Globalaffairs

Issue 22/October- December 2010
By Glen Ruffle

Escaping the Financial Crisis is proving a lot harder than people expected. This is because many economists and politicians have not understood why the crisis happened, and are still living in a past world, not understanding that power has moved and we have a new world of city-states.

The Nobel Prize winning Economist Joseph Stiglitz raged against the International Monetary Fund in his best-selling book ‘Globalisation and its Discontents’, criticising constantly the philosophy behind IMF structural reform programmes, of reducing and cutting spending and increasing exports [1].

Yet today, the same IMF has ironically urged that cuts must be stopped if economic growth slows down further [2]! Despite always trying to sound upbeat, and to defend the international monetary system, the IMF has had to quietly admit that the West, the foundation stones of global capitalism, is essentially stuck in an economic depression [3].

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Issue 22/October-December 2010
By Guy Burton

Is Cuba, one of the last remaining bastions of socialism, moving towards the market? If the economic proposals announced in September 2010 are anything to go by then it would seem to be the case. As well as opening 178 activities up to market forces, from wine sales to massages, restaurants, home and car repairs and home rentals, the government also aims to lay off 500,000 state workers by the end of March 2011. Of these employees, 250,000 will be given the right to become self-employed and set up their own small businesses through easier licensing while another 200,000 government jobs will be transferred over to employee-run cooperatives and leasing arrangements. Existing businesses will be allowed to hire labour for the first time since business was nationalised in 1968 (1).

These proposed measures are designed to overcome Cuba’s current economic weakness, which has seen falling revenue through its two main exports, nickel and tourism. The idea is that the new businesses will provide much needed revenue for the government, through the introduction of private income tax, payroll tax and social security contributions (2). That the government believes the market can help the Cuban state and economy recover is evident in previous changes, especially in the agricultural sector. Over the past three years 4.2m acres of unused state land has been handed over to family farmers and small private cooperatives, along with the right to hire labour. Today a third of farmland is calculated to be in private hands and accounts for two-thirds of the island’s domestic food production.

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Issue 20/April-June 2010
By Guy Burton

If economic development under the Lula administration can be likened to a football match, it may be seen as a case of two distinct halves - and which may be heading for extra time. That it does so will be regardless of whoever follows him in the presidency, whether it remains in the hands of his Workers Party (PT) or the opposition.

Lula’s successor will undoubtedly use the same strategy, the primary focus of which has been inflation control and which enabled him to introduce two key state-led programs in each half of his presidency: redistribution through the ‘family grant’ (bolsa familia) system in his first term and a package of infrastructure investment through the Accelerated Growth Program (PAC) during his second.

The government’s economic and social actions are credited with not only raising Brazil’s global status alongside that of other developing BRIC economies and G20, but also in helping insulate Brazil’s economy and society from the worst effects of the 2008 financial crisis. Lula will leave office at the end of 2010 with Brazil in a strong position, but much of that achievement may also be attributable to his commitment to maintain the economic policy of his predecessor.

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Issue 20/April-June 2010
By Glen Ruffle

“There is no way in which one can buck the market” said Margaret Thatcher to the British House of Commons in 1988 [1]. What was true then is still true now. Market economics simply cannot be avoided: if you spend more than you earn, you will run out of money. You will need to make savings. You will need to have cuts. And failure to do these things will cause economic crisis.

Greek tragedy

Greece has got itself into a big problem. Many have jobs that, constitutionally, mean they can never be lost: jobs for life. Tax evasion is practised by everyone - it is normal and expected. Jobs in the public sector are prized above jobs that create wealth in the private sector, because you cannot lose the public sector ones. Successive governments have expanded the public sector as a way of rewarding those who voted for them, as this provided quick solutions to unemployment. Public sectors are the natural home of Unions, which then, despite the fact that no one was creating any money or doing much work, demanded much higher wages. Some people were able to retire at 45, and subsequently receive pensions and expenses for the next 30 or more years of their lives [2]. For normal people, the average age of retirement is 61, and the government only hopes to raise it to 63 by 2015 [3]! The whole situation is a mess, the logical consequence of socialist policies pursued for a long time [4].

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Issue 20/April-June 2010
By Glen Ruffle

The erupting volcano in Iceland has disrupted not only air travel but the economics and free trade of the world. Maybe it is time to start building economies that are self-reliant rather than interdependent.

Life is unpredictable. Few would have foreseen that an unknown volcano in far-away Iceland would mildly erupt and suddenly close down nearly all of Europe’s air space and cause international travel chaos.

Yet that is precisely what has happened. The quiet glacier at the difficult-to-pronounce Eyjafjallajoekull in Iceland [1] was rudely interrupted by a volcanic explosion that blasted into the atmosphere thousands of tonnes of ash and debris, making it dangerous to fly aircraft through [2].

