By Mthuli Ncube and Michael Fairbanks
Which is more probable: Africa becomes a virtual international province of China, the main source of its sub-soil assets, and the major component of China’s strategy for its own domestic stability; or China becomes a way African nations upgrade their economies and integrate into the global value chain for manufacturing. The answer lies in the demographics of China, and what African nations decide to do next.
The greatest challenges facing China are an ageing population, gender disparity, migration to cities, rural health care and income inequality. Poverty declined from more than 60 per cent to less than 7 per cent since 1978, eradicating more poverty than in the rest of human history. That happened because of China’s “going out” into the world strategy and Africa is, arguably, the most important part of that strategy. Read more
By Heleen Mees
There is a fierce debate over the origins of the disappointing economic growth seen in advanced economies. On one side there is former world chess champion and political activist Garry Kasparov and internet entrepreneur Peter Thiel, while on the other, there is Kenneth Rogoff, a Harvard economist.
Mr Rogoff, who authored This Time is Different: Eight Centuries of Financial Folly (2009) with Carmen Reinhart, argues that the systemic financial crisis is the root cause of the prolonged economic slump in the western world. In their research, Mr Rogoff and Ms Reinhart found economic growth following a systemic financial crisis to be about a full percentage point below trend growth.
Mr Kasparov and Mr Thiel, on the other side, disavow Mr Rogoff’s claim that the collapse of advanced-country growth is the result of the financial crisis. In their view, the flailing western economies reflect stagnating technological development and innovation, and without radical changes in innovation policy, advanced economies are unlikely to see any prolonged pickup in productivity growth. Read more
By Shankar Acharya
What might 2011 hold for us? Given the intrinsic uncertainty about the future, the really honest answer would be: I don’t know. But that would be far too boring a response and, perhaps more to the point, would not fill a column. So, at the risk of looking foolish in a year’s time, here are some predictions for 2011. Read more
By Kevin P Gallagher
Developing a sovereign debt crisis management regime should be at the top of the G20’s agenda.
As Carmen Reinhart and Kenneth Rogoff show in This Time is Different: Eight Centuries of Financial Folly banking crises are often followed by sovereign debt crises. Europe’s debt crisis might be topping the headlines now, but the problem won’t end here.
Reinhart and Rogoff find that the debt/GDP threshold where nations slip into crises has historically been 30-35 per cent of GDP. According to the World Bank more than 60, mostly developing, countries reached that threshold in 2008. A 2009 IMF report, which examined 71 low-income countries, suggested 28 of the poorest nations are at high risk of debt crises. Read more
By Michael Pomerleano
Developing and developed countries alike are inextricably connected in the international financial system. Yet this system is heading into strong headwinds and a dangerous period in which vulnerabilities will increase in the international financial system. Read more
Anybody who looks carefully at the world economy will recognise that a degree of monetary and fiscal stimulus unprecedented in peacetime is all that is prodding it along, not only in high-income countries, but also in big emerging ones. The conventional wisdom is that it will also be possible to manage a smooth exit. Nothing seems less likely. So let us consider the endgame, instead.
The remainder of this column can be read here. Please post comments below.
So what did I make of this year’s annual meeting of the World Economic Forum at Davos? It felt like sitting at the bedside of somebody who had survived a heart attack but was unsure how long it would take to recover full vigour, if, indeed, he would at all. The mood of “Davos men” (yes, they mostly still are) was, as my colleague, Gideon Rachman, has pointed out, one of anxiety. Meanwhile, the participants in a still predominantly western meeting looked at the youthful vigour of emerging economies with admiration, envy and even fear.
For me, the highlight of the programme was the economic outlook session on Saturday.* This is not only because I was moderator. The starting point for the discussion was an obvious one: the policy interventions of late 2008 and 2009 have been a resounding success. The outcome has been a far briefer and shallower recession than most participants imagined a year ago. That is obvious from the successive consensus of forecasts for 2010. For almost every significant economy, the forecast for growth this year is higher than it was a year or even six months ago (see charts). The world economy survived the heart attack in the financial system. Read more
The only truly global power was in rapid relative decline. Not long before, it had won a pyrrhic victory in a costly colonial war. New great powers were on the rise. An arms race was under way, as was competition for markets and resources in undeveloped areas of the world. Yet people still believed in the durability of the free trade and free capital flows that had nurtured prosperity and, many believed, had also underpinned peace.
