A Glass-half-empty Book

The following is a review of Losing Control: The Emerging Threats to Western Prosperity, by Stephen D. King.

This book is an unwittingly revealing glimpse into the troubled psyche of the West as it confronts the rise of the East.

“Losing Control” is troubling and thought-provoking. While I disagree with much of what Stephen D. King writes, his book should be on this summer’s must-read list for anyone tracking the global economy.

The world is in bad shape and King is not happy. Yes, he works as an economist for that most stiff-upper-lip of the big international banks, HSBC. But nothing else about him seems settled. From the spiky-haired author’s photo to King’s youthful hope to be a musician, he is at pains to paint himself as anything but a conventional bank economist.

No surprise then that King is disillusioned with globalization, which he says has led to “greater economic instability, heightened income inequality and financial market turmoil.” He worries that the West is in decline and denial. What will come next is likely to be pretty unsettling. The rise of emerging nations creates challenges which “are either swept under the carpet by supporters of globalization or, instead, distorted to suit the varying interests of xenophobes, nationalists and the anti-big business lobby.”

By the 2050s and 2060s the West “will be a shadow of its former economic self, both in terms of its falling share of the global economic pie and its rapidly diminishing share of the world’s every-increasing population.”

Strong stuff. Living in Asia, though, a lot of King’s message is pretty obvious. China and India account for more than one-third of the world’s population. It’s not news that if Chinese and Indians grow for the next couple of decades at anything like the speed they’ve grown for the last few, the balance of economic power will shift dramatically.

Nor should it be any surprise that demand for goods will drive up prices. As China uses more copper and more cement for its housing, global prices will rise and consumers in the West will have to pay more. In King’s dark view, these rising nations “threaten the cozy expectations of ever-rising living standards which characterized the second half of the twentieth century.”

As a reader, I’m left thinking, so what?

Will there be a “major redistribution of income” from the rich to the rest of the world? Or is it just that the rest of the world will get a larger share of a larger pie? If it’s the latter, I’m not really sure what there is to worry about.

I am similarly unconvinced about what a rise in the commodity prices will mean. Yes, there will be a transfer of income from consumers to producers, but given that food and other hard physical commodities are a fairly small share of a consumption basket in the West, does this really matter?

For example, Chinese per capita incomes were just 8% of Europe’s by Mao’s time. Although Chinese incomes have risen dramatically, they are far short of the West’s. Many people looking at this would see hundreds of millions of Chinese and Indians coming out of poverty as undeniably a good thing, and King does acknowledge the positive aspects.

But King’s is a glass-half-empty book. In his view, the rise of the East will be ugly. The West’s economic privilege will disappear. If that leads to a political backlash, as King thinks likely, there will be a problem.

King is at his strongest when he tries to tease out the implications of widening income and wealth inequality in developed countries. Will the U.S. need to endure years of high unemployment? If so, what does that mean, politically and economically? Is this just a transition issue or is there a long-term structural issue at work in the developed world?

These are serious, legitimate issues. Unfortunately, King doesn’t really grapple with them.

Instead, he undercuts himself by cherry-picking evidence. Here’s his take on the stunning 19th century economic takeoff that ushered in an era of longer, healthier lives for a better-educated and more affluent population: “The Industrial Revolution delivered huge amounts of economic progress, but only a fool would argue that everyone benefited.”

It’s a grim picture that King paints. In fact, if he’s right it’s even grimmer than he realized. King’s one hope for a solution is to have more monetary unions. The Euro is, for King, one of the great hopes for salvation, a way of subsuming national sovereignty into a larger economic unit. Unfortunately, the Euro’s crash came just after the book was published.

King has written a thoughtful, deliberately provocative book. It deserves to be read, especially in the West. We haven’t fully grappled with the implications of our globalized age. King’s dystopian vision may be proven wrong. But it is one worth thinking about.