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Issue 19/February- March 2010
By Alexandre Calvo Cristina

The North Korean regime devalues its currency, forcing the population to exchange their savings. Each North Korean family can only exchange 100,000 Won (around 50 Euro), the remainder being confiscated. The decision is a major step back for the budding economic liberalisation of the country.

Devaluation of the North Korean currency

North Korea is in the news once again, and as usual the news is not good. This time, however, the news is not about nuclear testing, the interception of a shipment of non-conventional weapons or a border incident, but rather it is about an economic policy. On November 30, without any official warning through the conventional channels, the government used its Orwellian video system that gives them access to all homes in order to announce that all old bank notes will be replaced by new notes, thus devaluating the currency by 100. That is to say, 100 old Won will be converted to 1 of the new official monetary units. One day later, the small diplomatic body accredited in Pyongyang was informed.

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Issue 16/August-September 2009
By Glen Ruffle

The greatest financial depression since 1929 is apparently coming to an end. There are signs of growth again, ‘green shoots’ of recovery are emerging as the economies of the world start to pick up the pieces from the past 30 years.

For it was around 30 years ago that the world took the first steps towards the process that began to end last year. With the liberalization of markets under Anglo-sphere leaders Ronald Reagan and Margaret Thatcher, the growth of money and credit globally started to really take off.

And under the steady hand of Alan Greenspan, US Federal Reserve Chairman, and his intellectual backer, Ben Bernanke, who succeeded him [1], the world basked in continual growth, with even the most educated economists seemingly oblivious to the imminently approaching demise of the system [2], believing endless, fast growth to be eternally possible.

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Issue 15 / June-July 2009
By Aurora M. Alcojor

For years there has been much ado about the global importance of limited natural resources such as fossil fuels and coltan and how their importance influences geopolitical maneuvering of world powers, their leaders and their wars. But what would happen if at the end of the day all we managed to maneuver was land for cultivating the food that people need for basic survival?

From the time that Thomas Robert Malthus published his Principle of Population in the 18th century pointing out that population growth generally preceded expansion of the population’s resources, in particular the primary resource of food, research has proven to the contrary showing that the Earth is sufficiently capable of accommodating all her inhabitants and that scientific advances in agriculture allow us to achieve sustainable crop levels. The real question-and the one that always begs to be asked-is: at what cost?

While it’s obviously possible to grow life-sustaining crops on the Arabian Peninsula, Saudi Arabia’s leaders want to know if it’s economically viable. Of course they can easily import cheap food from other countries, but what happens when these “cheap” imports suddenly increase 78% in price, just like they did in the first half of 2008? That’s a question that leaders of smaller, hyper populated countries like Japan and South Korea want to know.

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Issue 14/April-May 2009
By Glen Ruffle

On 2nd April 2009, many important global leaders gathered in London to discuss the global financial crisis. Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, the Netherlands, South Korea, Russia, Saudi Arabia, South Africa, Spain, Turkey, and the US were invited by the UK to meet and try to work out a shared way forwards through the crisis.

Ultimately this summit has made some steps forwards but is not a resounding triumph. Using debt, governments will try and protect people from the consequences of the recession, whilst another result of the summit was to construct a stronger global regulatory system.

The agreement that was reached [1] shows that what was argued in this magazine, Global Affairs, four months ago [2], has to some extent been recognised by global elites and adopted. Points 3 and 13 in the agreement reached in London pick up on the failure of the financial regulatory bodies and how they failed to understand and effectively monitor the dangerous activities of their clients, whilst recognising that the market system, combined with strong regulation, is the best way forwards.

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Issue 13/ February-March 2009
By Glen Ruffle

Governments should allow banks to fail and endure short-term pain in order for them to be long-term gain

As predicted, the governments of the developed world are falling over themselves trying to stop what is inevitable. In acts of gross stupidity, they are borrowing more and more money, nationalising more and more banks, and making the state ever bigger at a time when the exact opposite is needed. In Britain, every new-born baby instantly inherits a share in the national debt of ₤17,000; an outrageous sum that will only grow bigger as the government continues to pursue the economically flawed policies it has used for the past decade.

Had Milton Friedman still been alive, he would probably have looked sadly at the policies being put forward and notice the amazing similarities between today and the 1930s crisis. In both cases, a dramatic cut in the supply of money has helped cause a meltdown of the system. Desperate to restore the flow of money, governments have thrown billions at the markets in order to try and restart the cycle of investment and production that is essential for capitalism’s survival.

Yet they have missed a key point: the good times at the beginning of the 21st century necessitated the collapse now. Bankers came to believe their own doctrines of endless growth; they actually thought that house prices could endlessly increase.

The Spanish example is a case in point. Vast swathes of Spanish land was bought up and built on, and sold to those with money from northern Europe. The idea of a place in the sun caught on, and more and more people wanted a piece of Spain. Prices rose as companies realised they could make a large profit.

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