That was how the world looked to many at the end of the “noughties” of the 20th century. Yet catastrophe lay ahead: a world war; a communist revolution; a Great Depression; fascism; and then another world war. The world order – built on competing great powers, imperialism and liberal markets – proved incapable of providing the public goods of peace and prosperity. It took calamity, the cold war and the replacement of the UK by the US as hegemonic power to re-establish stability. That then facilitated decolonisation, unprecedented economic expansion, the collapse of communism and yet another epoch of market-led global integration. Read more
Is the current crisis a watershed, with market-led globalisation, financial capitalism and western domination on the one side and protectionism, regulation and Asian predominance on the other? Or will historians judge it, instead, as an event caused by fools, signifying little? My own guess is that it will end up in between. It is neither a Great Depression, because the policy response has been so determined, nor capitalism’s 1989. Read more
Did the meeting of the Group of 20 in London last week put the world economy on the path of sustainable recovery? The answer is no. Such meetings cannot resolve fundamental disagreements over what has gone wrong and how to put it right. As a result, the world is on a path towards an unsustainable recovery, as I argued last week. An unsustainable recovery might be better than none, but it is not good enough. Read more
The UK has followed the US and Japan into “unconventional monetary policy”. Meanwhile, Mervyn King, governor of the Bank of England warns the UK government of the dangers of further discretionary fiscal stimulus. Yet what are the implications of the policies followed by central banks? Are these not the big threat to monetary stability? Read more
The following is Martin Wolf’s testimony to the Senate Committee on Foreign Relations in the US, March 25, 2009
We are experiencing the most dangerous financial and economic crisis since the 1930s. But it is also a crisis for foreign policy: a deep recession will shake political stability a across the globe; and it threatens the long-standing US goal of an open and dynamic global economy. Perhaps most important, the US is currently seen as the source of the problem rather than the solution.
This crisis is, therefore, a devastating blow to US credibility and legitimacy across the world. If the US cannot manage free-market capitalism, who can? If free-market capitalism can bring such damage, why adopt it? If openness to the world economy brings such dangers, why risk it? As the shock turns to anger, not just in the US, but across the world, these questions are being asked. If the US wishes to obtain the right answers, it must address the crisis at home, and do what it can to rescue innocent victims abroad. This is not a matter of charity. It is a matter of enlightened self-interest. Read more
The summit of the Group of 20 leading high-income and emerging countries in London on Thursday seems set to achieve progress. But achievement must be measured not just against past performances, but against “the fierce urgency of now”. Unfortunately, it will come up short. Read more
By Kevin O’Rourke
This period last year seems an age ago. The fear then was of resource scarcity: of rising oil prices and increasing food prices, as biofuels crowded out food production and population continued to grow. Environmental worries also reflect resource scarcity, albeit of another type. Once this crisis is over, these concerns will inevitably return to the agenda, and could easily dominate it for the rest of this century. Read more
The summit of the Group of 20 leading advanced and emerging countries in London on April 2 2009 will fail. Its members are refusing to meet what Lawrence Summers, senior economic adviser to the US president Barack Obama, calls “the universal demand agenda”. Conventional wisdom is the enemy. Alas, it is winning. Read more
By Moritz Schularick
Over the past decade, China and other emerging markets accumulated foreign currency reserves to insure against the economic and political vagaries of financial globalisation. They were wise to do so. Countries with larger reserves are weathering the storm relatively better than those who have bought less insurance. Read more
A hyperpower’s place is in the wrong. This is particularly true when, as last week at the annual meeting of the World Economic Forum in Davos, the hyperpower in question is barely represented, at least at the official level. But, truth to tell, the critics of the US – led by prime ministers Wen Jiabao of China and Vladimir Putin of Russia – had an easy story of incompetence and malfeasance to tell. Read more
Pity President Barack Obama. He won power partly because of the global economic crisis. He himself, most of his fellow citizens and much of the rest of the world agree that the US broke the world economy and now has the duty to fix it. Unhappily, this consensus is false. The crisis is a product of the global economy. It cannot be cured by the US alone. Read more
By Mario Blejer
The current financial crisis is putting substantial pressure on emerging markets. Many if not all face a serious risk of a sudden and severe slowdown in credit as a consequence of the withdrawal of international liquidity pools until recently available to these countries. The consequences of a credit crunch could be dire for both their public and corporate sector. This would ultimately stall the last engine of growth on which the world economy relies. The International Monetary Fund should quickly put together a preventive facility to restore the capacity of countries with healthy macroeconomic accounts to borrow from private capital markets. Read more