SKILLS AND HEART

“I am an economist with financial skills who puts people first. I am committed to ensuring that the resources of CCDHB are allocated wisely and used well, to ensure the best possible outcomes for patients, families, caregivers and the community at large.

Having worked widely overseas and within New Zealand on project development and public administration issues, I can contribute directly to getting things done efficiently and effectively. I will seek rapid, high quality medical responses for users of the health service – with a focus on integrity, collaboration and professionalism.

Currently I am the principal day-time caregiver for my two small sons though I continue to undertake contract work as an economic consultant. My wife is a nurse and we are long-time residents of Island Bay. We love Wellington and feel proud to contribute as best we can to its welfare and well-being.

Ineffective, Dumb and Unfair

THE FOLLOW-UP TO MY 17^TH APRIL ARTICLE
 

In my previous article: ‘Is Wellington City Council’s Rate rebalancing out of kilter?’, I promised a more detailed analysis when I had had time to absorb the information that had been forwarded to me by the WCC, in response to my Official Information Act request [see: http://kjohnsonnz.blogspot.co.nz/2013/04/is-wellington-city-councils-rate.html ]
 

For the record, my request was as follows:
 

'Kindly note that I am applying here, under the Official Information Act and Local Government Official Information and Meetings Act [to be within 20 working days, as mandated by law] for:
 

•        Copies of all policy documents and policy reviews 2002-2013 relating to Business Rating, Household Rating and Development Contributions - and the formulation and implementation of the policy of re-balancing the rate burden away from the business sector towards the household sector

•        A break-down over the period 2002-2013 by year of the contributions of the above three forms of revenue by % and $

•        The average burden incurred [by household and individual business] with respect to the above three forms of revenue over the period 2002-2013, by year

•        Such forecasts as have been made of the expected revenue streams from the above three sources for the future’.
 

After sifting my trawl, the assessment that I provided on the 17^th of April still stands – and the single spreadsheet that I quoted gives the gist of the WCC’s serious response [I am happy to email this to anyone else who is interested].
 

Also included on the CD which the WCC sent were the 2005-2009 Development Contributions Policy Statements; the 2001-02 Funding Policy Statements; and the 2001-02, 2006-07, 2009-10 and 2012-13 Revenue and Financing Policy Statements.

On reading through a sample of the supporting documentation, I am struck again by the degree to which financial data and financial management issues are folded away from prying eyes  – from potential view by both the Councillors and Mayor, and the public at large.
 

The finances of the WCC are appear to be run on the old army dictums like ‘It makes no difference which side the general is on’ and ‘Don't ever be the first, don't ever be the last, and don't ever volunteer.’ You might very well say that the documents are convoluted, abstruse and calculatedly uninformative - but I could not possibly comment.
 

I did however, come up with an interesting statement on the Business-Household Rate Burden shift:
 

‘In 2000, the Council voted to alter the rates differential (the rates split) that decides the share of general rates only paid by residents and by businesses. Over a 10-year period, the balance will shift from a point where the commercial sector contributed 7.0 times more general rate (for a property of the same value) to a stage where they will end up contributing 2.8 times more to the general rate then the residential ratepayer by 2009/10.
 

‘The adjustments from 2005 were: 2006-07 to a ratio of 4.4; 2007-08 to 3.8; 2008-09 to 3.3; and for 2009-10 to a ratio of 2.8’.
 

And the amounts of money we are talking about here are substantial – as is the continued pressure from the NZ business community for further adjustments.
 

In the case of the Auckland Super City, last year’s differential was 2.63, with Mayor Len Brown committing to reducing this by 0.1 per cent per year to 1.73 per cent by 2020-21. But Auckland Business leader Michael Barnett is demanding that businesses to pay the same rates as households - a move that would result in a $200 million per year or 20 per cent rates rise for the residential sector.

