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The perils and pain in our age of ever-rising prices

By Stephen King


Rising commodity prices are a permanent new feature of the new global economic landscape. Their ascent reflects the world’s shift in economic power from west to east. It is time we got used to it.

Recent price rises have been extraordinary; so much so that Robert Zoellick, World Bank president, warns of “a toxic brew of real pain”. He was talking mostly about those in poverty. Yet with food prices doubling since 2000, and oil and metals rising three or fourfold, no one is immune.

This is not just a story about loose US monetary policy, or the rise of large commodity businesses such as Glencore. Instead, we are seeing the growing pains of emerging market success. Gone are the days when rapid Asian growth was taken to reflect strong US or European demand. Chinese consumers now contribute almost as much as America’s to global consumer spending growth, while Chinese investment has outstripped the US since 2001. Global decoupling, once a fantasy, is our new economic reality.

For all their progress, however, both China and India are still poor countries. This matters, because at low levels of income rapid growth is synonymous with large increases in demand for raw materials. Here, the infrastructure that already exists in the developed world is only now being built, while people shifting to meat-and-dairy-based diets cause demand for crops to rise too.

Of course, rising demand need not always be associated with higher prices. In the long run, at least, higher prices should trigger supply increases, and see scarce resources used more efficiently. But supply cannot be created at the flick of a switch, particularly when agricultural land once used for food is now often being used for biofuels.

There are other limits too. Take passenger air travel. Cost per passenger mile has fallen by 75 per cent since the 1950s. Passenger numbers, however, have risen sevenfold, and distances travelled have also risen dramatically. Here, as in other areas, efficiency gains have not been enough to ease the pressure on the use of scarce resources.

Worse, under normal market conditions, this problem is only going to deepen. Rapid productivity gains in China and India are pushing domestic incomes higher, increasing consumer demand. China’s and India’s terms of trade are also improving: in the future either the renminbi and rupee will rise in value or, alternatively, China’s and India’s domestic prices and wages will rise relative to those abroad.

Whichever prevails, China and India will be able to afford more commodities, forcing prices higher still. But this is part of a wider pattern, namely that all industrialising nations need access to the raw materials that underpin growth. Historically, European powers solved this dilemma through colonisation and slavery. That path not being open today, China and India need other options.

This is why China is still busily negotiating bilateral deals with commodity-rich nations, notably Iran and various countries in sub-Saharan Africa. The terms of these deals are often murky, reflecting their blurring of commercial and state interests. They are also often only a stone’s throw away from protectionism. Other emerging nations, meanwhile, are using generous subsidies and draconian price controls to protect their most vulnerable members. With inflation at its highest level for more than two years, China, for instance, has recently resorted to controls on consumer items. And it may soon be forced to allow a faster appreciation

Yet such moves simply impose bigger costs on others; costs that are increasingly visible elsewhere in the world. As the east rises, so the west finds itself picking up part of the bill – as higher commodity prices seriously threaten fledgling recoveries. Inflation on both sides of the Atlantic is now squeezing real incomes, and threatening to throw economies back into recession.

After the biggest meltdown since the Great Depression, economic theory tells us that world commodity prices should not be this high. But they are – and the west quickly needs to wake up to this new economic reality. Commodity prices are now permanently higher. We are entering a period of austerity not just because of the debts of the past, but also because of the higher costs of the present.

To escape this trap, western growth in the future must rely on building new trade linkages with the emerging world. As these emerging economies come to dominate the global economy they will need new products and services, appropriate for aspirational citizens with just one foot on the development ladder. If advanced economies can provide these, rather than the complex and expensive products more typically consumed, we too can benefit from the success of the emerging world.

This is not quite a zero sum game: the global economy is, after all, expanding healthily at present. But it is a game where the success of the emerging nations is imposing an unexpected burden on western progress. Fail to recognise this new reality, and the world could descend into the protectionism, financial chaos and conflict that scarred the first half of the 20th century. To avoid this fate, we all need to work out how to live within our new and increasingly modest means.

The writer is Group Chief Economist at HSBC and the author of Losing Control: The Emerging Threats to Western Prosperity

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3,3
I have just read the article about the car market.
Is Chinese car market really scaling down during this year?
From the article mentioned above, we note that the amazing fact that sales of cars in China grew by only 8 percent from January to April this year,whilie a whopping 71.8 percent at the same period of the last year,according to the China Association of Automobile Manufacturers (CAAM).
Superficially,one may conclude that there comes a slowdown in car sales growth.However,when considering the scale of the car market,it's of no surprise that China remains a top priority for global carmakers.Just like the growth of GDP between U.S and China,one has no basis to claim that China is better than U.S in economy for its astonishing GDP growth rate.
So  the best stratagies of global carmakers are  "getting used to a light breeze this year"and waitting for another boom in car market.

