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An open letter to the third world.

The current economic crisis provides a sobering reality check to the western developed countries on the viability of their current economic models. The continued rise of standard of living in the west, gained on the backs of exploiting cheap labor or resources in other parts of the world has run its course. The last 60 years, western countries have been forced to relinquish the colonial control over the lands and economies of their former colonial possessions and instead turned to capitalism to exact a measure of control over those former states. The establishment of the world bank and the IMF have allowed western nations to establish , often very favorable monetary relationships in the form of loans, and to enable exchanges of goods, resources and services between western countries and the still resource rich countries of the third world. At the same time, active or passive attempts to maintain control of these areas by securing favorable governments into power through political and economic pressure or by out right funding of opposition groups within foreign countries have allowed the west to maintain a level of control over these regions for the last 40 years.



However, things have changed, today the former colonial countries of South East Asia have elevated their infrastructures and manufacturing capabilities to supplant and usurp the former prowess in these areas that existed in western countries. The capitalistic system which was the engine of the flowering western economies has served to also build the economies of their former possessions. In so doing, the difference in standard of living between the peoples of the west and the third world has allowed the latter to stand out as manufacturing capitals that allow them to produce the much desired acoutriments of the standard of living in the western countries for much lower production costs than could be had if produced in the west. In this difference lies the slow bleed of manufacturing prowess from the west to the newer nations that has attended the last 45 years.

The link between standard of living and manufacturing prowess is an old one, the Greeks exploited innovations in military tactics and warfare to gain control over their neighbors. In so doing they extracted the ability to gain very favorable terms (in the form of vassals, acquired technology, resources and new foods from the regions conquered, slave populations to extract native natural resources in conquered regions and regular tithes from the governors of controlled regions) these terms allowed them to build a society of "thinkers". Aristotle, Plato, Socrates were allowed to think about so many other areas of human endeavor and concepts because the Greek society had freed them of the need to be constantly at war or constantly in the field. This freedom was one at the hands of battle and war of the previous generations of Greeks. The Spartans and later Alexander of Macedonia. The emergence of the thinking classes in Greece gave rise to further advances in technology that came not from a magic innate ability of Greek culture or people to generate them, but instead by the slow steady acquisition of much knowledge from conquered lands. Two of the greatest prizes to Greek expansion and development to this cause were the ancient and faltering civilizations of the Persians to the East and the Egyptians to the South. In conquering the Persians, the Greeks gained access to more advanced methods of numeration, the concept of "zero" originated in the Indus valley, and until Alexander's concquering of those areas was unknown to the Greeks. Additional gains from the Persians include advanced methods of agriculture in the form of access to additional spices and plant species. In conquering the Egyptians the Greece benefited even more, here they absorbed advanced building techniques both for masonry and as well for building ships. They also learned the advanced metal craftsmanship that had flowered in Egypt for 2,000 years before the Greeks conquered them. Also lucrative, was the fertile coast of the Nile that served as a bread basket to the Greeks and later to the Romans who conquered the Greeks.

Examples of "advanced" cultures exploiting the resources of conquered lands to spur their advance can be seen over again in history since those times. In modern times, the capitalistic system has mostly supplanted active warfare as the mechanism by which favorable trade terms are achieved but has come at the cost of the penalty of standard of living. As the Greek society became more and more sedentary and less in touch with the tactics of war that led to their control of foreign lands peoples and resources they became vulnerable to attack from those regions. Invariably, in order to control a remote land the invader must bring their people and their military advantages to the perifery of the controlled areas in order to fend off attack from uncontrolled areas further off. This meant that the conquerer had to teach the conquered how to serve as their proxy on the battle field. Once this parity had been reached, the original culture no longer had a dominating military advantage to maintain extraction of the favorable terms of extraction of resources, use of slaves (they interbred with them and thus increased the percentage of the population that were free citizens) and more importantly, lacked the ability to field the necessary numbers of troops to qwell uprisings in far of regions, often occuring simultaneously. These factors slowly were at the heart of the demise of the Egyptians and Persians by the Greeks, of the Greeks to the Romans, of the Romans to the many dozen of controlled areas (precipitated initially by Hunnish antagonists) that they lost control over slowly from roughly A.D. 100 to A.D. 450.

The economic version of the conquerer making the conquered their proxy exists in the manufacturing migration that has occurred from western lands to former colonies over the last 50 years or so. The massive populations of countries like China and India coupled with policies that are pro economic development have allowed them to isolate manufacturing as a gold mine for development. The more people you have to work, the less each can demand payment, supply and demand played out in clear detail. The production of cheaply made (from a cost perspective not necessarily a quality perspective) manufactured goods in these lands have allowed them to extract favorable terms in reverse to the western countries, and their populations of people who demand these products to maintain their high standards of living. The result being that over the decades, a former hard line communist China has gone from being a country with barely any diplomatic relations with the United States to being one to which the United States owes several hundred billion dollars in the form of outstanding treasury notes. In the ancient past a country like the United States would have asserted its military advantage over weaker nations to continue extracting the strongest possible terms of control over those countries people and resources but capitalism has replaced the risky tactic of using warfare to gain economic power.

The global recession of 2008 in which we are now all mired is the result of the continued imbalance between the western countries (and the United States in particular) to pay for the goods and services they are purchasing with their treasury notes as over time, the foreign lands that have been buying these notes have increased their parity with us in manufacturing and technology. The continued desire to maintain high standards of living have forced the US government to over leverage itself in order to maintain the status quo. Programs instituted to promote ownership of homes have prodded individuals to assume large amounts of personal debt in the form of outstanding mortgages to these homes, many extravagantly built with the belief that soaring prices in local markets would continue to add value to the original purchace. Tie this together to a lax regulatory environment that allowed a decoupling of the risk inherent in purchasing a particular home from the purchaser in the form of exotic financial instruments like collatoralized debt obligations and mortgage backed securities, allowed US bankers to pass on the risky purchases of overlevereged Americans on to the rest of the world, where up to now US securities had always been seen as a safe bet. The crash of the real estate and banking markets is a direct result of the entire world coming to the sudden conclusion that "the value believed to be in US securities was wrong", unable to know if they could ever realize the value of notes purchased many foreign banks folded and even some governments (Iceland) as they overleveraged their holdings of US based securities, the value of which have all gone to be nearly worthless.



It is safe to say that the US securities will never again see the heights that they had prior to this recession. The more advanced manufacturing prowess of the Asian market has sounded the death knell for the US and Europe as being the only two areas of the world where growth appears nearly limitless. However, it would be a mistake to think that these emerging markets are also free to grow as vigorously as it was believed the US market would grow. Like what happened before in Greece, parity will be reached in manufacturing capability but this will come at the hands of the third world. The Asian countries are already organizing labor forces and unions in order to extract better terms for producing the goods exported to western countries. As per worker payments rise, the advantage of manufacturing in these countries will fall and the companies that own them will look for yet cheaper places to continue production at lower cost. Countries like Brazil, Mexico, Nigeria, Kenya, South Africa are poised to serve as the new locations where extremely low labor costs can be had for the production of manufactured goods desired by the Western and Asian markets to serve their high standards of living. The cycle will continue but the third world stands poised to ride the wave that has already passed under the boats of Europe, the United States and Asia.





Links:

http://www.msnbc.msn.com/id/17424874/ (who do we owe?)

http://en.wikipedia.org/wiki/Balance_of_trade

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