New Economic World Order

As Western Capitalist Cruises risk sinking into the depths of the ocean, Eastern Neo- Capitalist Vessels safely sail in pursuit of a eudemonic prosperity. Over the last 18 months, the world has witnessed the Eurozone drown in a debt crisis, worsened by slower economic growth, and America, the world’s largest economy, overwhelmed by unmanageable debt levels complied with diverging political solutions. In stark contrast, China and India’s economic growth has rapidly increased, underlining their major share of demand in the global market. Other Asian economies are gathering momentum, Latin America has been rejuvenated from its ‘lost half-decade’ and Africa has finally convinced others of its potential to become an economic force, albeit in the long run, providing heavy foreign investment. The dynamics of a new economic order is taking shape, which involves a titanic tussle between the old western masters and the emerging world’s apprentices, amidst this financial storm.

Before the 2007-2008 financial crisis, the West have been smug and righteous in their ‘lecturing’ to the East on the importance of political stability, sustainable development and strong macro-economic management strategy to reach the Epicurean riches the West were enjoying. From the governance of multilateral organisations to the innovation of financial service products, the global infrastructure was seen to favour western interests. There were numerous attempts by emerging economies to change this, but, unsurprisingly, those attempts were rejected.

How times have changed. The unprecedented leverage, massive debt creation, and credit freezes punished the West’s arrogance for not compromising with the emerging economies. Financial excesses become the rule rather than the exception, facilitated by financial innovation, the ignorance of lending standards and lack of prudential regulation. Suddenly, “rich” western economies were running large deficits and, in some cases, tipping from net creditor status to net indebtedness, while “poor” countries were running surpluses and accumulating large stocks of external assets, including financial claims on western economies. This fueled large global imbalances and thus, triggered a financial crisis that has rattled this open economic system.

The root of the financial crisis lied in America. Their overconfidence in the housing bubble and ignorance to notice the flaws in the securitisation of sub-prime mortgaging nearly caused the country to lose $5 trillion dollars had the Federal Reserve not taken action. Four years later, after numerous bailouts, stimulus packages and calls for social optimism, pessimism and lower standards of living transcend all American minds. Americans are unhappy, and becoming more so, about their country’s prospects and politicians’ efforts to improve them. This malaise of policy decision making partly reflects the sluggishness of the recovery. However, in recent months, unemployment has been falling, share prices are close to a three-year high, house prices are still in the low and the price of petrol has soared to levels not seen since the summer of 2008. Nevertheless, a recent poll, done by the Economist, suggests that Americans have long term worries: stagnating living standards and a dark future in an economy slow to create jobs, saddled with big government deficits and faced with substantial economic and political threat from China. Tellingly, a majority now regard China, not America, as the world’s leading economy.

Western Europe, mainly the Eurozone, also suffered deeply in the recent financial crisis. Eurozone seems likely to disintegrate unless it can resolve the current debt crisis and prevent the implosion of the single currency. Fears of insolvencies amongst PIGS, especially Greece, have created political and social tensions. Somehow the Eurozone must allow Italy and Spain to receive bailouts financed by the European Central Bank with a structural and fiscal compromise.  By doing such, confidence should return to European markets. Higher confidence means financial markets are willing to lend to Eurozone governments and banks who, in turn, start lending more which increases business confidence to invest and obtain profit maximisation and consumer confidence to spend and reach optimal utility. As a result, Europe would then suffer only a light recession, but recover, and slowly but painfully grows its way out of its debt problems. However, Western Europe faces its toughest challenge yet; to revitalise a somewhat sluggish growth, whilst operating under tight austerity cuts, high unemployment and multiplying debt concerns.

China is the biggest winner following the Financial Crash of 2008. China’s GDP Annual Growth rate, on average, is 10%. Despite the year-on-year rise of 8.9 percent was the slowest since mid-2009, China’s fourth-quarter growth figures was still slightly stronger than economists had predicted. China’s centrally directed industrial policy in which the government places huge amounts of capital and labour in certain enterprises has been a huge success. The backbone of China’s economic growth is mainly built cheap labour. However, as China’s wealth and GDP per capita (currently $4,400 compared to the U.S.’s $47,000) continues to increase, labour costs will soon cease to be cheap compared to the labour forces in India, Turkey and across Southeast Asia because the workforce will demand higher wages to keep up with inflationary pressure. If China can carefully manage their economy for future generations, China’s can maximise its own potential for more prosperity and influence on the global economy. However, China’s dependency on State Capitalism works on the grounds that there is political stability. However, if that were to stop, China‘s economy would be in disarray and have serious consequences for the rest of the world.

