Lecture Review: The state of the World Economy in 2012

The highly regarded economist Martin Wolf infused the pressing topic of the state of the global economy with a touch of light humor. He started off by updating the eagerly awaiting listeners on the health of the global economy and the magnitude of the rise of China, India and the other emerging markets. Growth figures the period between 2007 and 2012 showed China, India, emerging countries and the developed countries would have grown by 60%, 145%, 30% and 0% respectively. The topic then move to the “extraordinary” rescue plan underway, hence tightening austerity measures and a rising level of debt. What was emphasized was that there are still many sovereigns in the position to borrow and encouraged them to focus on increasing growth rather than reducing debt. This is a view many people develop when they saw that the UK GDP decreased by 0.2% in Q4 of 2011, the chancellor was put under heavy pressure to create fiscal policy which would promote growth of the economy. This seemed to almost set the economic background in preparation for Mr Servino’s talk.

Mr Servino who spent his career in tackling development issues in institutes like French International development agency, talked about the possible solutions to the current crisis and the long term difficulties that countries such as China, India and the Emerging countries that come with rapid economic growth. He started off by setting out two solutions, one of reshaping the economic growth of the emerging countries and man vs nature.

The audience was told the core of the current crisis and a key issue that we face is the massive surpluses created by the emerging countries, therefore a large deficit held by the OECD countries. A possible solution is a shift in the export driven economic growth of the likes of China, so that it is more reliant on domestic demand. He made strictly clear that there is a strong chance that this will not occur, as the only previous case of this was in Japan. Then Japan was not in a position to disagree, as they had just lost WWII and still had the American military on its soil. Then the co-founder of ideas4development went on to place an interesting conception the table, solving the global imbalance could be through revaluing nature and man. Currently the value of nature is increasing, this unlike in any other financial crisis where the commodity markets crashed. The commodity markets have seen steady increases despite the downturn, this has meant the surpluses of the emerging countries who possess large amount of the world natural resources will have greater surpluses. In general nature is highly subsidised, whereas man is heavily taxed. This is putting greater value on nature than humans, but if greater value were to be put on man the global imbalances will be set back to equilibrium. As the OECD countries have a large skilled labour force compared to the masses of less skilled labour that are in primary and secondary employment. This would be done through reversing the roles, taxing nature and subsidising man.

There are many challenges that come with rapid economic growth; climate change, security and poverty. Following current estimates in 40 years’ time there will be 2 billion people living on less than $2 a day, even though this will be less proportionally than now. This goes to show the magnitude of the social and environmental we will face in the future if economic policy is not changed. Mr Servino explain how poverty at one point in time was seen merely as an ethical issue, but now is regarded as an economic issue. He then followed on later to say that social issues are now a large part of mainstream economics, issues which cannot be ignored in economic policy, as highlighted in the Caen Agenda. Therefore global economic policy makers need to broaden the areas they look into, in order to create sustained economic growth. All these hurdles that countries face from rapid economic growth should not be seen as burden on their shoulders, but an opportunity: an opportunity for sustained economic growth.

Contributed by Minuk Lee

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