THE RATING DIFFERENTIAL POLICY – THE BUSINESS COMMUNITY’S ARGUMENTS
 

The arguments in favour of continued rebalancing have been neatly summarized by BusinessNZ [Submission by BusinessNZ to the Department of Internal Affairs on the Department of Internal Affairs ‘Development Contributions Review Discussion Paper ‘ (March 2013)]:
 

'Sometimes differential rating is applied to the business sector on the unsubstantiated ground that the business sector benefits proportionately more from council services. A number of reports have found such thinking to be groundless, yet councils continue to apply significant differentials simply because they can, rather than on any principled economic basis.
 

‘Where councils have agreed to reduce such differentials, any reduction has generally proceeded at a snail’s pace, councils being mindful not to upset the majority of residential ratepayers who enjoy the advantages of a lower rates burden courtesy of the business sector.
 

‘In the past, a number of people have argued (and many still do) that businesses are advantaged relative to residential ratepayers because they can deduct rates for income tax purposes and claim a credit for GST paid on them.
 

'These claims have been discredited by reputable economists for the following reasons. First, a firm can only claim a tax deduction for rates because its income is subject to tax. Nobody could seriously argue it is an advantage to be subject to income tax.
 

‘Second, a GST registered person or firm can claim a credit for GST paid on inputs because supplies (outputs) are subject to GST. The net GST collected is paid to Inland Revenue, so a business receives no advantage.
 

‘BusinessNZ is concerned with any reference to the GST status of a business as an alleged justification for imposition of any local government charges. As implied above, we do not consider the tax status (including presumed tax status) of a business to have any relevance to the level of charge that a council can impose.
 

'An unprofitable business logically remains as liable for its use of Council provided services as a profitable one, given the cost of providing that service remains.
 

‘BusinessNZ remains concerned about the use of targeted rates (taxes) mainly because there is a danger these can simply be another way of raising needed revenue without taking the full implications of their use into account.
 

Well, I’m not sure who the ‘reputable economists’ are but commonsense suggests a few ripostes.
 

In the first place, households also pay income tax. And as most income tax payers are caught by the Pay-As-You-Earn system, there is very little wriggle room – in contrast to the case of business, where has been universally noted, big businesses in general and international corporations in particular have a multitude of financial bolt-holes, rat-runs and camouflage instruments at hand to minimize their liabilities.
 

Secondly, the bulk of New Zealand’s value-added Goods and Services Tax is paid by householders as the final purchases of most products and services. This is in contrast to most producers who can offset much of their liability against input purchases. Why should household ratepayers not also have the opportunity to deduct their rate obligations?

Thirdly, poor households [the equivalent of 'unprofitable businessess' in this strand of argument] continue to pay rates, either directly as owner-occupiers [in additions to their bank mortgage repayment obligations], or as tenants who get rates passed through to them via their weekly rental payments. 

Finally, there is the issue of comparing like with like – apples and oranges.
 

Take for example an inner city petrol station that has the same land value as a nearby apartment block. Is it really true that the demands on Council services are essentially the same? What about the extra demands on wastewater and effluent disposal? What about the extra requirements on road layouts and traffic management? etc.
 

Ah, you may say – but in the case of Central Wellington, a good deal of the economic activity in the business sector is office-based and therefore much more similar in general to households in its demand for Council services. I’ll come to that.

INEFFECTUAL, DUMB AND UNFAIR
 

I’ll preface the main part of my critique by drawing on today’s leader in the Dominion Post:
 

‘Wellington has been put on notice. The region's economy is stuck in first gear and there is now a real risk of it slipping behind other main centres.
 

‘A report analysing Greater Wellington's economic performance makes for sobering reading. Although there are some positive points – median earnings are well above the national rate, 40 per cent of workers are in highly skilled occupations and the region has good transport and other infrastructure – the negative aspects give cause for alarm.
 

