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Crinoline and croquet are out. As yet, no political activists have thrown themselves in front of the royal horse on Derby Day. Even so, some historians can spot the parallels. It is a time of rapid technological change. It is a period when the dominance of the world’s superpower is coming under threat. It is an epoch when prosperity masks underlying economic strain. And, crucially, it is a time when policy-makers are confident that all is for the best in the best of all possible worlds.

Welcome to Edwardian Summer of the second age of globalization. Spare a moment to take stock of what’s been happening in the past few months. Let’s start with the poil price, which has rocketed to more than $\$65$a barrel, more than double its level$18$months ago. The accepted wisdom is that we shouldn’t worry our little heads about that, because the incentives are there for business to build new production and refining capacity, which will effortlessly bring demand and supply back into balance and bring crude prices back to$\$25$ a barrel. As Tommy Cooper used to say, ‘just like that’.

Then there is the result of the French referendum on the European Constitution, seen as thick-headed luddites railway vainly against the modern world. What the French needed to realize, the argument went, was that there was no alternative to the reforms that would make the country more flexible, more competitive, more dynamic. Just the sort of reforms that allowed Gate Gourmet to sack hundreds of its staff at Heathrow after the sort of ultimatum that used to be handed out by Victorian mill owners. An alternative way to look at the French non” is that out neighbours translate “flexibility” as “you’are fired”.

Finally, take a squint at the United States. Just like Britain a century ago, a period of unquestioned superiority is drawing to a close. China is still a long way from matching America’s wealth. But it is growing at a stupendous rate and economic strength brings geopolitical clout. Already, there is evidence of a new scramble for Africa as Washington and Beijing complete for oil stocks. Moreover, beneath the surface of the UD economy, all is not well. Growth looks healthy enough, but the competition from China and elsewhere has meant the world’s biggest economy now imports far more than it exports. The US is living beyond its means, but in this time of studied complacency a current account deficit worth 6 percent of gross domestic product is seen as a sign of strength, not weakness.

In this new Edwardian summer, comfort is taken from the fact that dearer oil has not had the savage inflationary consequences of $1973-74,$ when a fourfold increase in the cost of crude brought an abrupt end to a postwar boom that had gone on uninterrupted for a quarter of a century. True, the cost of living has been affected by higher transport costs, but we are talking of inflation at $2.3$ per cent and not $27$ per cent. Yet the idea that higher oil prices are of little consequences is fanciful. If people are paying more to fill up their cars it leaves them with less to spend on everything else, but there is a reluctance to consume less. In the $1970$s unions were strong and able to negotiate large, compensatory pay deals that served to intensify inflationary pressure. In $2005$, that avenue is pretty much closed off, but the abolition of all the controls on credit that existed in the $1970$s means that households are invited to borrow more rather than consume less. The knock-on effects of higher oil prices are thus felt in different ways – through high levels of indebtedness, in inflated asset prices, and in balance of payments deficits.

What, according to the author, has resulted in a widespread belief in the resilience of modern capitalism?

1. Growth in the economies of Western countries despite shocks in the form of increase in levels of indebtedness and inflated asset prices.
2. Increase in the prosperity of Western countries and China despite rising oil prices.
3. Continued growth of Western economies despite a rise in terrorism, an increase in oil prices and other similar shocks.
4. The success of continued reforms aimed at making Western economies more dynamic, competitive and efficient.