(2 of 3)
Jacob Frenkel, a former governor of the Bank of Israel who is vice chairman of insurer American International Group, called that sort of cooperation the "tango principle." The trouble is that the Chinese seem to be making most of the moves on their own. "Systemic issues for the world require systemic attention by the world," said Frenkel. "If you can dance a tango without talking to one another, then so be it. But the track record isn't good."
There's still a lot to cheer about. The Board of Economists' direst predictions last year--that the dollar would tank, long-term interest rates would rise sharply and the housing bubble would pop--didn't come to pass. Indeed, the dollar rose in value, and the yield on 10-year bonds barely budged, despite a series of interest-rate hikes by the Federal Reserve that were followed at year-end by a rate hike by the European Central Bank. Most significant, there's still no strong evidence of a resurgence of inflation, even though oil prices have more than doubled in two years. Tyson said the increase in global competition has led to an "amazing moderation of wages" in the U.S. and Europe. And Frenkel said the U.S. economy's ability to shrug off enormous oil-price rises "shows that it is capable of absorbing economic shocks to a much larger degree than what was typically assumed."
Japan seems more resilient too, under the leadership of Prime Minister Junichiro Koizumi. He has been pushing to cut the nation's red tape and deregulate the economy. December figures suggested that the reforms are helping to restore confidence: exports rose 17.5% while imports surged 27%, reflecting healthy domestic demand as well as higher oil prices. Overall, the Japanese economy grew 2.6% in 2005, and despite a huge budget deficit and heavy debt, most forecasters expect it to grow at least 2.2% this year.
In Germany, business confidence is at its highest point since May 2000, according to a recent survey, auguring well for the new coalition government led by Chancellor Angela Merkel. In a well-received Davos speech, Merkel promised to introduce greater flexibility into the German economy and attack bureaucracy in an attempt to break out of what she called "our self-inflicted paralysis."
But China's continuing boom and its uneasy economic relationship with the U.S. was a central preoccupation of this year's World Economic Forum. "This locomotive has changed the whole structure of the global economy," said Zhu. "The U.S. and Japan are no longer the global-growth engine." At the end of last year, China officially adjusted the size of its economy in an attempt to better reflect the plethora of activity taking place that wasn't counted in previous, Soviet-style central-planning statistics. The upshot was a 16.8% increase in gross domestic product that pushed China's economy past France's into fifth place worldwide--just behind the U.S., Japan, Germany and Britain.