- A leading United Nations economic agency has warned that
the world economy faces a series of major problems and has called for a
program of global economic stimulation, particularly in the major industrial
countries.
-
- The annual report of the United Nations Conference on
Trade and Development (UNCTAD) issued in Geneva earlier this month pointed
to an "anxious time for the global economy."
-
- "The long anticipated rebound in the United States
continues to be delayed, and there are concerns that the imbalances and
excesses created during the high-tech boom of the 1990s could result in
a long period of erratic and sluggish growth, with occasional surges and
dips, accompanied by price deflation. With Europe undecided on, and Japan
unable to find, the appropriate policy mix for sustained recovery, the
world economy looks set to repeat the weak performance of the past two
years and could still falter badly."
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- According to the UNCTAD report, economic problems have
developed on a number of fronts. The current downturn, it noted, had been
preceded by the rapid expansion of the US economy at the end of the 1990s
amid claims that it had overcome the operation of the business cycle÷the
so-called Goldilocks scenario in which the US economy was neither too hot
nor too cold. But as it had noted in its report of 2000, "Goldilocks
is a fairy tale."
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- US growth at the end of the 1990s was fuelled by a massive
inflow of capital from the rest of the world, attracted by the prospects
of seemingly endless high capital gains from the booming stock market and
the prospects of high profits from the hi-tech boom. But with the ending
of the boom in March 2000, "the unwinding of the legacy of the 1990s
is proving a good deal more difficult than many had expected."
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- In spite of aggressive interest cuts by the US Federal
Reserve investment has failed to recover and capacity utilisation remains
low despite the scrapping of excess equipment. The US economy has only
been prevented from falling into a more prolonged period of recession because
of the growth in consumer demand which now appears to be losing momentum.
At the same time, European authorities have failed to respond to the current
downturn because of the restrictions imposed on government deficit spending
by the Stability and Growth Pact and the relatively tight money policy
of the European Central Bank.
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- Due to what it called "weak policy responses to
sluggish growth" there is now "increased reliance on currency
adjustments to reduce trade imbalances and revive growth." So far
these adjustments have centred on the downward movement of the US dollar
against the euro, while the East Asian currencies have maintained their
parity with the US dollar by massive interventions in the international
currency markets by their central banks, leading to the accumulation of
large foreign reserves.
-
- This has given rise to a campaign in the US for a revaluation
of the yuan. But, according to the UNCTAD report, it is by no means clear
whether currency movements would reduce trade imbalances between Asia and
the rest of the world.
-
- "Indeed," it continued, "the events of
recent months evoke memories of the competitive devaluations of the inter-war
period. Certainly, it would be unrealistic to expect the international
trading system to evolve in the right direction or international monetary
stability to be maintained in the face of slow growth and mounting unemployment.
A reversion to the pattern of unruly competition and conflict characteristic
of the 1930s could derail the process completely."
-
- What then is to be done to stimulate world growth? The
UNCTAD report pours cold water on the idea that further liberalisation÷increased
privatisation and the imposition of "free market" principles÷will
lead to economic stimulation. It pointed out that for the poorer countries
the strategy based on imposing "sound economic fundamentals"
through the replacement of state-backed national economic development with
a market driven export strategy had failed to deliver. Policies based on
downsizing the public sector and the imposition of tight monetary policies
had often undermined growth and hampered technological progress. This meant
that the "current economic landscape in the developing world has an
uncanny resemblance to the conditions prevailing in the early 1980s"
when many poorer countries experienced a deep crisis.
-
- The report noted that industrial progress had halted
in much of the so-called "developing world" with only eight of
26 selected countries experiencing an increase in the share of value added
by manufacturing to the gross domestic product between 1980 and 2002. In
much of Latin America "big-bang" liberalisation had led to inconsistencies
in trade, macroeconomic development, foreign investment and financial policies.
It was therefore doubtful whether a "second generation" of neoliberal
reforms would rectify the problems of the past.
-
- The further development of trade would not stimulate
economic growth, rather trade expansion depended on an increase in demand
and production in world economy as a whole.
-
- "The world economy," the report noted, "is
now facing a widening deflationary gap created by deficient global demand.
There is a global glut in both labour and product markets, with too many
goods chasing too few buyers and too many workers chasing too few jobs.
Intense price and exchange-rate competition among major exporters have
been adding to instability and deflationary pressures, while many developing
countries facing tight payments positions are being forced to curtail imports."
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- If decisive action were not taken to restore stability
in international financial and currency markets, start a global recovery
and reverse the rise in unemployment then "there is a real threat
that trade imbalances and the coexistence of continued rapid growth in
some parts of the world with stagnation, decline and job losses elsewhere
could deepen the existing discontent with globalisation among a wide section
of the worldâs population, triggering a political backlash and a
loss of faith in markets and openness."
-
- According to the UNCTAD report, the way to begin to resolve
the worldâs economic problems and prevent the eruption of major political
struggles is to apply the soothing balm of Keynesian measures based on
increased government spending. Warning of the "real danger" of
a "liquidity trap" -- a situation where monetary policy becomes
incapable of reversing the downturn in output and employment -- it called
for "Keynesian policies to expand liquidity and effective demand,
both at the national and global level."
-
- Such policies should include a fiscal stimulus over and
above that provided by the so-called automatic stabilisers, such as social
welfare spending which increases as unemployment rises, and should be coordinated
on an international scale.
-
- Such calls for international Keynesian policies are frequently
made by critics of the "free market" program who fear that if
it remains unchecked it will only result in deepening opposition to the
global capitalist order.
-
- But none of these would-be-reformers of global capitalism,
UNCTAD included, ever explain why the previous Keynesian agenda collapsed
in the mid-1970s, why economic problems continue to deepen in the face
of vast advances in productivity, why a decade of Keynesian-type stimulus
over the past decade has singularly failed to revive the Japanese economy,
and how international economic co-operation can be introduced when there
is deepening economic and political conflict among the major capitalist
powers.
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