India versus Europe

September 27, 2005
Today’s Euro-USA Split Will Persist

by Victor Davis Hanson
The American Enterprise


The new chasm between Europe and the United States seems to widen still — even as transatlantic diplomats assure us that it has narrowed — despite a common heritage and a supposedly shared goal of global democracy, free markets, and defeating terrorists.

Europeans sell arms to autocratic China that will threaten democratic Taiwan. They legitimize the terrorists of Hamas and Hezbollah, and mostly caricature the American efforts at democratizing the Middle East. All this follows the past appeasement of Yasser Arafat, strife over the Kyoto Protocol and the International Criminal Court, and the use of the United Nations to hamstring the United States in the war that followed 9/11.

What is behind this divide? Is it that the U.S. is militarily strong while the wealthy Europeans have made themselves essentially impotent — classic ingredients for deep seated envy?

Or did the close of the Cold War bring an end to the shared purposes that used to paper over the cracks of innate cultural differences? Americans tend to wish for less government and more personal freedom. They are more religious, aggressive, and acquisitive. Europeans instead prefer statism and an enforced equality of result. Far more of them are irreligious, pacifist, and more interested in leisure than in national progress and personal wealth. Now that they have no fear of the Soviet army, they have little need for us — or so they think.

Proponents of the old transatlantic alliance shrug and say things will improve. Some allege that George Bush’s cowboyism is to blame for the current rift. With a bit more astute diplomacy and softer voices — or someone like a French-speaking John Kerry as President — we could get along as well as in the past.

Really? Euro-U.S. relations may have returned to civility and even shared commitment after the recent terrorist attacks in Europe, but our real closeness is probably over. NATO is comatose — a Potemkin alliance without a mission. It has devolved into Americans trying to shame affluent Europeans into buying a few more planes to add to their dreadfully feeble fighting forces — which lack any reflection of the vast wealth and population of Europe.

The shaky European Union is as much driven by anti-Americanism as by pro-Europeanism. Only with unity comes the hope to rebuff the United States effectively. In response, it is far more likely that Americans will envision Germany and France less as friends than as rivals. Since our own European ancestors tamed the frontier in order to craft a nation that would in many ways be an antithesis to their home continent, this is not a big stretch.

Careful reading of American history does not suggest a natural U.S. partnership with Europe. Rather, our past shows frequent antipathy, punctuated several times by violent hostilities: most recently in 1898, 1914, and 1941. Apart from the special British American companionship, solidarity between the U.S. and continental Europe was more likely a Cold War exception, not the rule. For 50 years the United States stayed engaged with Europe specifically to ensure that intercontinental squabbles would never again devour American blood. The Soviet Union served as a sort of ancient Persia — an enemy colossus that kept feuding Greek city-states friendly for a while, until the common threat faded and their innate suspicion returned.

The United States is rapidly becoming a universal nation. Continuing immigration, our democratic society, our ethnic and racial assimilation, our common popular culture, our meritocracy, and shared material dreams have created equal and unified Americans out of nearly all the tribes and races of the globe. Europe, for all its socialist pretenses, is a much more stratified and narrow society, plagued with unassimilated minorities. It is hard to imagine a Colin Powell, Alberto Gonzales, or Condoleezza Rice running the key ministries of France, Italy, or Belgium.

For four out of ten Americans today, their physical and spiritual origins have nothing to do with Europe — they are offspring of Asia, Latin America, or Africa. Demographic and immigration realities mean that our ostensible blood link with Europe will continue to thin. Like it or not, more Americans are coming to know and care less about Europe and more about China, Korea, Mexico, India, and the Philippines. The teaching of French, German, and Italian is sliding, while Spanish and Chinese rise.

Red-state/Blue-state tension in America reflects a similar divergence between America and Europe. As the United States becomes more conservative, it increasingly sees Europe as a fringe San Francisco or Massachusetts, not a mainstream Grand Rapids or Ohio. Europe’s rhetorical intrusions into our recent Presidential election confirmed that Europeans often embrace agendas that bother Americans — pacifism, radical secularism, utopian environmentalism, blind support for the U.N., socialized health care, government steering of the economy, redefinition of marriage, strident abortion rights, and open euthanasia.

We are fooled somewhat by Europe’s trade surpluses, the strong euro, and rich entitlements. But under that surface lurk high unemployment, weak growth, and demographic crises that threaten to unhinge the Continental socialist utopia. As recent E.U. plebescites suggest, the future will bring great strains as Europe’s already heavily taxed northwest transfers huge amounts of capital to subsidize the integration of more religious, nationalistic Europeans far closer to potential harm on the Islamic and Asian frontier. Will a Belgian or Dane really feel national kinship with a distant Bulgarian, Ukrainian, or Turk in the years ahead?

