The IMF meeting reports show that the US wants China to allow the renmimbi to revalue. China while agreeing to incremental changes which will happen over many years, is not willing to allow a faster revaluation, which would take pressure off the USA, Europe and Japan.
There is another solution. And that is that wages in these countries have to fall to a level which makes them competitive. If commodities are allowed to fall in price, and goods come in from around the world cheaper and cheaper, it is not unreasonable to look at reducing wages as a way to bring the world’s economy back into balance.
If China would revalue, it would not be necessary. But as she won’t, the rich countries have got to find a way round the problem.
If taxes on low pay were removed across the board so that someone earning GBP 7000 ($10,000) a year paid not a penny of Income Tax or National Insurance, and if that became the effective tax-free minimum wage, this would enable the western countries to start getting back to work, in a world where pay in many countries is nearer 15-20% of that level.
Through the use of technology, and without shipping costs and inventory costs involved in importing, high quality lower volume manufacturing could start to make a comeback, and the millions of unemployed, already idle, could find jobs, let alone the numbers that will be thrown out by a double dip recession.
It is pointless trying to force employers to pay a minimum wage of nearly double this level as is happening in Britain right now. Simply put, pay must near-halve while our economy rebuilds itself. Lawyers must be dragged out of the workplace, and taxes raised at higher pay levels, and, until we are back at full employment, that’s got to be the way to go.
How else can the world find a balance?