MANUEL S.

ENVERGA UNIVERSITY FOUNDATION

AN AUTONOMOUS UNIVERSITY
Lucena City

INSTITUTE OF GRADUATE SCHOOL AND RESEARCH

Master in Public Administration

ACTIVITY 1

Justine Price Danielle G. Bunales, MPA 2

MPA 326 Political Philosophy

Title : HOW THE WEST WAS LOST

Author : Dambisa Moyo
Publisher & Year of Publication : Farrar, Straus and Giroux 2011

 BRIEF SUMMARY:

The West Is Down, While the “Rising Rest” Is Up

In 2008, the Abu Dhabi government’s investment organization spent

$800 million for one of the US’s most iconic structures, the
Chrysler Building, in the heart of New York City. In just the
first half of 2008, investors from the Middle East spent an
additional $1 billion on other US commercial real estate
properties.

“It is the global financier who decides who wields

military and political might.”

Non-Western investors’ purchases of major US and Western assets

are apt to continue to increase in the aftermath of the 2008
crisis. In the past few decades, Western powers have frittered
away their wealth, influence and dominant global positions. Now,

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 non-Western nations are rapidly expanding their economies.
Consider these trends:

 The US and the West have lost much of their influence over
the emerging nations that now have dynamic economies.
 The economic and technological advances that propelled
Western development now also benefit developing countries.
 Since the mid-20th century, Western nations have implemented
a series of counterproductive economic policies that seriously
damaged their once-unassailable positions as global leaders.

“Time is running out. Unless the West adopts radical

solutions...and adopts them quickly, it will be too
late.”

Eagerly lining up to replace the US and other Western powers are

the “Rising Rest” nations – including Brazil, India, Russia,
South Africa, and some Eastern European, Middle Eastern and South
American nations – with China, the world’s latest economic
juggernaut, as the leader. Out of necessity, these emerging
powers are currently willing to trade with the West. However,
when the day comes that the Rising Rest no longer has to rely on
the West, its members will be more than happy to stop doing
business with these diminishing nations.

The 2008 Global Financial Debacle

For decades, the West was certain that its complex financial
system could withstand any temporary shock. Then September 2008
hit, and suddenly all bets were off. Each day that month seemed
to bring a new financial disaster: Lehman Brothers, one of
America’s most respected banks, failed. Insurance giant AIG
nearly collapsed. Busy on all fronts, the US government quickly
nationalized Fannie Mae and Freddie Mac, the nation’s pre-eminent
mortgage companies, and injected $85 billion into AIG. The UK
bailed out two financial powerhouses, the Royal Bank of Scotland
and Lloyds TSB. Additional trillions of dollars immediately
vanished from the stock market valuations of developed-world
companies. Across the globe, millions watched in horror as their
life savings and pensions suddenly took on the sickening aura of
a bad bet.

“For the past 500 years, Western economic dominance

has been a story of ruthlessness and self-interest.”

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While unexpected, the 2008 financial crisis represented the
inevitable culmination of wrongheaded policy decisions by Western
leaders and their governments. Had the West – especially the US –
handled its economies differently, it might have been able to
avert the 2008 financial disaster, or at least seriously minimize
its effects, which now augur the significant, dramatic decline of
the West and the historic upsurge of the Rising Rest. Unless the
Western powers soon adopt radically different economic policies,
the West’s undeniable deterioration is certain to continue.

Switching Places
Economists rank nations by the amount of value, or money, they
produce. Gross domestic product (GDP), the primary measuring
stick, represents a nation’s ongoing generation of goods and
services over a set period of time. A GDP measurement represents
a “flow” statistic, not a static or “stock” metric of a nation’s
accumulated total assets.

“No country has come to symbolize the profound

economic transformation witnessed in the past half-
century better than China.”