India’s economic rise is due to the existence of highly influential shadow sectors, private provided infrastructure and family dominant firms providing a strong economic scaffolding to India’s economy. Recently, economic activity rose far more than expected in December, alleviating fears that the economy was unraveling. Yet gross domestic product growth has slowed dramatically and is likely to worsen in the current quarter. Furthermore, India’s deep rooted political problems including corruption scandals and bribes has increased the social and external costs for India, increasing the gap for social optimum equilibrium.

Other Asian economies are also profiting. Singapore, another emerging market, saw their non-oil exports surged 16.4 percent in December 2010, more than four times the consensus forecast in a Reuter’s poll. But economists still think this city-state is slipping into at least a brief recession. However, emerging economies in South Asia face a common theme of corruption and bribery within political parties. They must ensure a reduction in poverty, wage inequality, favouritism to certain enterprises and ensure stable growth is maintained. Or else they face social unrest, inefficient enterprises and an overheating economy.

Latin America has vastly improved compared to 1990s in which it suffered incredulous political elections, self destroying foreign exchange system and restless social uproar. Even during this current global economic slowdown, the improved macroeconomic management has fortified Latin America’s economic resilience. However, that is not enough to keep them on the upward curve. Indeed, Latin America has had sound  practices in monetary policy – for example, inflation targeting with flexible exchange rates – with clear benefits. However, in order for Latin America to avoid another ‘lost-half’ decade, its fiscal policy needs to loosen up, such as relaxing industry taxation, and decrease deforestation to provide sustainable growth. This should not be at the expense of prudent fiscal management which helped some Latin American economies weather the crisis.

What about Africa? Africa is 15% of the world’s population but accounts for only 1% of global manufacturing and 1% of global inward investment. However, with scarcity of global resources, Africa will be the next growth centre of the global economy in the coming decades. China has already demonstrated their quick thinking and initiative by heavily investing in countries such as Zambia. If Africa is to have any chance of challenging the economic superpowers and enrich its current deprived living standards, Africa must commit to higher investment in infrastructure, enhance labour’s skill set and attract low-cost manufacturing plants which are looking to re-locate from Asia. As Jakaya Kikwete, president of Tanzania said Africa is ‘starting from very low levels of development’. However, rapid progress can be made: sticking to economic reform programmes, investment in education, transforming agriculture from a position where people ‘live from hand to mouth’, developing infrastructure, boosting manufacturing and integrating both regionally and internationally. Yet it will be a long time that Africa moves away from poverty to prosperity, givien the current state of corruption, crime and political uncertainty in the continent.

This is the year when the whole world ceases, according to Mayans. It is also the year in which politics and economics come under scrutiny when they stand up to these difficult challenges. Western cruises and Eastern vessels are traveling in opposite directions. This could be the year which decides the shift in global power; a new economic order is on the horizon.

Contributed by Wafiq Islam

Are there no fighters left here anymore?

Apathy is a disease to politics. If left untreated, it can destabilise government, dishearten the concerned or at worst, threaten to shatter the very foundations upon which our democracy was founded. The term apathy can be defined as a lack of enthusiasm, interest or concern in an issue that demands attention but with regards to politics, it is much more than this. Apathy is the inability or unwillingness to generate any sort of political opinion, ideal or aspiration, and the problem is spreading like wildfire.

So what are the root causes behind this epidemic? For starters, apathy is often hereditary; as the men and women of the Generation Y reach childbearing age, those who championed a blasé approach towards the Iraq war and global warming are more likely to raise offspring who share a matching political indifference. More worryingly, apathy is also contagious; the tendency of not caring is enhanced if your peers are similarly lackadaisical- after all, if no one else cares then why the hell should you?

The decay of our generation’s political conscious has been further fuelled by the relentless nature of our consumerist and media infested culture. The corporations behind the inescapable advertisement of our generation have almost succeeded in nullifying any train of political thought- when such an emphasis is put upon how you look, what you buy and what you’re up to these days, who really has the time for politics? The brainwashing nature of consumerism has made political discussion somewhat of a schoolyard taboo.

Whilst consumerism has debilitated political debate, the media has turned our icons into fist-pumping reality TV stars, pill-popping musicians and over-indulgent athletes- hardly the stuff of political folklore. Even for the select few political heroes who have survived the unforgiving nature of schoolyard trends (a certain Marxist revolutionary springs to mind), their message has been almost lost along the way. In the case of Che Guevara, most adolescents will recognise he was some kind of revolutionary, but they not do know what he stood for and what he revolted against. But it doesn’t matter- the fact that Che Guevara symbolises cool is adequate enough. This thought is encapsulated by one of Banksy’s less renowned graffiti’s. In short, our political heroes of old have been diluted or replaced with MTV icons, and with it a degree of political aspiration has been lost. Politics has become uncool because consumerism and the media have made it uncool.