‘The report, by economic researchers Infometrics, found that Wellington's economy has performed poorly compared with the rest of New Zealand in the past decade. Since 2001, regional gross domestic product grew by an average of 2 per cent a year, compared with the national average of 2.5 per cent. For the year to March 2012, Wellington was ranked 15th out of New Zealand's 16 regions for economic growth. Only Canterbury, reeling from the devastating earthquakes, fared worse.

‘Wellington was also ranked the lowest of the metropolitan centres for population growth in the past decade and, in recent years, it has attracted a declining proportion of skilled migrants.
 

‘The growth in employment since 2002 was likewise the lowest of the metropolitan regions, and the region is still too reliant on too few sectors, most notably the public service, for too many jobs. Only Nelson has a less diversified economy’.

But ‘hold the phone!’

 

Surely Wellington businesses have just been given a substantial supply-side boost from a reduction in local taxes / business rates? How is it that, having lifted the rate burden, households are getting less than no payback in the form of business investment, extra production and more jobs? A good question, I think.
 

And then there is the issue of who gains most.
 

As the Dominion Post leader noted Wellington has one of the least diversified economies in New Zealand – it is extraordinarily dependent on central government spending.
 

According to the Infometrics Report, Central Government Administration was the largest employer in Wellington in 2010, employing 19,610 persons and accounting for 7.8% of total employment in the region. By contrast this industry accounted for 1.9% of total employment in the national economy.
 

And over the past 10 years the top two industrial groupings in adding jobs were government administration and defence (10,400 jobs) and health and community services (6,610 jobs).
 

At a rough estimate, all told, a third or more of Wellington’s jobs are directly dependent on central government spending through government institutions [bureaucracy, schools and health care] plus their supporting contractors and sub-contractors.
 

And underpinning all this is the provision of serviced office space by property developers. So not surprisingly business and property services constituted the largest industry in Wellington in 2010 accounting for 15.7% of total GDP.
 

So let’s get this straight:
 

Wellington household ratepayers are being asked to defray the obligations of property developers who are renting most of their offices to the Central Government.
 

How dumb and unfair is that?
 

This drives me completely nuts with its illogicality. As does the claim of the National Museum ‘Te Papa’ on subventions from Wellington residential ratepayers!
 

For goodness sake, the national government should be putting money into Wellington as the capital city – and not taking it out. As I have commented before, if the residents of Canberra or Washington were asked to fund the Australian National Museum or the Smithsonian, there would be howls of outrage and derision.
 

And I will make a final point about apples, oranges and what’s simply fruity.
 

Again, as noted in today’s Dominion Post [‘Remote working paying off for SMBs’ by Claire Rogers]:
 

'A survey of 1047 small to medium-sized NZ businesses (SMBs) by Colmar Brunton for the accounting software company MYOB shows 18 per cent have staff working mainly away from the office, while 28 per cent said staff split their work between home and office.
 

‘Of those businesses that had staff working away from the office most or all of the time, 40 per cent saw revenue rise in the past year - compared with 28 per cent of SMBs whose staff only worked from the office.
 

'Those with staff mostly working remotely were 43 per cent more likely to have increased revenue in the past year than those without remote workers. They were also 21 per cent less likely to suffer a revenue decline’.

Sole operator or family firms are a major component of this growing trend.

 

And of course, those people who work from home are increasingly subsidizing the property developers in the CBD through the rating system. This includes a number of my friends here in Island Bay who run out-sourced export operations from a home office. Now these really are the sort of people that Wellington City Council should be supporting!
 

Household Rates take-off - is this fair?

SHIFTING THE BURDEN

Although it has been a bit like pulling teeth with a garlic crusher, I have finally managed to obtain a decent series of figures from Wellington City Council [by way of an Official Information Request] on the impact of its rates rebalancing policy on residential rate payers. It will take me some time to fully analyse the figures but I’ll give you a preview.

