The world crisis and the global South
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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)
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The world crisis and the global South
- 1. 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
- 3. Share of World GDP 60% 50% 40% 30% 20% 10% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 0% North America Other Industrialised Accession and Transition Rest
- 6. A crisis of the industrialised world
- 8. 15% 10% Average Growth over cycle 5% 0% Growth on previous year -5% 2006 2002 1998 1994 1990 1986 1982 1978 1974 1970 1966 1962 1958 1954 1950 1946 1942 1938 1934 1930 -10% 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)
- 9. 1972 1973 1975 1976 1978 1979 1981 1982 1984 1985 1987 1988 1990 1991 1993 1994 1996 1997 1999 2000 2002 2003 2005 2006 2008 2009 US capacity utilisation in successive business cycles 90 85 80 75 70 65 60
- 10. Length of time out of work, as proportion of workforce 0.06 0.05 0.04 0.03 0.02 0.01 1948 1950 1953 1955 1958 1960 1963 1965 1968 1970 1973 1975 1978 1980 1983 1985 1988 1990 1993 1995 1998 2000 2003 2005 2008 0 Less than 5 weeks 5-14 weeks 15-26 weeks Longer than 26 weeks
- 12. 14% 30% 12% 25% 10% 20% 8% 15% 6% 10% 4% 5% 2% 0% 0% 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 35% (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]
- 13. Symptom not cause Underlying cause is failure of investment Irrational expansion of credit-money-capital Resource-extractive, speculative modes of “growth” Drive to extract solution from other nations Under neoliberalism, centred on ‘global south’ Rising poverty, productive paralysis, parasitic classes Extreme inequities Extreme problems of governance National responses fuelled by popular revolt (Argentina, Venezuela, combined with ‘rational economic nationalism’ (China, Russia) Focused in the first instance on control of resources To a greater or lesser degree addressing social problems
- 15. 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 south Increasingly undemocratic governance Growth of militarism BUT ULTIMATELY UNDERMINING THE ECONOMIC BASIS OF DOMINANCE
- 16. Leads to unsustainable inequity Creates parasitic and predatory classes Incompatible with democratic institutions (because great majority do not benefit) Extreme vulnerability to speculative shocks Politically and economically unsustainable
- 17. Latin America clearest example Retake control of resources Kick out the IMF; development-oriented finance Economic regionalism South-South strategy The problem of ‘reprimarisation’ Constant threat of military intervention and external destabilisation The most successful (Venezuela, Brazil) are those that focus on raising living standards of the poor
- 18. State-led Export of manufactures and services Leapfrog technology – climb up the value chain Domestic market substitution – insulate from falling demand in export markets ‘South-South’ economic relations Many contradictions but primary outcome is human- led economic development Manufacturing industries made competitive Service industries lead employment growth High wage growth despite great inequities Rapid educational development
- 19. Use the state Treat labour as the primary asset of the economy Control your resources Control financial flows Create a capital goods industry Move into high-value service production Focus on building domestic and regional demand
- 20. Sell off your resources ‘Liberalise’ your financial institutions Choke off domestic demand Expect capital to invest in your country without being made to Follow a North-oriented economic strategy Let a parasitic class take over your government Listen to the IMF
- 21. 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.
- 22. 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
- 23. 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 macrofinancial linkages.
- 24. 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,
Editor's Notes
- End of the ‘hydraulic effect’ and a combined crisis of the whole industrialised worldThe ‘lost and found’ decadesThe return of ‘the rest’Reversed relation of Third and Second World