Of course, such a discussion cannot take place without recognising that a lack of interest is not entirely unjustified, and without acknowledging the faults of the politicians themselves. A growth in political dishonesty and sleaze, accompanied by the growing tendency of the media to salivate over scandals has led to increased disillusionment between the government and the people. With regards to the younger generation, the recently unexpected rise in tuition fees has only worsened this matter. If a generation automatically associates government with sleaze, then political compliance and engagement can be extremely difficult to encourage.

Yet young people cannot escape without a share of the blame. Whilst it is clear that this concoction has hindered the process of engagement, it is worth noting that we have so voluntarily become disenfranchised we have barely stopped to think of the potential consequences it might yield. Apathy is practised by those who have sheltered themselves in their own little corner of the world, and indulge themselves in their own false sense of security. By only caring about their own interests and agenda they fail to recognise that by ignoring the events around them they are in danger of losing everything they value. Once the consequences have taken root it is all too difficult to reverse the situation, at which time all the apathetic people will demand that something be done about it. As a generation, we cannot let this continue. Apathy is the western embarrassment of the 21st century, and given the scope of its repercussions, we must no longer deem it excusable.

Contributed by Adam Salisbury

The Tuition Fee Rise: Betraying a Generation or Protecting Their Future?

In December 2010, the controversial austerity measure was passed to increase the student tuition fees cap from £3,290 to £9,000. The policy means that this year, 38% of English universities will charge students the maximum rate of £9,000, and the remaining universities will still increase their fees considerably. The principally Tory-backed legislation has received an outpour of objection over the past year, most strongly channelled through the nationwide student protests which are still taking place to date. However, as future undergraduates, how much will the changes worsen our financial future? The sovereign debt has to be ridden of somehow, but was this Cameron’s only choice to protect Britain’s future, or was there a far better alternative?

The increase in tuition fees poses several potential issues. The obvious concern for many students is the large amount of debt with which they will be burdened after education. To tackle the higher debts from raising the fees, the government is implementing a new current student loan scheme whereby students will repay the 9% of their annual salary when they earn over £21,000, rather than the previous £15,000. However, this measure to facilitate the repayment of higher loans is not enough to help the students manage their huge overall debts that are likely to average around £53,000. In the bigger picture, with higher debts come higher interest payments, which reduce the dispensable income of the post-graduates. This of course will slow down Britain’s economy, as its overall demand will have shrunk.

Another likely issue that the new tuition fees present is the deepening of social immobility within society. For a country that prides itself in allowing those from the bottom rung of the economic ladder to reach the top, a raise in fees would create a block to the obvious way of getting out of low paid jobs.

Although undergraduates will not have to pay a penny during the course, in economic conditions where the unemployment rate is steadily increasing (2.62 million currently) and the job market is contracting, it is not taken for granted that universities will secure a profession straight away. Consequently, potential students from poorer backgrounds will be less likely to attend university lest they are not able to handle the student debt after their degree.

Despite the immediate negative implications, we must not ignore the long-term motives behind the implementation of the rise in fees. Britain reached a trade deficit of 10.3% of GDP in 2010 which ranked them 163 in the world between Nepal and Greece, and indicated huge over spending. In the long run, the UK needs to maintain itself as a competitive economy in the world market, and cannot do so sustainably if it were to carry its huge debt. Doing so could result in Britain being in a position similar to Greece, on the verge of default, so it is without saying that it is imperative that the debt be paid off.

Nevertheless, it is worth questioning whether the government is ignoring an even more efficient alternative to tackle the higher education system. The Conservatives are adamant in raising the tuition fees in order to deal with Britain’s debt. However, an alternative could depend on the transformation of thousands of the skill based degrees to more industrial based diplomacies. This could be beneficial in many ways. Apprenticeships are less costly for the state to run than degrees, therefore the government would save money which could be used to pay off its debt. The vocational nature of the apprenticeships would be likely to increase the employability of each student far more than certain academic degrees. This concept is very similar to the current German higher education system where specialised vocational schools known as Berufsschule are available as a viable alternative to university. Students work in their desired industry for 2-3 years on a part time salary and at the end of the course they are ready for a career up to a low management post. The scheme has successfully diversified Germany’s economy; the same method could too diversify Britain’s economy from one specialized in services to an industrial-based economy as well.

The compromise between spending cuts and making higher education available to everyone is a difficult one to formulate. Yes, the tough austerity measure to raise the tuition fees is likely to remove a large burden off the government, and in the long term this will maintain Britain’s economic competitiveness. However, it is certainly not the best way to bring about a reduction in Britain’s debt. Via this method, a whole generation will suffer from great financial difficulties and it is arguable that the economic effects of this could counteract the government’s long term plans to amend the economy.

Contributed by Kapil Vijh