In 2001-02, Wellington City Council [WCC] recorded revenues of $241.7 million with $63.9 million coming from Business Rating [26.4%] and $61.1 million [25.2%] coming from Household Rating. At this time $112.0 million [46.7%] was drawn from ‘Other Sources’ [i.e. fees; profits from council controlled organizations; and central government grants]. The only other source of income was the Downtown Levy which raised $3.8 million [1.6%].

Projections for 2021-22 forecast revenues of $503.0 million [a doubling over 20 years]. Of the projected total, $180.2 million [35.8%] will be drawn from Household Rating and $129.4 million [25.7%] will be drawn from Business Rating. The additional sources of revenue are expected to consist of $13.4 million [2.7%] from the Downtown Levy; $5.0 million [1%] from Development Contributions and $175 million [34.8%] from ‘Other Sources’.

The relative shrinkage of the Other Sources contribution is worth noting.

In 2001-02, the average household ratepayer paid $1,053 per year. This rose to $1,884 in 2012-13. By 2021-22, the figure is likely to stand at $2,250 per household rate payer.

I leave it to you to decide how far you think this is fair?

Keith Johnson to stand for Wellington Mayor 2013

OLD WAR HORSE IN LINE-UP OF MAYORS It seems that the starters for the forthcoming October 2013 Local Body Election are already being unloaded from the horse boxes and led to the Birdcage. Among them are two fine fillies, the chestnut mayor Celia Wade-Brown and the palomino blonde Jo Coughlan. It seems that a third, my old friend Annette King, has been scratched, see: http://www.stuff.co.nz/dominion-post/news/8388146/Coughlan-ponders-bid-to-unseat-Wade-Brown I am not in any personal sense ‘against’ either Celia or Jo but I have long argued that insufficient commitment is being made by Councillors to fairness, accountability, economy and good governance. I’ll be there from the starting line-up as a half-knackered first-lap pacemaker plodder to keep everyone honest.

Public Sector Cut-backs, Income Redistribution - and the Gone-tomorrow Elite Transnationals (GETS)

KIBBLEWHITE CURVE FINDS LITTLE SUPPORT

Picking up again on my last article, I want to explore further whether and why on the one hand Wagner’s Law may be drooping and on the other the Kuznetz Curve may be limping on its leftward limb. In other words, is increasing public expenditure as a share of GDP still the mark of an advancing economy, and is it still inevitable that levels of inequality decline as societies increase in overall wealth?

In my last article I also made fleeting reference to the presentation that was recently made to the NZ Public Service Association by by David Hall of the Public Services International Research Unit (PSIRU) at the University of Greenwich, UK.

While I found the Hall presentation strangely surreal in some respects in barking for public enterprise (it reminded me of the work of PSIRU’s possible intellectual ancestor, the Ljubljana ‘International Center for Public Enterprises’ in the former Yugoslavia), it did provide a few correctives to the official line being spun by the NZ Treasury.

In particular, there was one graph that showed trends in Central Government Spending as a percentage of GDP that bears repeating (see graph below). And Hall also provides a table for the same measure for a range of OECD countries in 2008 and 2009 that I have augmented with data for 1960 and 1982 from Saunders and Klau (see table underneath).



So getting back to the recent presentation by NZ Treasury official Dr Andrew Kibblewhite, there is pretty weak evidence of either an inexorable tendency for public expenditure to increase at a higher rate than GDP or a tipping point at maturity beyond which expenditure tails down.

In fact the figures indicate that, for the eight countries for which direct comparisons can be made, the share of public expenditure in GDP in 2009 was lower than it was in 1982 in four countries (Canada, Denmark, Germany, and Norway) and higher in the other half of the sample (France, Switzerland, United Kingdom and USA).

WINDENING INCOME AND WEALTH INEQUALITIES

On the other hand, there is plenty of evidence that income and wealth inequalities are widening in Western Countries.

See for example:

1. The UNU-WIDER ‘World Income Inequality Database’ (WIID)
2. The Credit Suisse Research Institute “Global Wealth Report ‘(October 8, 2010).

