Thursday, April 24, 2008

Wall Street, Main Street and Pennsylvania Avenue

The unexpected news that Ford Motor Company posted profits in the first quarter of 2008 after successive quarters of losses is a microcosm of the divergences that will only widen over U.S. foreign and economic policy.

Ford cut more jobs and operations in the United States--not good news for Main Street. One area of major growth for Ford is its Russia division--where it will be increasing operations in its plant outside of St. Petersburg and hopes to increase sales by 75 percent. Russia and other emerging markets were big winners for Ford. Good for Wall Street.

And Ford is going to have a much different perspective about developments in Russia than most U.S. politicians. A stable regime that promotes and sustains economic growth and leads to a more robust middle class is better for Ford than political and economic instability. They will want Medvedev to be much more "Putin" than "Yeltsin". And any increased political confrontation between Moscow and Washington threatens the position of U.S. companies--so Cold War-esque rhetoric from American politicians is not a good thing. So the divergence opens up between Wall Street and "Pennsylvania Avenue."

Main Street's view of relations with Russia will depend, increasingly, on whether Main Street sees jobs and economic benefits coming as a result of a closer economic relationship with Russia.

Technical conjecture: Russia is not a destination to which American jobs flee massively and won't be, because she doesn't have really cheap labor and eventually will probably have rather expensive one. It is not another China or Mexico, it's a different case.
This is a very good development. Up to this point, American politicians paid no price for reckless Russophobia. Now they might.

Yet another indication that the US needs Russia far more than Russia needs US.
Given how reluctant our politicians are to understand that the world is rapidly changing, it might be some time before their rhetoric changes.
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