x Abu Dhabi, UAESaturday 29 July 2017

Search for middle ground as power shifts west to east

An increasing number of intellectuals agree that we might be seeing the end of 500 years of Western ascendancy.

The Capital Club in Dubai's financial district is the nearest the emirate gets to one of those gentlemen's establishments in London's venerable clubland: all leather armchairs and a relaxed, although overwhelmingly male, environment where you can work, or network, or unwind with equal convenience. It avoids the stuffiness of the cavernous mansions off London's Mall, and - a priceless feature in these days of creeping tobacco bans - you can enjoy a good cigar as you de-stress.

It is the kind of place where you can mull over new ideas and consider fresh angles on old ones, and so was the perfect venue for Stephen King to deliver his thoughts on the global economy last week. No, as he pointed out immediately, not that Stephen King, the multimillionaire author of horror blockbusters like The Shining and Misery. The King at the club last Wednesday is the global chief economist for HSBC.

In the current world financial maelstrom, that makes him eminently qualified to write a horror-thriller of his own, and he has indeed done so. Losing Control: The Emerging Threats to Western Prosperity is not a tale for the faint-hearted, especially if you are from the West, a member of the baby-boomer generation born in the 1950s and 1960s and heavily borrowed. In Mr King's analysis, that is increasingly the profile of western consumers, and it is a cause for real concern. (This is the horror element of his book.)

He explained his central thesis to an audience consisting almost exclusively of that kind of person: male, baby-boomer westerners involved in the financial services industries, and you could almost sense a chill going through the room. (That was the thriller part, I guess.) "Western governments and central banks are no longer in control of the global economic process," he explained. "It has been taken over by economic and historical forces far too big for them to control, and it is going to be a painful period as it develops."

Mr King believes, along with an increasing number of economic intellectuals like Niall Ferguson and John Darwin, that we are living through the end of maybe 500 years of western ascendancy and that global economic power is passing to the east, especially to India and China. The reasons are complicated. When I was at school, we were taught that it was European mastery of technology, especially military and maritime technology, married to something called the "Protestant work ethic" - a problem for a young Roman Catholic boy to get his head round - that enabled Britain to rule the waves and forge the civilising force that was the empire. Domination of the world's seaways, and some smart financial thinking, allowed Britain to build an empire on which the sun never set.

Not so, says Mr King. Europeans had a temporary advantage in maritime power mainly because China in the Ming era suddenly turned its back on the oceans, destroying the greatest merchant fleet the world had ever seen. The Europeans leapt at the opportunity, and established a trading network that gave them access to cheap labour, commodities and huge capital returns. Even when European western domination ended in 1945, the Americans took over through military and financial power, and kept the system going until ? well, until now actually.

The western obsession with inflation helped destabilise the status quo. As European and American economies continued to suck in cheap goods and labour from the east, they simultaneously kept their own interest rates low, leading to the explosion of borrowing and "bubble" real estate prices, which have now collapsed. It was the East that funded that false boom, and which is now holding all the West's IOUs, mainly in the form of dollars and Treasury bills in the exchequers of China, India and Japan. When Beijing decides to sell the ever-cheapening western debt it holds, then we are in real trouble.

There is little the West can do about it. Maybe tinker with some currency rates there, perhaps erect some trade barriers here. But, Mr King concludes, the West will really just have to "grow old gracefully". It's a compelling line of thought, with serious implications for the Middle East. Mr King says this region will continue to benefit from a steadily rising oil price and remain an area into which capital is "redistributed". But there are historic and political forces at odds with the eastward-looking economics.

The region has been an ally of the West for many years, as a legacy of European colonialism and American commercial domination. The countervailing "tilt" eastward will create strains and tensions for the Middle East's leaders to resolve, all in a much more uncertain world. As I left the Capital Club mulling over Mr King's stimulating but worrying message, I found myself inwardly posing the options again: Dubai, Mumbai or Shanghai?