Archive for category Economy

Resilience In the Global Economy

While at school, way before the global economic crisis, we touched on globalization. As a class that had to be passed it was a matter of understanding the material and thinking “wow” this idea may actually only end up making the world a better place as more capital will flow to areas where it is needed and the developed economies get some breathing room by providing products and services that are already available in their advanced markets. This, of course, only works through the multinationals mostly and as such mega corporations are spreading to developing countries looking for mostly extractive natural resources. There are some multinationals that were (and perhaps still) are adapting their products to the less well off customers in some specific developing countries.

Fast forward to the recent past and I came across some research papers and opinion pieces that were anti-globalization. The aforementioned past is close to when “words” like “credit crunch” and collapse of large banks like Lehman Brothers was in the news cycle everyday. Speaking of news, financial journalists like to state that “if the US sneezes the rest of the world catches a cold”. The world largest economy went into a recession (rumours are that it is growing at the moment so let us hope this growth is sustainable) and started borrowing heavily from the world’s second economy (China); that debt should stand in the trillions by now. The problem spread to Europe and it is still being dealt with at the moment through various economic trickery and theories (can you say “quantitative easing”?).

Globalization has been catching on for quite sometime that most economist and those appointed to run economies that span and affect the global economy forgot the basis of sound structural design. More specifically, if you are going to have an economy that will span the rest of the world you need to have some built in resilience. It is not that recessions will not happen but if and when a recession does occur it can be limited; more importantly the other less affected economic zones of the world can adequately come to rescue those in trouble (without saddling future generations with enormous debt to pay).

Recessions have consequences on the social and political fabric of society. Case in point: there should be no pretence about any robust democracy in Greece at the moment. They will have laws enacted and elections held but most of the more relevant decisions that government takes are directed by the so called Troika (IMF, EU and Germany). For all intends and purposes of the problems that led Greece into her current predicament look like something you would have expected of a developing country: tax evasion with people generally not getting caught or at least taken to court? In the European Union, Greece may be the extreme case but other Southern European countries are also more or less in some economic stresses: Spain, Portugal, Italy and to a less extend France. Am not entirely sure if this has some connection with the nature in which the European Union is designed and operated; the EU is a supranational entity that allows its individual members to operate their own government and politics specific to them. Competition among the individual members is high and usually decisions are committee and consensus based which means that acting decisively during a crisis is something that can only be hoped for.

According to the academics, the current recession in the US was brought about law makers who thought it fit to repeal laws that were meant to ensure the robustness and resilience of the financial industry – at least by ensuring the savings of American’s remain safe from any kind of financial engineering. To be fair and balanced, it would seem like the law makers may have been lobbied into removing these safe guards. A casual observer of the current state of the America economy will realize that the financial industry has largely come unscathed from it all though Americans still continue to endure economic hardships; don’t forget that no senior official in industry has been persecuted for what is increasingly looking like negligence on part of the industry’s main players. Corporations with global power and reach decide to change the manner in which the landscape of the law – mind you laws of a superpower, not some backward third world country.

Still on the subject of the fragility of a global economy: in the year 2012, Africa had 6 out of the 10 fastest growing economies. It was noted that the fact that Africa is not fully plugged into the global economy may have lessen the effects of the global economic crisis on these countries. Most of the involvement that the continent – more so the sub-Sahara bit of it is through extractive natural resources mainly. Much of the revenue that come from the continent would of less interest to global players in the financial industry and so not much shenanigans was brought in. However, also more importantly I think – during the recession in much of the developed economies of the west, much of sub-Sahara Africa may have experienced a drop in aid funding which means that the only way to get out of that particular problem is to develop a viable economy that is less dependent on aid. Hopefully with any lack, this is a permanent shift in the fortunes of the continent. Of course with that, there comes the temptation that Africa will also become deeply embedded in the global economy.

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