Saturday, February 23, 2013

Falling to Second World Status

My last post was lamenting the decline of the Middle Class in the industrialized west, particularly within the old G7 states, which includes Canada.  I mentioned that such a situation existed because governments and corportations within those states made a conscious decision to reverse the policies and practices that lead to one of the greatest economic expansions in history and one the greatest expansions of the Middle Class in history.  I further stated that the reason for that economic expansion was the rise of the Middle Class and the decision to reverse it has great impliciations for the industrialized west.

This is particularly true since while the G7 countries have been allowing their middle classes to decline all of the emerging economies are taking steps to build theirs up.  It should come as no surprise that such countries as China, India, Brazil, and Mexico are seeing their economies grow and prosper.  They are essentially following in the footsteps that the G7 set down in the 30 years after the end of the Second World War.  They are pursuing policies that are allowing their citizens to take full advantage of the economic booms these countries are enjoying and that in turn is continuing to fuel those booms.

The result is the emerging economies and the economies of the G7 are heading in different directions and the gap between them is closing very fast.

This should be a concern to the ruling classes of the G7.  With economic power comes political power and it is only a matter of time before the newly dominent economies will begin using that power, probably to the detriment of the political interests of the old guard.  Once that power shift is complete alot of things will change in many place, such as, the Middle East, Korea, Africa, South and Latin America.  And no telling how things will change in such areas as trade, nuclear proliferation and climate change politics.

The business classes of the G7 should be very worried as well.  The world industrial capacity is shifting to the emerging economies and history has demonstrated that he who holds the advantage in industrial capacity holds the power to control the financial and economic levers of the world.  It remains to be seen if these new powers will be as liberal and as enlightened as the old guard was when it found itself in control of the global economy.

As I stated in my previous post corporations in the G7 are now dependant on the emerging economies for their business health.  The middle classes of the G7 countries have declined so much that they can no longer sustain those corporations on their own. 

That is a very precarious situation to be in because the emerging economies are building industries that are in direct competition to Western corporations.  For example both China and India are in the process of developing their own auto industries and Brazil has a civilian aerospace industry to rival that of any G7 country.  It is only a matter of time before these industries begin squeezing out the foreign industries in these countries, particularly since the new political power these countries are beginning to enjoy will insulate them from any backlash to policies that protect these domestic industries in their countries.  Once that happens the foreign markets that have been sustaining Western corporations will disappear and without domestic markets to take up the slack, that will be that.

During the Cold War we all heard about Second World countries.  These were wealthy countries that just were not on the same level as the G7.  The thing holding them back was a lack of a middle class.  They were countries that had very wealthy ruling elites, while their broader populations were poor, often desperately so.  As well, the key thing about all of these countries is they were powerless within the international economy.  They were wholly dependent on the good will of the First World for maintaining their status as wealthy countries.  If it were not for the liberal trade and economic policies pursued by the First World these Second World countries would have fallen to Third World status.

That is the direction the G7 countries are headed.  It is only a matter of time before they become the Second World countries if current trends continue.  We are already seeing the characteristics of that status manifest itself in these countries.  Wealth being more and more concentrated in a very small percentage of the population while more and more "ordinary people" slip into genteel destitution.  What industrial capacity that remains in these countries are now dependent on the economic decisions of countries where they do not have an effective voice so they are dependent on the goodwill of those countries to sustain that capacity.  The politics in these countries has become less about working for the greater good and more about keeping your "base" happy and motivated.

It is the shortsightedness of the current ruling classes in the G7 that have brought us to this point.  It has put us on a path that will lead to all but the very few and the very priviledged being much poorer and much more desperate.  The trend will not be reversed before it actually happens because too many people believe that it cannot happen to them until it actually does or worse they suffer under the delusion that they will be one of the lucky few so they keep agreeing with those that are destroying the middle class.

Eventually, people will wake up and realize what is happening but by then it will be too late.  At that point even if the ruling elites were willing to risk their wealth and priviledges they would be powerless to change the situation until the new economic powers begin their inevitable decline, which would probably not happen before the end of this century.


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