The differences between American and European material wealth are now marked and growing — Americans increasingly enjoy larger homes, more cars, more appliances, cheaper food and energy, more advanced health care, and more disposable income. A recent European visitor to my farm, a member of the professional and affluent class, was stunned when I showed him the new suburban houses and multiple cars of first generation immigrants from Mexico living nearby — in the poorest section of one of the poorest inland counties of rural California. “They seem wealthier than I am!” he exclaimed. In a global sense they really are, even without the subsidized train tickets, day care payments, and a government-guaranteed six-week vacation.

Some transatlanticists will grant these endemic problems, but assure us that Europe’s problems will be self correcting, that more conservative reformers will eventually retake power and mimic the Reagan and Thatcher revolutions to prune back government largesse and encourage renewed self-reliance — noting in addition that we have the same enemy in Islamic fascism. Nothing in Europe’s history, however, suggests that a moderate response to the current maladies is likely.

Popular frustration over Islamic terrorism and unassimilated minorities may grow, and Europeans could become tired of appeasing extremist mullahs and terrorists and begin looking for principled opposition based on real military power. A few politicians may warn of the dangers of a future Europe with only one worker for one pensioner, of a self absorbed society where children, religious fraternity, and hard work are seen as retrograde, or caricatured as American.

But it is just as likely that any European counter-reaction will be unproductive. Instead of calling for more American-style assimilation and intermarriage, critics could prescribe strict isolation of Islamic minorities. Re-arming could make Europe even more hostile, rather than promoting Western unity. The longer work hours, reduced welfare subsidies, increased transparency, and economic flexibility needed by Europe might be received by the masses not as necessary medicine, but as foul concoctions forced down their throats by the hated American competition.


What can the United States do to mitigate the forthcoming estrangement? Several things:

• Withdraw as many American troops from the Continent as is not injurious to the global responsibilities of the United States. That will remind the Europeans that anti- American rhetoric has consequences, and that the pathology of the present teenager-parent relationship must end for both our sakes.

• Allow dissident Europeans to enjoy fast-track immigration to the United States. Welcoming folks from Europe who wish to join the American experience will send a powerful reminder to European elites that there were reasons their own people left their shores in the first place. Special warm immigration considerations for Europeans should replace the military alliances that used to knit us together.

• Quietly cultivate friendships with eastern European countries, and encourage stronger relations with countries that have signaled shared interests with the U.S., like Britain, Denmark, Holland, and Italy, all of which have reason to be wary of the French- German axis. At the same time, rely more on our cordial ties with Japan, Taiwan, India, and Australia — whose democratic societies, confident populations, and legitimate fears of a China armed by Europe equal our own.

• We must keep Europe in mind in all questions of U.N. reform. The European Union deserves one collective U.N. veto befitting its new transcontinental nationhood, not multiple votes as at present. India and Japan should assume their rightful places at the Security Council table next to the single European vote. And we should press for a General Assembly composed only of elected governments, rather than the present mix of democracies and rogue regimes that often look to Europe for tolerance, subsidies, and trendy anti-Americanism.

• Finally, we must seek out pragmatic Europeans who are tired of business as usual, and wish to reform their union in ways that will promote American affinity. They are out there, but overwhelmed at home, and ignored by American liberals in our universities, corporations, the State Department, and elsewhere. Through government programs, think tanks, military links, shared business interests, and grass-root exchanges we must make direct connections with the many millions of Europeans who share American ideals, but have no way of expressing them on a continent dominated by a small class of haughty elites.




©2005 Victor Davis Hanson




http://victorhanson.com/articles/hanson092705.html





* * * * * * * *




America vs. Europe undercard. America vs. India/China main event.


VDH has thoughts. This is almost a silly subject. America vs. Europe may be important for Europeans, but what's important for America is India and China. With over a third of the world's population, India and China grow more powerful as they move toward freedom and capitalism. The 21st Century is the Asian Century. I don't think many in the US have come to terms with that yet.


For four out of ten Americans today, their physical and spiritual origins have nothing to do with Europe — they are offspring of Asia, Latin America, or Africa. Demographic and immigration realities mean that our ostensible blood link with Europe will continue to thin. Like it or not, more Americans are coming to know and care less about Europe and more about China, Korea, Mexico, India, and the Philippines. The teaching of French, German, and Italian is sliding, while Spanish and Chinese rise.






http://davidboyd.org/posts/1127869286.shtml




* * *




India vs. China: Where to Invest?

by Jeremy Siegel, Ph.D.



Thursday, February 9, 2006

Leaving Zurich's international airport on the way for the World Economic Forum, visitors confront a huge billboard declaring: "India: The Fastest Growing Free Market Democracy."

India was a key sponsor of the 2006 Davos Forum, and its direct jab at China, witnessed in prime time by the world's elite, signals just how fierce the competition for the world's investment capital has become.

