the world crisis and the global south
DESCRIPTION
Slides presented in 2012 on the world economic crisis, its causes, effects, and consequences for strategy in the global South. Presented to the November 15-17 colloquium organised by the journal 'Amandla' and by the Alternative Information and Development Centre (AIDC)TRANSCRIPT
Alan Freeman
Presented to the Amandla Colloquium on wage-led growth, Johannesburg, 15-17 November 2012
With acknowledgements to
AIDC and Amandla
Radhika Desai
‘Key Trends in Globalisation’ website
The economic crisis, its effects, and what that means for strategy
in the global South
A crisis of what?
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
0%
10%
20%
30%
40%
50%
60%
Share of World GDP
North America Other IndustrialisedAccession and Transition Rest
BRICS or CIRBS?
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
0%
2%
4%
6%
8%
10%
12%
Western Hemisphere Middle EastAsia AfricaChina
0
5
10
15
20
25
International Inequality
Reversing the lost decades
35%
1970
33%
1980
20%
1990
22%
2000
35%
81%
83%
84%
84%
86%
Made in the USAA crisis of the industrialised world
US
US Growth
-10%
-5%
0%
5%
10%
15%
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Average Growth over cycle
Growth on previous year
Source: US Bureau of Economic Affairs NIPA table 1.1.6 (annual): US GDP in chained 2005 USD)'growth' refers to the growth of annual GDP on the previous year)
Institutionalised overcapacity
197219751978198119841987199019931996199920022005200860
65
70
75
80
85
90
US capacity utilisation in successive business cycles
Permanent underemployment
1948195319581964196919741980198519901996200120060
0.01
0.02
0.03
0.04
0.05
0.06
Length of time out of work, as pro-portion of workforce
Less than 5 weeks 5-14 weeks15-26 weeks Longer than 26 weeks
An investment-led crisis
US profit rate, corrected for credit-money-capital
0%
2%
4%
6%
8%
10%
12%
14%
0%
5%
10%
15%
20%
25%
30%
35%1
94
6
19
49
19
52
19
55
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
(Unadjusted) Operating Surplus of Private Enterprises/Fixed Assets of Private Enterprises [left scale](Corrected) Operating Surplus of Private Enterprises/(Fixed Assets of Private Enterprises plus Marketable Financial Securities owned by US agencies and persons) [right scale]
‘Financialisation’Symptom not cause
Underlying cause is failure of investment Irrational expansion of credit-money-capitalResource-extractive, speculative modes of “growth”
Drive to extract solution from other nationsUnder neoliberalism, centred on ‘global south’Rising poverty, productive paralysis, parasitic classesExtreme inequities
Extreme problems of governanceNational responses fuelled by popular revolt (Argentina,
Venezuela, combined with ‘rational economic nationalism’ (China, Russia)
Focused in the first instance on control of resourcesTo a greater or lesser degree addressing social problems
The new shape of the world economy
Prolonged and intractable crisis of growth provoked by long-term failure of investment
Increasingly irrational responses domestically (austerity, refusal to contemplate state-led
investment)Increasingly predatory relations with global
southIncreasingly undemocratic governance
Growth of militarismBUT
ULTIMATELY UNDERMINING THE ECONOMIC BASIS OF DOMINANCE
The industrialised world
Leads to unsustainable inequityCreates parasitic and predatory classesIncompatible with democratic institutions
(because great majority do not benefit)Extreme vulnerability to speculative shocksPolitically and economically unsustainable
Resource prostitution
Latin America clearest exampleRetake control of resourcesKick out the IMF; development-oriented
financeEconomic regionalismSouth-South strategy
The problem of ‘reprimarisation’Constant threat of military intervention and
external destabilisationThe most successful (Venezuela, Brazil) are
those that focus on raising living standards of the poor
Resource nationalism
State-ledExport of manufactures and servicesLeapfrog technology – climb up the value chainDomestic market substitution – insulate from
falling demand in export markets‘South-South’ economic relations
Many contradictions but primary outcome is human-led economic developmentManufacturing industries made competitiveService industries lead employment growthHigh wage growth despite great inequitiesRapid educational development
Combined Development (China, Vietnam)
Use the stateTreat labour as the primary asset of the
economyControl your resourcesControl financial flows
Create a capital goods industryMove into high-value service productionFocus on building domestic and regional
demand
DO
Sell off your resources‘Liberalise’ your financial institutions
Choke off domestic demandExpect capital to invest in your country
without being made toFollow a North-oriented economic strategy
Let a parasitic class take over your government
Listen to the IMF
DON’T
Various factors played a role in the IMF’s failure to identify risks and give clear warnings. Many of these factors represent long-standing problems that had been highlighted for over a decade.
These factors are grouped into the following broad categories: analytical weaknesses, organizational impediments, internal governance problems, and political constraints.
Independent Evaluation Report (IEO) on why the IMF ‘failed to give clear warning’ of the crisis
Analytical weaknesses were at the core of some of the IMF’s most evident shortcomings in surveillance, particularly for the largest advanced economies. These weaknesses were of two broad types:
groupthink and other cognitive biases, and analytical approaches/knowledge gaps
Analytical Weaknesses
The linking of macroeconomic and financial sector analysis remained inadequate, even though a series of evaluations since the Asian crisis had called for enhanced attention to macro-financial linkages in the IMF’s surveillance
This reflected the lack of a suitable conceptual framework for analyzing such linkages within the economics profession at large, as well as the view common among IMF economists that financial issues were not central.
IMF economists tended to hold in highest regard macro models that proved inadequate for analyzing macro-financial linkages.
incentives were not well aligned to foster the candid exchange of ideas that is needed for good surveillance—many staff reported concerns about the consequences of expressing views contrary to those of supervisors, Management, and country authorities.
Staff reported that incentives were geared toward conforming with prevailing IMF views. Several senior staff members felt that expressing strong contrarian views could “ruin one’s career.” Thus, views tended to “gravitate toward the middle” and “our advice becomes procyclical.”
Staff saw that conforming assessments were not penalized, even if proven faulty. A lack of accountability was frequently highlighted as a serious obstacle to getting the incentives right. Many area department economists felt that there were strong disincentives to “speak truth to power,
Governance
Consumption and growth