And some previous blog posts of mine, for example:

1. ‘Adam Smith and the Inequity of Nations’, Dec 11, 2010
2. ‘Giving Our Future a Fair Go’, Mar 31, 2010.

As the diagrams at the bottom of this article illustrate, the richest 20 percent of the world’s population receive 83 percent of its income, the top 8 percent control 79.3 percent of the world’s wealth and the gap between the rich and the poor is a particular worry in the USA.

Looking across the OECD, the 2008 Report ‘Growing Unequal: Income Distribution and Poverty in the OECD Countries’ comments that:

‘With a few exceptions, the disparity between the low- and high-paid has increased rapidly since the early 1990s. Usually, this was because the high-paid did particularly well, not only relative to low earners but also to middle-earners.’

And taken overall, ‘market income inequality’ which includes wages, rent receipts and financial receipts is widening much more quickly than ‘total net income’ inequality which includes income redistribution measures (see figure below).


And the Global Economic Crisis is making things worse. As Robert H. Frank has commented with respect to the USA:

‘The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.

‘During the immediate post-war decades, when income distribution was relatively stable, the toil burden for meeting the rent of that median-price home actually declined slightly, from 42.5 hours a month in 1950 to 41.5 in 1970.

‘But once inequality began rising sharply, the toil burden began rising in tandem. By 2000, the median worker had to work 67.4 hours a month to put his or her family into the median home.

And it is estimated that almost half of currently buoyant job creation taking place in the USA relates to lowly paid MacJobs in the retail, hospitality and home health care sectors that barely cover the cost of fundamentals like housing, utilities, food, health care, transportation and, in the case of working parents, child care.

INEXORABLE RISE OF THE GETS

So what’s going on?

The explanation for the continued rise in inequality – almost regardless of the level of public expenditure – appears to be the increasing dominance of the Gone-tomorrow Elite Transnationals (GETs) under globalization. The GETs class includes bankers, financiers and other undesirables but it also includes more popular and possibly more worthy professionals like international film makers, recording artists and successful sports stars.

As their name suggests, they are happy more or less anywhere that they can access good hotels, good restaurants and fine houses in scenic spots – and sometimes they don’t even have to catch a plane to shift some financial muscle abroad through speculation and comment.

Often they are wanderers who follow the breaks, and observers who don’t get involved.
In each country there is a smallish but very powerful enclave economy of GETs that thrive in the Tradable Sector - and that, in turn, either benefit from or ignore the grunts who work in the Non-Tradable Sectors of each economy like the public service, domestic industries and personal services.

In tandem with associated property and business interests, these Indigenous Elite and Expat GETs are getting steadily better off as a class in comparison to the locals who share their city spaces.

Now if this is starting to sound a bit like socialist rhetoric of the envy variety, I hasten to add that I have spent some of my life as a GET.

In particular, I spent 7 years living in Manila, Philippines working for the Asian Development Bank and living in the archetypical ‘gated communities’ of Forbes (Taglish: ‘Forbess’) Park and Dasmarinas Village in Makati. In fact, I remember being tempted by an invitation to join the Manila Polo Club at one point, though I pulled back eventually fearing it was too swanky.

So if it is a moral issue, I am not well qualified to arbitrate on it.

But as an economist, who is something of a pragmatist like Adam Smith himself, I do worry that the continued selfishness and fickleness of the GETs is in danger of toppling over our societies.

Particularly, where GETs have undue influence on national politics through the media and direct infiltration (as in the case of our New Zealand Prime Minister John Key who is a former Merrill Lynch head of Asian foreign currency dealing in Singapore and who sacked dozens later for his firm in London, where he was known as the ‘Smiling Assassin’).