India's bragging rights were inconceivable just a few years ago. As recently as June, 2003, The Economist magazine ran a cover story "India v China: A Tiger, Falling behind a Dragon." In that article, the magazine indicated that in 1980, India's GDP was greater than China's and its per capita income was some 60% higher. Yet by 2003 the situation reversed, as China's economy soared ahead of India and sported per capita income some 50% higher. But in recent years India's economy is rising again and the Tiger is making a run at the Dragon.


Investor Confidence

The sudden interest in India has boosted the country's self-confidence. Grant Thornton, a leading international audit and consulting firm, carries out a survey of business confidence of more than 7000 owners of medium-sized businesses from 30 countries. Surprisingly, India ranks number one, ahead of the G8 economies, China, and Europe's "Celtic Tiger," Ireland.

As I reported in my last column, India lags China in the hard infrastructure of roads, airports, and real estate, but it leads in the "soft" infrastructure of democratic institutions, free press, and an independent judiciary. What other factors favor India?


Banking and Finance

India's long experience with a free market enabled it to gain significant experience in lending and raising capital. This is not the case in China. Until recently China's banks were in business to funnel loans to woeful state-run enterprises. There were no incentives for these loans to be repaid, and now banks are crippled with an estimated $213 billion of non-performing loans.

In contrast, India's major banks are thriving and ICICI Bank, India's second largest, is considered one of the best run in Asia. More than 6,000 firms are listed on the Bombay Stock Exchange, far outnumbering the number in China and more than double the number on listed on our New York Exchange. Furthermore, investors in China's stock markets in Shanghai and Shenzhen have performed miserably over the past decade as overpriced stocks flooded the markets. In contrast, Bombay's stock market has been booming.


Business Relationships

Trust is certainly an important component of any business relationship. But one aspect of Chinese culture that disturbs me is called guanxi, a network of business and social relationships among various parties who are expected to exchange favors regularly and voluntarily.

Although it is wrong to interpret this practice as "bribery," since these exchanges need not involve money, I worry that these networks can be used to shut out those that don't "fit into" an approved Chinese social circle. Guanxi, when combined with the corruption that permeates the Chinese economy, make a truly competitive economy difficult, if not impossible to achieve.

For India, these social networks and corruption are less of a problem. To be sure, dishonesty still exists in government service, but high level corruption is being vigorously rooted out by a free press that is absent in China.

Perhaps the greatest strength of a free market economy is its openness to do business with anyone who has the qualifications and desire to do a job, regardless of ethnic or social backgrounds. America is so attractive to so many immigrants who have been shut out of opportunities in their own homelands because of our openness. Guanxi combined with the uncertain new laws defining private property and business contracts in a still-Communist China should be a source of concern to investors.


Demography

Perhaps the most positive aspect of India's future is its demography: India is a very young country, while China, because of its one-child policy, is rapidly aging. According to the UN demographic Commission, by the middle of this century the most densely populated age group in India will be those aged 40 to 50, while in China it will be those aged 55 to 65. This means China will soon start to suffer the same problems as Japan, Western Europe and the United States: an excessive number of retirees relative to the working population.

The young have the flexibility to adapt, absorb, conceptualize, and innovate. This is the key ingredient of technological and economic progress. China has a large supply of new workers for private enterprises, but these workers are leaving state-owned enterprises and are older and are not as adaptable as the young labor market in India. The late management guru, Peter Drucker, said that demography is the "future that happened." Population trends are not easily reversible, and here the advantage goes to India.


India or China?

With all these points favoring India, the answer to the question, "Where should your money go?" may seem like a forgone conclusion: India has the best prospects for investors.

But, as I explain in my book, The Future for Investors, there are two aspects to every investor decision. First you must size up the prospects for the firm, the sector, or the country. On this score, India scores some high marks.

But you must also evaluate the price that you are paying for these prospects. India's investment climate looks ripe for growth, but the markets have recognized this and have pushed stock prices upward. The Sensex 30, India's best-known stock market index and analogous to our Dow-Jones Industrial Index, was only 3300 in December 2002 but on February 6, 2006, the index broke through 10,000 for the first time.


A Question of Value

The price-to-earnings ratio on this index has reached 21, while Chinese stocks on the Hong Kong Stock Exchange are selling for only 15 times earnings. Goldman Sachs Asia Pacific Strategy recently indicated that it thinks valuation has turned the tide toward China. In a December review of the Asian markets Goldman stated, "We remain bullish long term [on India], but are market weight given the stretched valuations [and other factors]." In contrast Goldman's Asia team remains overweight in Chinese equities due to the cheaper valuations.

Both India and China have enormous promise and I would certainly own stocks from each of these countries in a long-run portfolio. But India's edge is no secret and future returns will not match the stellar gains of the last three years. And remember, all the developing markets, no matter how promising, contain considerable risk. In a later column I will advise readers on how to build a global portfolio that will balance growth prospects with these risks.









http://finance.yahoo.com/columnist/article/futureinvest/2542