LOSING CONTROL

LOSING CONTROL by Stephen D. King

Book: LOSING CONTROL by Stephen D. King Read Free Book Online
Authors: Stephen D. King
the financial system, revealed in 2008 and 2009, will have to be paid for by current and future taxpayers, the ultimate benefits of globalization for the West have either already been taken off the table by those in the financial world who were lucky or, instead, have been significantly overstated. The rapid growth of the financial services industry appears both to have masked a competitive loss in other areas of economic endeavour and to have created a huge future tax burden. The implications of this will be explored more fully in the following chapters. At this stage, however, it’s worth emphasizing that the changing patterns of trade seen since the 1980s do not reflect the simple homilies of comparative advantage.
    We are only now beginning to see the full consequences of the changing trading patterns associated with the rise of the emerging economies. Parts of the developed world have swapped the cyclicality of manufacturing activity for the instability of high finance. Other parts of the developed world have stagnated. Companies have, rightly, taken advantage of the new investment opportunities that have opened up around the world. Governments, however, have been slow to understand the full implications of outsourcing, off-shoring and all the rest. They’ve ended up with economies that have developed an alarming taste for cowboy capitalism.
    The commitment to free trade, where it exists, is, in general, admirable. The failure to think about the consequences of restructuring for broader economic stability is not so admirable. As emerging economies have increasingly specialized in the activitiesthat used to take place in the West, the developed world has struggled to work out what to do next. In Japan, the cost has been seen in economic stagnation. In the US and the UK, the costs can be seen in the form of inflated financial sectors operating in a global casino which, unlike Las Vegas, has no hard-and-fast rules. As Chapter 4 reveals, capital markets have as a result become increasingly unstable.

CHAPTER FOUR
INTERNATIONAL ROULETTE: ANARCHY IN CAPITAL MARKETS
    While emerging economies have had a huge influence on capital market performance, it has not been the influence expected by the majority of investors. Many thought a gold mine of investment opportunities awaited them. On the whole, these hopes have been dashed. There has been no gold mine. Instead, we have been living through a modern-day version of the Californian gold rush. Too often, only fool’s gold has been on offer. Capital markets have not delivered decent returns while financial systems overall have become increasingly unhinged. The gravitational pull of the emerging nations has left interest rates and the prices of a wide range of financial and real assets increasingly warped. The consequence has been a vast increase in financial-market volatility and a reduction in rates of return.
AT THE END OF THE RAINBOW
    As the emerging economies awoke from their decades and, in some cases, centuries of economic hibernation, corporate investors andfund managers around the world licked their lips. Companies saw tremendous opportunities ahead of them. No longer were their customers and workers confined to the developed world. Corporate executives were, instead, faced with a brave new world offering higher sales volumes at lower cost and, hence, higher profit.
    Fund managers began to offer new products tailored to the exciting new opportunities available in the emerging world. In the summer of 2009, for example, Fidelity International – one of the world’s biggest and most successful fund managers – offered to investors a total of well over thirty separate funds tailored specifically to emerging markets.
    As for individual savers, they could benefit in one of two ways. Either they could buy one of the thousands of funds that directly invested in emerging world companies; or, instead, they could buy shares in companies based in the developed world, which, in turn,

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