It is hardly surprising then that consumption-based value added taxes like GST are the favoured tax mode and that attempts to introduce land taxes, capital gains taxes and wealth taxes are robustly rebuffed – even though as I have commented on a previous occasion it is extremely unlikely that, for example, Peter Jackson the film impresario actually pays his full income tax obligation on the $38 million or so per year that he earns.

Or that the GETs and their allies resent income redistribution measures and feel that many of the features of a Welfare State are irrelevant to them – and returning to our theme, that they seek to restrain public expenditure.

Of course, things are infinitely worse in countries like Ireland which have been brought to their knees by the Global Economic Crisis and its GET progenitors. Here Paul Krugman has drawn an analogy between the financial and fiscal loads being born by the ordinary Irish to the problems faced by the Irish peasantry in the 18th century.

But while Jonathan Swift could mock the Anglo-Irish Protestant Ascendancy landlords about ‘eating the Irish’ at least the aristocrats lived among their retainers. Nowadays, the new rulers of Irish destiny are more likely to be dining on pate de foie gras in Frankfurt – and the devil take Limerick.

So are there any answers?

Well perhaps it is time, for starters, to think about tax systems that recoup the full social costs of enclave communities and that have a truly international dimension – with New Zealand starting by collaborating with Australia on initiatives of this type.

While I am happy enough, for example, that Canadian international songstress Shania Twain and her husband Mutt were able to buy a 33-year lease on 61,000 acres of pristine South Island wilderness for $17.5m, I think that they should contribute a little more to New Zealand than a new public hiking trail. After all, they bought the place in part because they value the relative peace, stability and ‘gatedness’ of New Zealand.

And an international tax on financial transactions is worth considering, as is a universal surcharge on First and Business Class travel – perhaps linked to the achievement of environmental objectives.

After all, as H.G. Wells divined, in the absence of new thinking on appropriate policy solutions, the elegant and leisured Eloi / GETs of the future, who are nevertheless ‘hampered by their lack of curiosity or discipline’, may eventually face revolt and even the threat of cannibalism from the brutish, downtrodden Morlocks who inhabit the lower strata of the economy.

Odds Bodkin - Christchurch Earthquake hits home!

A WONDERFUL FAMILY OUTCOME AMID THE DEVASTATION IN CHRISTCHURCH

[from Dan Hutchinson Reporter covering the Christchurch Earthquake for Southland Times, Stuff, Nelson Mail, Dominion Post, Marlborough Express, 15:41 23/02/2011]

LATEST: Rescuers have pulled a woman out of a collapsed building after she spent more than 24 hours trapped under her desk.

Ann Bodkin has been rescued from the rubble of the Pyne Gould Corporation building more than 24 hours after a devastating earthquake caused it to collapse.

She was pulled from the ruins about 2.25 this afternoon and taken to a waiting ambulance.

Her husband Graham Richardson, who had maintained an anxious vigil near the scene, said she did not appear to be seriously injured.

Earlier, Mr Richardson said he had spent an "unbearable'' night not knowing where his wife was.

Ms Bodkin works at the Education Review Office on the third floor and had dived under her desk when the quake struck.

Her sister Sally Bodkin-Allen, from Invercargill, said "it just seems like a miracle ... it must be a very strong desk and she must have got under it very quickly."

For all our wild joy in recovering Jane’s sister Ann, we somberly remember those who are still waiting for news – and those who may have already lost their friends and loved ones.

While we rejoice in our own good fortune we feel a deep community, understanding and sympathy with those who continue to suffer.

Ode to a Qianlong Urn & the rise of the Easternized Occidental Girl?

THE ECONOMY OF SAMENESS

Who wants to stand out when the other peons in the Global Village may mock your differences at the market place? And for so long it has been the richer churls of the western fields that have swaggered into the village square and set the trends.

Now it seems that the formerly impoverished but more industrious peasants of the eastern margins are bringing in bigger and better bundles to trade. Are fashions about to change?

