Who’s to Blame?

Who’s to blame for this economic crisis? It’s an important question for governments in Cairo, Islamabad, and Manila: as I wrote last week, they face the challenge of finding jobs for the rising number of migrant workers returning home.

So it’s no surprise many governments are pointing to the West, in particular America, as responsible for factory closures and job losses. This is what makes today’s crisis different, for example, to the Asian crisis a decade ago.

I’ve been looking for evidence of “finger-pointing” in the Arabic and Chinese media. But it strikes me that not everyone is behaving in the same way.

The Chinese media, when referring to the economic crisis, often refer to it as ‘the economic crisis that originated in America’. The Director of the State Council’s Financial Research Bureau, for instance, repeatedly used that phrase, during an interview last month with the state news agency, Xinhua.

There is reason for China to feel pride in the country’s own economic achievements. It is in the midst of celebrating thirty years of, largely successful, economic reform. It has lifted nearly 500 million people out of poverty. It also recently overtook Germany as the world’s third largest economy.

It means the economic crisis is likely to leave China’s senior leadership with an even greater sense of certainty that it was on the right track. And the country may look at the developed world’s economic models or, in particular, its financial models with some suspicion in the coming years.

Not so in the Arab world where the Arab media are less likely to pin responsibility for the economic crisis on the Western governments.

However, Arab governments have come under fire for investing their oil surplus in American assets rather than local assets.

It’s an important criticism. The Arab countries, in particular, the Gulf countries have over a trillion dollars invested overseas mainly through their sovereign wealth funds and mainly in United States dollars. For instance, it was funds in Abu Dhabi and Kuwait that purchased minority shares in American banks in the early stages of the economic crisis. Their investments have since lost a good deal of money.

So where should the Arab world invest? The Arab League’s Assistant Secretary General for Economic Affairs, Mohammed Al Tuwaijri, has called for local investors to invest more money in Arab countries and support local development, especially in the region’s poorer countries. He’s not the only one.

I’ve heard this argument before. Chinese commentators were debating not long ago whether China should use its funds to prop up the United States financial markets or invest the funds domestically. They generally reached the same conclusion: the money was better spent at home. It’s no surprise the Arab world is thinking along the same lines.

The funds may well be needed in the Arab world. How so? There is a growing fear that the world’s biggest banks will have less money to lend overseas in the coming years. If so, Arab countries might have to rely increasingly on their own funds. (Not so in China where huge private sector deposits can help fund the purchase of new equipment or the building new bridges).

Is there a lesson in all this for the West? If so, it’s that economics matters more for China than it does the Middle East. Maybe this isn’t a surprise, but it’s a lesson worth repeating.

Indeed, editorials in China and the Middle East after President Obama’s election last November suggested much the same, and the new president is likely to find his trade policy towards China a bigger stumbling block than his foreign policy towards the Middle East.