For most of recorded history, the West did not dominate

economically. Indeed, the past 500 years, when the West primarily
was on top, represent something of an aberration. For 2,000 years
before that, Asia powered the economic engine of the world. But
even during the past 500 years, the West has not always ruled
economically. According to a database that tracks nations’
historical GDPs, research shows that China led the world in 1820,
when its GDP accounted for 32.4% of total global GDP, dwarfing
Europe’s (at 26.6%), the US’s (at 1.8%) and Japan’s (at 3%)
proportion of world GDP. In that year, India’s GDP share was a
healthy 16%.

“The Chinese economy has exploded. And like its

legendary firework displays, the explosion has been
dazzling.”

Jump ahead to 1950. The combined GDP of the US and Europe climbed
to 60% of the total, while China’s share fell to 5.2%, India’s to
3.8% and Japan’s to 3.4%.

Today, China’s economy is the world’s second-largest and most

dynamic. It has grown faster than any other over the past two
decades. China is the world’s top exporter, and exports from the
remainder of the Rising Rest are also increasing. How will these
emergent economies affect the Western powers? For one thing, the
Rising Rest will claim an increasing share of the world’s

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dwindling resources, so less will be available for Western
nations. The inevitable end result is a diminution of living
standards for people in the West as it allows its capital, labor
and technology to decline. In contrast, the Rising Rest’s upsurge
in those three growth areas helps it progress.

Capital Conundrum
During the last few decades, the West has irresponsibly burned
through its vast capital under the influence of seriously flawed
economic policies. Its leaders’ gross misunderstandings of
economics and related principles led to the introduction of these
policies. Indeed, the confusion among Western leaders about the
bedrock issues of equity and debt has had disastrous consequences
for their national economies.

“As Western companies grow weaker, the cash-rich

companies of the emerging world grow stronger.”

The leading example of this negative impact is the US housing

market. The government wrongheadedly promoted a “homeownership
for all” policy that incorporated “subsidized debt mortgages and
tax relief on mortgage interest” for individual homeowners, while
backing the investments of the mortgage guarantors Fannie Mae and
Freddie Mac. Thus, the government inadvertently promoted a
“culture of debt” for American homeowners, which culminated in
the collapse of the US housing market.

“Forget Bernie Madoff, forget Allen Stanford, the

biggest Ponzi scheme has got to be the looming car
crash that is Western pension funds.”

Instead, the US government ought to have endorsed the idea that

homeowners should live according to their financial means, and
should not assume heavy mortgage debt on unaffordable homes.
Other Western powers’ economic policies have been just as
shortsighted as the US.

Labor Pains
Three primary issues affect Western labor markets:

1. Cost – The current pricing of labor does not factor in the

expense of worker pension plans. Thus, estimates of Western
labor costs historically have been significantly lower than
reality dictates. With the retirement of the massive baby
boom generation, those pension obligations are now coming
due.

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 2. Rewards – The West’s strong emphasis on service sector jobs
means that the major financial incentives – higher salaries
and compensation packages – now go in large part to
specialists who contribute little to the betterment of
society or to economic productivity. Athletes, CEOs and
hedge fund managers are the perfect examples.
3. Immigration – As “the global migration of labor” continues,
the US – once a welcoming destination for the world’s “best
and brightest” – is tightening entry requirements for
foreign workers, much to America’s own disadvantage.

“Engineering graduates and biotechnicians are all

heading to Wall Street. It seems more and more people
want to be a hedge fund investor instead of a teacher,
doctor or engineer.”

Demographically, the West is also in trouble. Its population

grows grayer daily, while the citizenry of emerging economies is
uniformly younger. In many of these countries, approximately half
the population is 15 years old or younger. Unlike the West, these
nations are in good shape to staff future jobs as they develop.

“Given where forecasts for resources are (energy, land

water), there is no way that one billion Chinese can
live like 300 million Americans.”