The economy of sameness is something that we all deal with on a day-to-day basis. It is natural to want the approbation that comes from conformity with ideal types and trends. And quite apart from having been a feature of ancient empires, it has obviously been wonderfully accelerated and accentuated by globalization.

Back in 1976, I worked for a spell with a US engineering company in an office in South Wacker Drive with a window overlooking a bridge that must have been close to the original Route 66 crossing of the Chicago River. Although the building was multi-storey, our floor was near enough to the ground to catch the noise of the cars as they crossed the bridge and hit the bascule plates.

Between coffees and donuts, this meant that I had good reason to reflect on the cars that crossed the bridge – and figure out that they all looked basically the same. The cult of sameness has continued to spread.

But two recent articles in the UK Independent set me thinking further about whether sameness evolves along a single trajectory – or whether it can sometimes flip.

Taking Yasmin Alibhai-Brown first, she asks ‘Why are Asian women aspiring to Western ideals of beauty?’, quoting Cambridge academic Priyamvada Gopal who says:

"There is an explicit correlation between the emergence of so-called 'international looks' and the opening up of the economy to multinational corporations from the west. Two Indian women won world beauty titles in the Nineties - Aishwarya Rai and Sushmita Sen. Their arrival on the pageant stage symbolized the arrival of India on the world stage as an economic power to be reckoned with.

It's what some scholars call the 'economy of sameness' yoking all cultures to the same idea of beauty which is linked to assimilating all countries into the same economic model".

But Yasmin also splices in a quote from Livia Wang who is an Anglo-Chinese teenager. Livia takes a more independent line:

"There was definitely a time when students dyed their hair and wore blue contact lenses, but as China opens up economically, I feel the richer classes are returning to more traditional ideas of beauty – maybe pre-communist imperial times. China is quite proud - they have their own movie and pop stars they look up to. So no I don't think the anxieties of western women are being imported."

Well, I’m with Livia on this one – particularly after the recent sale of a Qianlong period Chinese vase in London for £43 million pounds ($69 million). If you have any further doubts read Stephen King’s most recent article below. And if you want to make some money down the track, start to think oriental!

STEPHEN KING: WHO NEEDS WHO NEEDS WHO?

[by Stephen King, UK Independent, Monday, 22 November 2010]

In some areas of our lives, globalisation is more or less complete. On Friday, for example, I discovered that my birthday had become a major global event. I received unsolicited e-birthday cards from hotels in Qatar and Singapore, and from the Virgin Flying Club. It was all rather anonymous and depressing. In other areas, however, globalisation is in danger of crumbling.

As Ben Bernanke, the chairman of the US Federal Reserve, noted on Friday, "international policy coordination is especially difficult now because of the two-speed nature of the global recovery".

Mr Bernanke is absolutely right. Western nations look at the recent success of the emerging world with a mixture of admiration, envy and anger: admiration, because China, India and other nations have pulled millions out of poverty; envy, because while the global policy stimulus has been very effective in the emerging world, high levels of debt have made it a lot less effective in the developed world; and anger because, for many Western policymakers, Mr Bernanke included, the policies pursued by emerging nations – notably the deliberate undervaluation of exchange rates – are a major threat to sustainable global economic recovery.

To emphasise the point, Mr Bernanke invoked the spectre of the 1930s. "In the period prior to the Great Depression, the United States and France ran large current account surpluses, accompanied by large inflows of gold... Neither country allowed the higher gold reserves to feed through to their domestic money supplies and price levels, with the result that the real exchange rate in each country remained persistently undervalued... These policies created deflationary pressures in deficit countries...which helped bring on the Great Depression".

Today, the equivalents of the US and France are China, Russia and Saudi Arabia – all of which run large current account surpluses, providing the global offset to America's current account deficit.

Like the US and France in the 1920s and early-1930s, they're not terribly keen on either a rise in their exchange rates or, instead, a pick-up in domestic money-supply growth and inflation. And, as with the 1930s, the world's deficit nations are struggling with deflation. Last week, the US published its lowest core inflation rate in over 50 years.

