Will Asia decouple? Will Europe recouple? Can Canada uncouple? These are the kind of subjects that financial analysts are hot about currently. But don’t get excited – it’s not what your dirty mind is thinking. In fact, it’s about as far removed from sex as you can get. There’s no passion and certainly no emotion in any of it, although what’s at stake is important enough to warrant getting worked up about.
True, it’s all about relationships, but between the economies of countries and/or between the currencies of nations or regional blocs. And the whole ‘coupling’ analogy is drawn not from the world of human beings but, sad to relate, from that of railways. It’s an extension of an older metaphor, much beloved of economists for generations, to do with locomotives.
Thus, historically, Britain was the ‘locomotive’ of the original industrial revolution, pulling other countries behind it. After the Second World War, the US was the locomotive, schlepping virtually the whole non-Communist world along. For years, Germany was das lokomotiv for Europe – not only is the metaphor transferable across borders and cultures with ease, the word itself rarely changes….
So we arrive at the recent past, the post 9/11 world, in which Europe is sclerotic and it is the mighty and indefatigable American consumer who is shoving the coal into the overheated engine of the US economic locomotive. Coupled – that’s where the term comes from, get it? – to this locomotive are the other countries and regions of the world. The Americans buy everyone else’s stuff, thereby infusing life and vigour into their economies, from next-door Canada to far-away China. America’s financial system works overtime to provide money for consumers, products for investors to buy, channelling American money overseas and foreign money back to the US, as financial deregulation and global capital markets usher in the golden age of investment banking, hedge fund management and private equity funding.
Fast forward to 2007. The American locomotive has, sad to relate, run out of control. The engine has blown up and the whole train is threatening to jump the rails. But wait! China is no longer a mere wagon on the American train. It has its own engine and it’s now pulling in a different direction. Wow! China has decoupled! It could take the whole of East Asia with it, on a new train ride – smellier, yes, but much faster…
And Canada is also refusing to be dragged down by the Americans. Canada was always very closely linked to America, but its wealth in minerals, energy and grains, plus good economic management, have allowed to ‘uncouple’. Even Europe seems to be able to disconnect. Albeit, the Europeans haven’t got the drive to go anywhere on their own, but at least they won’t go over the cliff after the Americans.
That was the story of the summer and fall of 2007. But as winter closed in and 2008 loomed, it became clear that most of the un- and de-coupling was either make-believe or wishful thinking. The American economy is not the dominant force it once was in the global economy, but it is still big enough to effectively call the tune for everyone else – especially all those who hitched their wagons to it in the hope of going along for a nice ride. Now the going has got rough, it’s hardly surprising the free-loaders want to stop, or even jump from the moving train. But it looks that that is not going to be possible.
The global financial system that everyone queued up to be part of is so all-embracing that hardly anyone can avoid being dragged along – and, if it comes to it, dragged under – by the big American players. Nor is any economy, even that of China – and certainly not that of Japan – capable of going its own way yet. Maybe next time, whenever that might be. But for this cycle – and we are now entering the nasty part – it’s all aboard, coupled together all the way.