Additionally, the West once educated its citizens more

rigorously. Now it places less emphasis on scientific and
engineering education and training; in contrast, lawyers are in
high demand. However, lawyers don’t create value. China, on the
other hand, places a premium on engineering and technical
education. How can the US compete globally if the majority of its
citizens come to lack the basic knowledge or skills for the
demanding high-tech jobs of the future?

Technology Trepidations
The Rising Rest nations are beginning to outpace their Western
counterparts in another critical area: “total factor
productivity” (TFP), which accounts for nearly 60% of a country’s
economic growth. TFP incorporates disparate factors that
influence an economy, such as geography, human rights, legal
standards and, most important, the level of sophisticated
technology.

“On a number of fronts, China is beginning to mimic

the West – arguably to its detriment.”

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The West has been the main source of new technological
development for centuries. The most famous inventors – from
Alexander Graham Bell to Nikola Tesla to Thomas Edison – have
been Westerners. But things are now quickly changing. Thai
scientists have developed an important new HIV vaccine. China and
Peru are leading centers for stem cell research. China is also
making great strides in engineering methods to control the
weather. TFP is on the upswing in China and the other Rising Rest
countries, but it is static in the West.

What Does the Future Hold?

Since the mid-20th century, the most prominent supranational
entities have been Western-led: “the G8, the boards of the IMF
and the World Bank,” and many other global governance groupings.
The West has largely excluded non-Western nations from these
organizations. But now the tide is turning. In 2008, Brazil,
Russia, India and China – the BRIC nations – established their
own international meeting, which they closed to Western nations.
More and more, other Rising Rest nations are conferring with one
another, while barring or ignoring the West. Clearly, it’s a new
– and, for Westerners, unsettling – world.

“The US government is thought to field up to 40,000

attempts each day by Chinese hackers to access its
information technology systems.”

So what does the future portend for the West? Consider four
scenarios:

1. “The status quo” – Unless the US and Europe institute

radical changes, it is nearly certain that they will become
“second-tier economies” by the end of the 21st century.
2. “China falters” – No one can doubt that China’s economic
growth in recent years has been spectacular. Yet some
observers question whether China can catch up with the US in
any reasonable period of time, and others cite China’s
internal political and social problems as impediments to
economic dominance. However, the smart money is on China;
it’s just a matter of time.
3. “America fights back” – To remain on top, the US will have
to battle primarily with itself. It will need to summon the
political will to change how it handles its basic affairs.
Most important, it must begin to operate on a pay-as-you-go
basis, instead of piling on debt. It must radically reorder
its priorities and invest heavily in educating its workers.

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 4. America chooses “drastic measures” – America could save
itself by adopting a severe protectionist policy. For
instance, it could combine with Canada to create an
economically self-sufficient North American trade zone.
Another choice would be for the US to default on its
obligations, a catastrophic prospect not just for the US,
but also for China, which holds so much of America’s debt
and relies on US markets for its exports.

“Barring unseen eventualities, China is going to win.

It may take 10 years, it may take 20, but win it
will.”

Unless the West, and specifically the US, adopts drastically

different policies concerning the three key economic growth
factors – capital, labor and technology – its decline is almost
certain to continue. Can America change? Don’t hold your breath.
Instead, expect the US to become a “socialist welfare state”
sometime this century.

 ANALYSIS:

How the West was Lost begins with a telling anecdote: a group of

businessmen are presenting to a customer. One, a Westerner,
spends twenty minutes extolling the technical sophistication,
superb design and matchless reliability of her product. She sits
down, and her place is taken by a Chinese businessman, who says
simply: ‘We can do all this, for 40% of their price.’

It is difficult to be certain exactly when the West collectively

decided to lie back, take things easy and hand supremacy to the
emerging economies of the East, notably China. Perhaps it wasn’t
a conscious decision – the West, after all, continues to delude
itself about its technological, moral and cultural superiority
over ‘the Rest’.

