A New Economic Order

Article excerpt

Byline: Robert J. Samuelson

Rich nations must sell to the poor.

This just in: caterpillar--the maker of earthmoving equipment, including bulldozers and monster mining trucks--reported first-quarter profits of 55 cents a share, up from a loss of 19 cents a year earlier. More important, the improvement stemmed heavily from surging demand in developing countries. Although machinery sales dropped in North America and Europe, they rose by 40 percent in Asia and 7 percent in Latin America. With more exports, Caterpillar is hiring again. The U.S. job increase, though only 600, reverses the roughly 10,000 layoffs since late 2008 that had reduced CAT's American workforce to about 43,000.

What is significant about this is that it suggests a "rebalancing" of the global economy. The world needs an en-gine of growth to replace free-spending American consumers and their appetite for other countries' exports. Greece's problems are a harbinger; advanced countries can no longer borrow their way to prosperity. Hence, rebalancing. Developing countries, especially in Asia, that pursued export-led growth would shift to domestic spending. The debt-ridden American and European economies would rely more on exports to these countries. Almost everyone, even China, favors rebalancing in principle. But can it happen?

By some measures, it seems underway. China, India, Brazil, and many "emerging market" countries escaped the worst consequences of the Great Recession. Their economies are generally growing much faster than ours (almost 6.5 percent annually in 2010 and 2011, compared with a 2.9 percent rate for the United States, reckons the International Monetary Fund). This boosts their demand for the advanced equipment, instruments, and basic industrial supplies (chemicals, coal) that constitute two thirds of U.S. exports. Of Boeing's 3,350-jet backlog, three quarters (77 percent) will go to foreign customers.

Domestic spending is strengthening in these countries, as incomes and tastes expand. In 2002 consumption spending in developing countries was 23 percent of the world total, and the U.S. share was 36apercent, estimate economists David Hensley and Joseph Lupton of JPMorgan Chase. By 2008, developing countries were 32 percent, the United States 28 percent.

This is classic economic catch-up, as poor countries adopt the products and technologies of rich countries. …