institutions."

What now, what next?

The US dollar goes lower while the oil price goes higher, and so do the US government's expenses. What if the latest surge in demand from US consumers indicates a problem whose solution is structural, unspoken of, and only marginally addressed by most current debates around oil, currency valuations, and such? Is the world economy viewed, by the handlers of capital, as a fixed pie whose growth comes mostly through increased asset prices, especially in the developed world? What if, by lacking the capability to manufacture most goods it needs, matters in the US can only worsen unless... it rebuilds its manufacturing capabilities? How likely a scenario would this be and what would the markers be along its timeframe?

Alan Greenspan still holds a card or two, and so does the President...

Nouriel Roubini takes issue with Alan Greenspan. According to him, Mr. Greenspan's decision to support President Bush's tax cuts was a great, if not the greatest, mistake the Fed Chairman has made.

What I would add is that Mr. Greenspan started making such 'errors' a while back, and one should not ignore the support he lent to President Clinton's economic policies.

Given all these, how safe is it to assume that Mr. Greenspan traded in his institution's independence for longevity? On a different level, how much independence can go against an elected president's economic agenda? I would posit, not much if the Fed were alone against the executive branch.

For the original posting on Mr. Roubini's site, follow this link: What did the Delphic Oracle mean on the current account? Reading Greenspan's Tea Leaves. And a modest appeal to the Chairman to speak up on our reckless fiscal policy.

Collaboration as result of a prisonner trilemma

Nouriel Roubini proposes an interesting framework to approach the current situation in the global financial markets.

Can we think of Bretton Woods 2 as a Prisoners Dilemma Nash Game between the US and China? Certainly Larry Summers referred to it as a "balance of financial terror" game. So, will the outcome be cooperation for global rebalancing or hard landing mutually assured financial destruction, i.e. MAD or MAFD?

I would only add that we deal in fact with a trilemma, add EU to the two entities considered by Mr. Roubini. As well, collaboration for an exit out of the status qvo is more than necessary. This means that all parties, including the US, have to change the rules of the game. Hence the need for a Bretton Woods 3. For a link to the initial posting and the ensuing conversation, follow this: US-China "Balance of Financial Terror" Game. A Prisoners Dilemma Game: hard landing MAD or Chinese pre-emption as the likely solution?

Merck is back

Hats off to Mr. Gilmartin, Merck's CEO and member in Microsoft's Board of Directors! He might not embody everyone's idea of the contemporary CEO yet having the guts to pull Vioxx off the drug market was the right thing to do. With the tort law reform atmosphere in Washington, an ageing population in the developed world, more access to medical services in the developing world, and its own cash pile, Merck has almost what it takes to consider its next steps.

The jury is still out on the fruits of Merck's marketing arrangements with its partners. Novartis might have just signaled what it takes to ride the next wave in pharma: generics. Whether or not more generics is what Merck needs to get out of the current conundrum, the Company and Mr. Gilmartin himself ought to decide who the top guy is.