Global economy

By Alan Greenspan

Bromley illustration

 

 

 

 

  

 

 

 

Global economic policymakers are currently confronted with their most daunting challenge since the 1930s. There is considerable fear in the marketplace that the unprecedented set of stimulus programmes and efforts to recapitalise banks with sovereign credits will fall short of success. It is thus useful to contemplate alternatives to that distressing outcome.

Over the past two centuries, global capitalism has experienced similar crises and, up until now, has always recovered and proceeded to achieve ever higher levels of material prosperity. What would today’s world look like if, instead of the vast government policy efforts to stem the onset of crisis, we had allowed market mechanisms and automatic stabilisers, currently built into most of our economies, to function without any additional assistance? Counterfactual scenarios are highly problematic to say the least. But there are intriguing possibilities that offer comfort that, if all else fails, the global economy is not on a track towards years of stagnation or worse.

In one credible scenario, behind the unprecedented loss of wealth during the last year and a half, lie the seeds of recovery. Stock markets across the globe have to be close to a turning point. Even if a stock market recovery is quite modest, as I suspect it will be, the turnround may well have large (and positive) economic consequences.

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By Kemal Dervis

We are talking about the end of the economic crisis while it deepens. Economic projections have had to be continuously revised downward. Yet a relatively quick economic recovery is possible, provided four things happen.

First, public authorities must restructure and rewrite balance sheets in the financial sector, when necessary by taking over banks, instead of waiting any longer. Second, public expenditure must replace faltering private demand to reverse the downward spiral before it becomes a rout. Third, this must be done with international co-operation so that the global current account imbalances that contributed to the crisis will diminish rather than increase. Fourth, there must be aid to the most vulnerable so that they will not be pushed into destructive despair.

Will politics allow all this to be accomplished in time to avoid a catastrophe? If so, growth may resume some time in 2010. Even under this optimistic scenario, however, the world will have changed irreversibly.

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FT editorial

As a shell-shocked world tries to fathom how its economic collapse happened, commentators are busily outbidding each other with claims about the exceptional nature of this crisis. But the most astounding fact is how familiar its physiognomy and physiology look compared to past financial crashes.

By Luiz Inácio Lula da Silva

For me, capitalism has never been an abstract concept. It is a real, concrete part of everyday life. When I was a boy, my family left the rural misery of Brazil’s north-east and set off for São Paulo. My mother, an extraordinary woman of great courage, uprooted herself and her children and moved to the industrial centre of Brazil in search of a better life. My childhood was no different from that of many boys from poor families: informal jobs; very little formal education. My only diploma was as a machine lathe operator, from a course at the National Service for Industry.

The Future of Capitalism

The free-market model that dominated thinking for 30 years has been discredited. Where to now? Join the debate here and follow the series in full at www.ft.com/capitalism

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