The post-war era was characterised by the serial misallocation of

resources in various realms – often with the best of intentions.
Exhorting people to own houses in the name of creating a
property-owning democracy shifted productive capital to the house
building industry and invited homeowners to treat their dwellings
as financial assets, with disastrous consequences. Unaffordable

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pension entitlements were handed to baby boomers who had no
intention of dying when they were expected to, bloating public
debt. Manufacturing was downgraded, science and technology
downplayed. Financial services sucked up numerate graduate talent
that might once have gone into industry. The West played a trade
game of comparative advantage and profit-maximisation, while the
goal of the Rest was absolute advantage and the socialisation of
gains.

Two things are lacking, however. First, is a political economy

analysis of how and why this self-indulgent short-termism came to
dominate public policy. Her answers to this question are mostly
functionalist ones: because economic self-interest was
subordinated to military and political grandstanding. And her
solutions are occasionally alarming: at times suggesting that
democracy should be abandoned so that policy can be implemented
more efficiently without having to bother with tiresome things
like public opinion. Also missing is a historical sense of how
regimes inevitably rise and fall. Although she tries not to, Moyo
seems to treat Western decline as absolute when it may just be
relative and natural – such is the vehemence of her broadsides
against its leaders.

One day, perhaps quite soon, the Chinese will demand defined
benefit pensions, more bank holidays and satisfying careers where
they can express their creativity. Their place at the head of the
table won’t lie vacant for long.

 CONTENT:

The content of the book showed that by the end of this century,
most of the world will be developed: the era of western
exceptionalism will be over. How the West Was Lost is a dyspeptic
account of what this might imply.

The rosy scenario that most economists would suggest would be

that the convergence of the emerging market economies on the west
is mutually beneficial: we can all prosper together. The west has
become mired in complacency: each of the drivers of growth –
capital accumulation, skill accumulation, and technical
innovation – have stalled, and there is no political will to
salvage the situation. The market for capital has failed in its
core task of finding investment opportunities that offer good
returns at acceptable risk.

Among parents the author sees folly as they collude in their

children's fantasies of becoming sporting or entertainment

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celebrities rather than getting down to the hard grind of
learning how to be productive: in east Asia children spend many
more hours doing schoolwork than they do in the west. In the face
of these daunting challenges, she sees public policy in the west
hamstrung by an obsession with individual rights and a reluctance
to face reality. In a telling example from 2009, she contrasts
the decisive Chinese response to an outbreak of pneumonic plague
with the spineless British response to swine flu. The Chinese
government instantly sealed off the affected city and placed it
in quarantine, an action almost inconceivable in the west. In
contrast, the British government feared a popular backlash and
doled out anti-flu drugs, despite the scientific evidence that
not only were they unnecessary, but that profligate distribution
would help the virus to mutate.

Moyo sees all this ending in tears. The west will lose out in the
scramble for finite resources, and so as "the rest" rise "the
west" will decline, not just relatively but absolutely.

China has evolved an economic model in which the government

guides development, accumulating capital, investing in state-of-
the-art productive infrastructure, encouraging science, and
buying up global resources. This may not be efficient, in the
sense of maximising living standards at any particular moment,
but it is effective in driving them relentlessly upwards.

The other emerging economies see that this is successful. They

have no love for the west, and so will follow China both as a
model and as a political leader. Meanwhile, the west, and in
particular the US, is stuck with an excessive faith in market
mechanisms, combined with a political system that will push it
increasingly into the most dysfunctional aspects of social
welfare: dependency of the poor on government handouts, financed
by public debt.

 ORGANIZATION:
The book was organized based on the chronological events
transpired during the recent generations and based on the current
senario in the west and the asia.
 REFLECTION:
How the West was lost is the story if how the world’s most
economically powerful nations have seen their wealth and dominant
political position decline to the point where today they are
about to forfeit all they have strived for, economic, military,

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and political global supremacy. Just because you are the most
powerful does not mean that you are invincible, hence, you must
take good care of all you have worked hard for and of must not
boast as the life’s rule is that what goes around comes around.

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