Fall of the West

Fall of the West

Neville Bennett

Is the West in long time decline relative to the rest of the world? I believe it is, and will indicate some sources bearing that out. It is not a new question for me as in my youth I enjoyed reading Toynbee, Spengler and others.

Many of my generation received a broad liberal education at a state grammar school. Science was very strong at my school, where many friends later became engineers, but we were all taught to love literature, art, music (you had to play an instrument), history and 5 years of at least two languages. At school we debated the rise and fall of Rome, plus the British and other Empires.

West below 50% world GDP

“The Greater Depression (NBR 12 June ) has accelerated the decline of Western GDP of 60% to 64% of global GDP over 1995-2004. A British think-tank, CEBR, had earlier forecast 2015 as the date when the West’s GDP would go below 50% of world GDP, but the credit crunch and changes in foreign exchange has brought the date forward from 2015 to 2009. Defined as US, Canada and Europe, the West’s share of global GDP is predicted to decline further to 45% by 2012.

The report identifies an inventory-led recovery conforming to my bullish attitude to oil and metals (NBR May 29). They predict some bounce in 2009, but in 2010 recovery will be held back by fiscal retrenchment and the impact of structural deleveraging. They conclude, the West “has to get to grips with the fact that we are no longer dominant and cannot expect to have things our own way”. China’s recovery is having a marked effect on oil and commodities.

Oil as an indicator

Crude oil prices have increased by 120% since February, at a time when the IMF confirms a recession in the world economy. Normally, falling crude prices would be expected. Actually, the price is about $72 p.b. and the futures market is predicting $88. So the prices defy “demand destruction”, or the idea that price rises lower demand. BP’s statistical review has shown that for the first time in history, emerging market demand has outstripped the West’s. This is significant in our oil-based civilization.

Until now traders have tended to look at US conditions for oil market leads. Henceforth, Western demand can slump while overall consumption is rising. Perhaps this is one reason why oil prices are strong now. 2008 oil consumption fell in the US by 6.4%; in the BRICs consumption grew y-o-y by 3.3% in China, 4.8% in India, 5.3% in Brazil, and 3.1% in Russia.

The BRICs

The BRICs now muster 20% of global GDP, about the same as the USA. These are rapidly changing societies with a large propensity to consume oil and commodities. Presumably their oil demand will burgeon, as industrialization proceeds at pace. One tends to think of them as financially undeveloped, but they have at least one huge advantage: they save.

Collectively their currency reserves are half of the global total. A recent Telegraph article said G7’s reserves’ (excluding Japan) has only 6% of world reserves. This makes it a little odd that the US dominates the IMF, World Bank etc. How can that last?

The BRIC’s are holding their first formal summit this week in Yekaterinburg, Russia. Curious that it gets little reported because the BRICs could stop lending the West money and deepen the recession. Their agenda includes ways to reshape the financial system and perhaps produce a new reserve currency. The Brazilian President wants the BRICs “change the political and trade geography of the world”.

The Chinese premier arrived as I went to press. I imagine that China will be much less confrontational than Brazil and Russia. China holds the most US Treasuries and does not want to undermine the dollar. It merely wants to supplant the USA as the world’s biggest economy, as it may do in 20 years.

World Economic Forum

Readers may recall an earlier article in which I outlined the briefing for the upcoming Davos meeting. The article specifically questioned the western model of development, and adopted the spirit of Asian capitalism with stronger central direction, saving and heavy capital investment. The report went beyond extending current trends and explicitly discussed “critical uncertainties”, and “potential discontinuities”. It also stressed rapidly shifting geo-economic power. (NBR Jan 23). Changing demography is a factor: “western” populations are shrinking, but emerging country populations are not.

Philosophers: Oswald Spengler

Spengler insisted in the 1920’s, when he was extremely influential, that we were living in the winter time of the Faustian civilization. His description of the Faustian civilization is where the populace constantly strives for the unattainable—making the western man a proud but tragic figure, for while he strives and creates he secretly knows the actual goal will never be reached. His “unattainable” is materialism.

Spengler asserted that democracy is simply the political weapon of money, and the media is the means through which money operates a democratic political system. Politics becomes an unprincipled struggle for executive power. Instead of conversations between men, the press and the “electrical news-service keep the waking-consciousness of whole people and continents under a deafening drum-fire of theses, catchwords, standpoints, scenes, feelings, day by day and year by year.”

Philosopher: Arnold Toynbee

Toynbee wrote magnificent Annual reports during the 1930’s are which I often set as required reading for graduate students. I had the joy once of meeting him. He dropped into Hong Kong University and asked if he could help. I took him to a tutorial, where unforgettably he raged against the state but lauded the polis (city).

Toynbee predicted the decline of the west. All civilizations are surrounded by peripheral countries of greater resources. Once the periphery absorbs the civilizations superior technology, especially military technology, it conquers.

Conclusion

Two centuries of western dominance has passed. The emerging world has caught up in terms of development. The West still has cutting-edge technology and military power, but it is being challenged on every front.