The renowned American economist Paul Krugman says “China in 2016 looks a lot like Japan in 1989” — right before Tokyo headed into a prolonged period of financial crisis known as the “lost decade.”
Krugman says it is not China’s economic growth and dominance in the world economy that worries him. Rather, it is the likelihood of a coming economic downturn in China, and its enormous impact on the global economy, that concerns him.
An expert on international trade, Krugman received the Nobel Memorial Prize in Economic Sciences eight years ago. He spoke at the Peterson Institute for International Economics in Washington on Thursday, and in a brief interview later with VOA.
The biggest problem, he said, is what China will do in the event of an economic collapse, and what problems that would pose for the rest of the world.
China is ‘not too big to fail’
Asked whether the international community would come to China’s rescue in a manner similar to the bank bailout program the U.S. government launched following the financial crisis of 2007-2008, Krugman shook his head: “No, even with the best will in the world, China is just too big — not too big to fail, but too big to save.”
He quickly added: “Who’s going to do this? The Trump administration in America? The European Union, which is busy tearing itself apart? No, it’s not going to be a global rescue.”
The political consequences of economic setbacks also are a major concern, Krugman said: “China is big enough to have a pretty big knock-on effect on the rest of the world, but mostly, the biggest impact is in Asia. But I would start to worry about political economy. What happens to China’s internal stability? [These are] Not happy thoughts.”
WATCH: Krugman on China: Not too big to fail
A number of analysts have argued, and human rights and democracy advocates hope, that an economic downturn in China could bring about social and political change that constitutes regime change — even if that regime change is engineered by the current government or members of the current government. Krugman said he thought many outcomes were possible, including the Beijing government turning again to violent means to crack down on protest and dissent.
China is ‘Japan without a safety net’
“We’ve already seen some significant setback in political liberalization in China,” Krugman told VOA. “You might expect to see much more of that. Who knows?” He echoed a broadly held sentiment of unpredictability with regard to what may or may not happen in China during the coming years.
Krugman often compares China’s situation to what Japan has gone through. He made the point Thursday that while the two East Asian nations both enjoy considerable clout in international affairs, and in many ways are similar economically, China is more vulnerable to financial turmoil.
China’s current situation resembles that of Japan, Krugman said, “in terms of excessive saving, not enough investment opportunities, a real estate bubble. It looks a lot qualitatively like [Japan], but with much less of a safety net.”
WATCH: Krugman on Japan: Like a big family
Japan is politically very stable and “very good at making sure that there are jobs,” Krugman said. The Tokyo government “did a tremendous amount of infrastructure spending — of dubious value — but kept social stability,” he added.
A ‘cohesive’ society helps
Furthermore, Krugman said, “Japan is a cohesive society,” in many ways “like a big family,” though not always “necessarily brilliantly led.”
The same kind of “cohesiveness” that is key to helping a society weather storms, Krugman finds lacking in China, especially now.
WATCH: Krugman on Globalization: Development and Democracy
When asked about the popular economic theories that link rising income level with structural changes improving governance, Krugman told VOA that he never quite subscribed to those ideas. In reality, he said, global development has not “anywhere near” led to globalized democracy. Certain theories may turn out to be more “historical contingencies,” with “no guarantees,” he added.
In addition to his academic pursuits, Krugman is a prolific author and blogger and a columnist for The New York Times on political and economic topics. He summed up his comments about global societies’ increasing reliance on automation with a wry joke: Fifteen years from now, “robots are going to kill all of us” anyway.