To avoid a repeat of excess credit in the US, export-first nations must find a new model.
Don't build a new ship out of old wood, says a Chinese proverb. In China, as in many nations that set their sails to the winds of exports, this global recession comes with a warning flag: Don't rebuild your economy on an export-led model. "New wood" lies in more freedom for domestic consumers and more reliance on home markets.
Unless export-heavy countries such as China, Japan, and Germany shift their policies away from favoring such producers and limiting consumption, the danger remains of perpetuating the root cause of the sharpest decline in the global economy since World War II.
An excess of US dollars earned from these countries' exports was a big contributor to the global financial crisis. Those dollars flooded the US, allowing credit to flow to Americans who bought homes they could ill afford.
An agreement to prevent a repeat of this imbalance would be the best outcome at the April summit of G-20 nations, which represent 85 percent of the world economy. The last G-20 summit in November warned of "unsustainable global macroeconomic outcomes" behind the current crisis. Clearly, artificially pumping up exports is now seen as having left the world askew.
In much of East Asia, exports have accounted for one-third to more than half of the national economies. That development path required subsidies to exporters and government meddling in currency rates. And often, workers' wages were kept purposely low.