To be fair, Mr Bernanke emphasised that he had no intention of forecasting a return to the conditions last seen in the 1930s. Instead, he wanted to argue that, until and unless the world's surplus nations allowed their currencies to rise, the global economic recovery would remain lopsided, unbalanced and very vulnerable. Eventually, he argued, the two-speed world would become a one-speed world. And he clearly believed that a one-speed world would be stuck in first gear.

It's at this point that I begin to have my doubts. For all the warnings about the inability to sustain "two-speed" growth, a "two-speed" global economy has been the reality for decades.

Since the 1950s, East Asia has sustained a per capita economic expansion faster than on any other occasion in human history. Throughout the last decade, the emerging world as a whole has grown at least three times faster than the developed world. And it is this strong, persistent and seemingly resilient expansion that makes me wonder about one of Mr Bernanke's key conclusions.

In his words, "...a strong expansion in the emerging market economies will ultimately depend on a recovery in the more advanced economies..." Does this still hold true? Not obviously. Two important themes have begun to emerge in recent years.

First, strong emerging-market growth is beginning to undermine growth in the developed world. China's hunger for raw materials – now increasingly being mimicked in other parts of the emerging world – has left commodity prices high despite the depths of the recession in the West. In the "bad" old days, this would have left the West facing significantly higher inflation but, today, the risk lies more with lower output.

Even in the UK, where inflation is too high relative to target, there has been no wage response. Adjusted for inflation, wage growth has been pitifully weak, hindering the pace of both debt repayment and the economic recovery. The level of economic activity remains depressed by past standards.

Second, the underlying drivers of global economic growth are increasingly coming from the emerging world. It's easy enough to caricature China and other nations as being entirely dependent on exports – a view that Mr Bernanke is happy enough to support.

Yet the data reveal a very different picture. Of the 3.2 per cent increase in world consumer spending recorded in 1998, all but 0.3 percentage points came from the developed world.

This year, a very different story emerges. Of the 2.4 per cent overall increase in global consumer spending, more than half comes from the emerging world.
The picture on investment is even starker.

Global growth in capital spending has more than doubled since the late 1990s. At the height of the technology boom, capital spending rose at a 6 per cent annual rate, two-thirds of which came from the developed world. This year, capital spending will deliver a 10 per cent gain. Four-fifths of this rise will come from the emerging world.

We are witnessing a true revolution in global economic affairs. The engine of economic expansion is no longer to be found in the debt-ridden West. Instead, the emerging nations find themselves in the driving seat of global growth. And as their economies increase in size, so they will increasingly trade with each other. Why, for example, would a Brazilian company set its sights on selling to US consumers when Asian domestic demand is expanding so incredibly quickly?

If, though, demand in the emerging world is growing so quickly, why do these countries run current account surpluses? Why do they appear to be saving rather than spending?

The answer relates to supply and demand. Although consumption and capital spending are both rising very quickly, they are not rising quite as quickly as output.
China and other emerging nations are producing more than they are consuming and, hence, running current account surpluses. But does that mean they are dependent on US and other Western consumers?

Not necessarily. It's easier, in fact, to turn the argument on its head. Whether they like it or not, Western consumers are increasingly dependent on the low-cost production and ample credit provided by the emerging nations.

But this sense of dependency doesn't play well in the West. Whether it's Nobel peace prizes, exchange-rate policies or broader economic rebalancing, the West's voice is falling on deaf ears, partly because the leaders in the emerging world are particularly attuned to the stench of hypocrisy.

In the late-1990s, following the Thai baht crisis, the West lectured Asian and other emerging economies over their profligate ways and demanded a period of hair-shirt austerity. With the roles now reversed, the West seems not to have the stomach for the medicine that it once prescribed for everybody else.

Stephen King is managing director of economics at HSBC