2# haicheung
sorry，because of some reasons, I've changed the article. If you are interested in this new one, please read it and comment on it. thank you for your participation!

3,3
The following are the new comments about the paper of THE PERILS and PAIN in OUR AGE of EVER-RISING PRICES
The article abo;ve analyses some major reasons for the ever-rising prices of masses commidities and its increasing effects on these capital countries.
First of all,Stephen King debate that its not just the loose U.S monetaty pol;icy that increasing the price,some other facts may also contribute to the perils and pain situation.For example,the great demand of materials of poor countries (such as India,China),  inefficiency of using materials .However,efficiency gains have not been enough to ease the pressure on the use of scarce resources,so the author think that the main reason of the price-rising phenomino may be the incooperation of these conutries.He augues that,if west countries failing to recognise this new reality that the emerging nations is imposing an unexpected burden on western progress,then the world could descend into the protectionism, financial chaos and conflict that scarred the first half of the 20th century.

3 3
Recently, so many scholars told us that the Chinese Economic inflection point is coming in next several years. It maybe true as the cost of labor is constantly increasing from 2005. We should concentrate more on  innovation and the reform of tax-system in order to bring the wealth to the citizens but not only the enterprise. This could stimulate the consumption for that the citizens own more cash to control.This is the third day, hold on~~even it had past 0 o'clock now, I open this page to check whether it had been updated.Thx 4 sharing~even my English is awful now, I will keep reading！

2,2
"But it is a game where the success of the emerging nations is imposing an unexpected burden on western progress. Fail to recognise this new reality, and the world could descend into the protectionism, financial chaos and conflict that scarred the first half of the 20th century. To avoid this fate, we all need to work out how to live within our new and increasingly modest means."

I think this is the key point. And the article is so hard for me~

the rapid increase in the peices is largely because of the american's QE policy,however they contribute it to the emerging nations. that;s the performance of lacking responsibility

1,1，

Better Risk Communication 11:08 AM Wednesday May 11, 2011
by Ndubuisi Ekekwe

Consider two scenarios:
Company A is a medical device maker that just released a new pacemaker. Its datasheet states that the device could fail once every 90 years.
Its competitor, Company B, released its latest version a week before. In its datasheet, it noted that the device is guaranteed to function properly, under approved procedures, for 15 years, before it begins to experience reliability problems, due to aging and other factors.

In these two fictitious scenarios, Company B does better in communicating the risk of its product. It has provided certainty, through a concrete number, that can enable better decision making on the expected performance of the products.  Both communicated risks associated with their products, but Company A did not do much. To some, it could look like a better option because of the illusion of the stated one failure per 90 years. Yet, there is nothing that stated that the device cannot fail the next day, after installation.


Vague risk communication happens when a product is not thoroughly tested or when the constructs of the risk model is not sufficiently broad. It eliminates the worst case scenarios and relies largely on favorable risk scenarios.  In engineering, it usually leads to fatalities and recalls, because in the real world, the worst case does happen.

For mission critical systems deployed in nuclear, aerospace, and medical device industries, how we communicate and understand risk could make a lot of difference on planning.  In a world where companies are aggressively selling to customers, sometimes, we fail to present risks in actionable ways.


In 2003, the Nuclear Safety Commission of Japan explained that the chance of a radiation related fatality in a Japanese nuclear plant is one per one million years. When you know that something has a chance of happening once a year in a million years, you will get an elusive feeling of safety.  Competition is very intense and it may not be in a business's interest to develop mitigation plans for something that occurs that rarely.  As expected, the document did not raise any unusual level of urgency because a million years is far away. But we know from the Fukushima nuclear plant that the one chance came within eight years.  That many events escalated the problem was a nonissue; it showed that concurrent occurrences of the earthquake and tsunami were not modeled.

Accidents happen and organizations expose themselves to losses and reputational risks because of the ways they communicate the risks associated with their products and services.  From engineering to finance, if risks are communicated very well, lesser accidents and crises will happen, simply on the strength that people will plan better. When risk communication fails, people become vulnerable.


Ndubuisi Ekekwe is a founder of the non-profit African Institution of Technology. He recently edited Nanotechnology and Microelectronics: Global Diffusion, Economics and Policy.

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