A flawed world economy laid bare by COVID-19

In 1955, the then North Korean leader Kim Il Sung gave a speech. During this speech, he mentioned the term “Juche” for the first time. The exact title was “On Eliminating Dogmatism and Formalism and Establishing Juche in Ideological Work”.

North Korea was to become a nation with an ideology based on self-reliance and independence. Independence from other nations in every aspect of their economy, their cultural and strategic needs. 

A call to self-reliance seems to be a staple of Asian countries. China under Mao also lived under a philosophy of national self-reliance and independence. You will say now that China has shed its isolationist past and has become a free-trading member of the world.

Look again. In 2018, Chinas President Xi has called upon everyone under his domain to increase its economic independence from the outside world. His stated target is to make China independent from certain key technologies that it must import right now. But reading the tea leaves it becomes clear that this must go way further.

But China is also the dominant producer of certain items that the world depends upon. Electronic components are just one area. Pharmaceutics and their base chemicals are another. The corporate and political world made China the manufacturing powerhouse of the planet. Their zeal to globalize anything was quasi-religious.

This drive to produce anything at the place that appeared to be the cheapest made the world depend on global supply lines.

Corporate managers jumped on the bandwaggon in an effort to reduce the cost to bare bones. Leaving only industrial wasteland. Where there were once thriving communities strewn all over the developed parts of the planet. Production and especially manufacturing in developed countries became an oddity. 

So, China has now become the manufacturing navel of the world exporting everywhere. While their domestic markets remained protected behind a steep wall of regulations, tariffs, outright theft, and blackmail. 

Jean Baptiste Colbert made such a system famous under the moniker “Mercantilism”. China managed to disguise their own Mercantilism as free trade. Which it never was.

But why are we looking at free trade, isolationism, and its hybrid forms right now? Why starting out with North Koreas Juche system?

Looking at the North Korea of today, Juche does not seem like the recipe for success. The country is one of the poorest per capita and is sometimes still ravaged by famines and rationing of everything. Basic staples have to be imported to prevent the country from outright famine and total collapse. Ergo, we should toss Juche and all its brethren into the garbage bin of history. Free Trade seems like a superior system.

But is Juche to blame for North Korea’s ills? Have isolationist policies impoverished countries while those with open borders thrive?

We have seen above that China is very far away from being a free trading country. Its economy is still closed off to foreigners. All it does is ravaging its people and its environment to be the cheaper manufacturer. They are the biggest fish in a race to the bottom. And races to the bottom never end well for those involved. Especially for the producing side. There is always some greener grass somewhere else. 

The COVID-19 outbreak in China laid the weaknesses of the current international free trade regime bare. Centralization of production on China has produced a situation in which every little problem in this Asian tiger nation produces ripples over the entire planet. Nobody is left out. China’s production juggernaut sputters and even a Tennesse farmer will feel the consequences. Some of those ripples may sometimes feel like an earthquake. 

Because if China does not function as a producer, there are shortages of just about anything. And this real quick.

So Free Trade has a black side. 

Free trade only works if trading partners act from a basis of quasi-equality. They must feature: 

• comparable legal systems;
• comparable workers protections, and;
• roughly comparable environmental standards. 

It also works if a much bigger nation allows a much smaller nation to suckle on its economy like a mother’s breast. This usually works on otherwise unfair terms. For a while at least to suckle up the little countries own fledgling economy. The US most has allowed many countries to do that over the last more than a half-century. 

That being said, those relationships must necessarily temporary. Over time, when the o little partner reaches a certain point, the must make that equal again. 

But China is a different story as its so big. Allowing it to suckle on the rest of the world will crash the planetary economy. And we see that now.

Back to COVID-19. We knew it for years – at least those that wanted to see could see. Overreliance on a country such as China is a bad thing. When your node fails, you are in trouble and your node will find out quite quickly that you need it more than it needs you. At least that’s what it will come to think. So it will start to squeeze you.

So is the solution more manufacturing nations to spread the risk? Not quite.

Let’s go back to the Juche analogy. Why did it fail – and let’s skip the gut reactions? It was not for a lack of free trade. Or for the lack of an open society. The real reason for the economic failure of all those using such systems is that they use state-directed business models.

If North Korea had closed its borders but had left its internal economy to evolve freely, the country would have thrived economically. It’s the entrepreneurs that are the secret sauce, not free trade. And it’s the lack thereof that makes countries fail. 

If a country would allow its citizens’ economic freedom but would otherwise be isolated from the rest of the world, it would most likely be just fine. 

Some will bring up the Republic of South Africa as such an example. But if it is one, then in a very limited sense. Apart from having been a racist regime, even its white economy was dominated by huge conglomerates that covered all economic activity with a thick layer of corporatism. Not a very entrepreneurial culture so not really a good example. 

We have no really good examples as any country that has given its citizens basic economic rights has seen political rights follow on their heels. Just look at South Korea or Taiwan. They have all evolved in open societies and open societies are usually open to trade.

So, it’s the entrepreneurs that make an economy tick.

How to insulate against one country crashing the world economy then? Easy, if there is no world economy. Or in different words – if the world economy is nothing but a meta-layer upon the real economy.

The way to get there is the circular economy. And a real circular economy is not just some form of Juche with entrepreneurs over an economy the size of the United States. A real circular economy starts at the local level.

In energy terms, energy independence is just a start. We need something that is taken from our surroundings and can be given back where it replenishes. That’s where methane comes to play.