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When the credit crisis rocked the world in 2008, many political leaders and prominent economists in the United States and Europe argued with great fervor and conviction for the need to address the global imbalance, which they considered to be the root cause of the financial calamity that pushed the world into a recession.
China and the other emerging economies, they contended, are saving too much and spending too little. Therefore, there is a need, as the argument goes, for the governments of these wayward economies to take urgent measures to encourage their peoples to, well, save less and spend more.
There is no way to argue with statistics which indeed show a huge gap in the savings rates between developed economies in North America and Europe, and developing economies in Asia, particularly China. But the outbreak of the Greek sovereign crisis, which rocked the foundation of the euro zone, has unveiled gory excesses that demonstrate, at least intellectually, the main burden of addressing the global imbalance must be borne by the developed economies.
We used to admire the high standard of living enjoyed by workers in Europe. It was not widely known until now that the average wage of workers at the government-owned railway company in Greece was $78,000 a year. Some train drivers were paid as much as $130,000 a year. That's about 10 times the average salary of the highly qualified and constantly overworked subway train drivers in Hong Kong, which has a higher per capita GDP than Greece.
The underground railway in Hong Kong is owned and operated by a publicly listed company that has an obligation to its shareholders to make a profit while providing efficient service to the public in a highly competitive environment.
In contrast, the money-losing and debt ridden Hellenic Railways, which pays those exorbitant salaries to its staff, doubles up as a state instrument to boost employment. With a total debt of $33.6 billion, the company posted a loss of $1 billion on sales of about $253 million in 2008, according to a New York Times report.
Of course, workers in many developing economies, notably China, should be earning more and enjoying much better social benefits than what the systems can now provide. Achieving those goals will go a long way in helping to address the core issues of global imbalance. But the process cannot be hurried because it must be kept in sync with real economic growth.
Although the problems of the global imbalance had manifested so ruthlessly in the credit crisis, the governments of the developed countries seemed neither to have the political will nor the intellectual honesty to cut the benefits that their economies clearly could not afford. Instead, they tried to shift the responsibility to the governments of the developing economies.
The outbreak of the Greek sovereign debt crisis has left the governments of the developed economies with little excuse. Market forces now dictate that they must take drastic austerity measures even at the risk of short-circuiting the fragile economic recovery.
We hope that those cuts, if limited only to the excesses in pay and benefits, will not plunge the world into another recession.
E-mail: jamesleung@chinadaily.com.cn
