DIRECTIONS for questions: The passage given below is followed by a set of four questions. Choose the best answer to each question.
Crinoline and croquet are out. As, yet, no political activists have thrown themselves in the front of the royal horse on Derby Day. Even so, some historians can spot the parallels. It is a time of rapid technological change. It is a period when the dominance of the world’s superpower is coming under threat. It is an epoch when prosperity masks underlying economic strain. And, crucially, it is a time when policy-makers are confident that all is for the best in the best of all possible worlds. Welcome to the Edwardian Summer of the second age of globalisation.
Spare a moment to take stock of what’s happening in the past few months. Let’s start with the oil price, which has rocketed to more than $65 a barrel, more than double its level 18 months ago. The accepted wisdom is that we shouldn’t worry our little heads about that, because the incentives are there for business to build new production and refining capacity, which will effortlessly bring demand and supply back into balance and bring crude prices back to $25 a barrel. As Tommy Cooper used to say, ‘just like that’.
Then there is the result of the French referendum on the European Constitution, seen as thick-headed Luddites are railing vainly against the modern world. What the French needed to realise, the argument went, was that there was no alternative to the reforms that would make the country more flexible, more competitive, more dynamic. Just the sort of reforms that allowed Gate Gourmet to sack hundreds of its staff at Heathrow after the sort of ultimatum that used to be handed out by Victorian mill owners. An alternative way of looking at the French “non” is that our neighbours translate “flexibility” as “you’re fired.”
Finally, take a squint at the United States. Just like Britain a century ago, a period of unquestioned superiority is drawing to a close. China is still a long way from matching America’s wealth, but it is growing at a stupendous rate and economic strength brings geopolitical clout. Already, there is evidence of a new scramble for Africa as Washington and Beijing compete for oil stocks. Moreover, beneath the surface of US economy, all is not well. Growth looks healthy enough, but the competition from China and elsewhere has meant the world’s biggest economy now imports far more than it exports. The US is living beyond its means, but in this time of studied complacency, a current account deficit worth 6 percent of gross domestic product is seen as a sign of strength, not weakness.
In this new Edwardian summer, comfort is taken from the fact that dearer oil has not had the savage inflationary consequences of 1973-74, when a fourfold increase in the cost of crude brought an abrupt end to a post-war boom that had gone uninterrupted for a quarter of the century. True, the cost of living has been affected by higher transport costs, but we are talking of inflation at 2.3 percent not 27 percent. Yet the idea that higher oil prices are of little consequences is fanciful. If people are paying more to fill up their cars it leaves them with less to spend on everything else, but there is a reluctance to consume less. In the 1970’s unions where strong and able to negotiate large, compensatory pay deals that served to intensify inflationary pressure. In 2005, that avenue is pretty much closed off, but the abolition of all the controls on credit that existed in the 1970s means that households are invited to borrow more rather than consume less. The knock-on effects of higher oil prices are thus felt in different ways –through high levels of indebtedness, in inflated asset prices, and in balance of payments deficits.
There are those who point out, rightly, that modern industrial capitalism has proved mightily resilient these past 250 years, and that a sign of enduring strength of the system has been the way it apparently shrugged off everything –a stock market crash, 9/11, rising oil prices –that have been thrown at it in the half decade since the millennium. Even so, there are at least three reasons for concern. First, we have been before. In terms of political economy, the first era of globalisation mirrored our own. There was a belief in unfettered capital flows, in free trade, and in the power of the market. It was a time of massive income inequalityand unprecedented migration. Eventually though there was a backlash, manifested in a struggle between free traders and protectionists, and in rising labour militancy. Second, the world is traditionally at its most fragile at times when the global balance of power is in flux. By the end of the nineteenth century, Britain’s role as the hegemonic power was being challenged by the rise of United States, Germany, and Japan while the Ottoman and Hapsburg empires were clearly in rapid decline. Looking ahead from 2005, it is clear that over the next two or three decades, both China and India which together account for half the world’s population –will flex their muscles.
Finally, there is the Question of what rising oil prices tell us. The emergence of China and India means global demand for crude is likely to remain high at the time when experts say production is about to top out. If supply constraints start to bite, any declines in the price are likely to be short-term cyclical affairs punctuating a long upward trend.
What, according to the author, has resulted in a widespread belief in the resilience of modern capitalism?
1. Growth in the economies of Western countries despite shocks in the form of increase in levels of indebtedness and inflated asset prices
2. Increase in the prosperity of Western countries and China despite rising oil prices.
3. Continued growth of western economies despite a rise in terrorism, and increase in oil prices and other similar shocks.
4. The success of continued reforms aimed at making Western economies more dynamic,
competitive and efficient.