Re-globalising the world economy
The editorial of The Times (March 26) referred to a recently popularised term: deglobalisation. The term, I guess, implies a shift from global free trade to a more protectionist state of nature which also seems to have brought back in fashion the politics of realism. Political theorists will be familiar with this term, especially within the context of international politics.
The theory of realism advocates that sovereign states are the principal actors in the international system, that self-interest and national security are the principal motivation of states and that relations between states are determined by their comparative level of power.
This sort of world is not conducive to a prosperous Malta and reverses the 60 years of global prosperity we've all enjoyed, spurring gains in both rich and poor nations.
Let's take stock of what seems to be going on in response to the global economic crisis: Countries in the EU, North and South America, Asia and other parts of the world are giving state subsidies in order to keep people in work and protect local industries (Malta being no exception!). Now, I can see (not necessarily agree) how this makes sense in the current crisis but where exactly does one draw the line? Is it when the crisis abates and economic growth is back in the picture or is it when governments retrieve their original investment for a small profit or perhaps when, and only when, everybody else stops state-funding and distorting the free market!
The idea of free trade is that countries specialise in the production of goods and services in which they have a comparative advantage. As a result, trade becomes a game of differing opportunity costs for all participants.
Sure, there are losers and winners but for a country like Malta "open and free trade" surely is the best option, especially if and over time everyone adopts an approach of dynamic comparative advantage.
In a deglobalised scenario, a micro-state like Malta surely stands to lose, even with the security of EU membership, which, presumably, would struggle to suppress the natural instinct of nation states pursuing a realist policy.
The WTO's director-general, Pascal Lamy, recently warned that free trade has suffered "significant slippage" this year, as countries have erected new barriers to imports in the form of tariffs, subsidies and other measures designed to protect domestic industries.
In fact, Mr Lamy wrote to WTO members a few days ago warning that "the danger today is of an incremental build up of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally."
Furthermore, the IMF predicts that the whole world economy will shrink and calculates a decline in output of between three per cent and 3.5 per cent in 2009, and that it will barely grow in 2010.
The World Trade Organisation forecasts that global trade (measured as exports in volume terms) will decline by nine per cent in 2009. This apparently constitutes the biggest global contraction since World War II.
The distressing news is that the big solution that our leading economies seem to have come up with in response to our "once in a century crisis" is to throw good money at failed business models rather than invest the same billions of dollars / euros / sterling in the businesses of the future. In the words of economist Joseph E. Stiglitz:
"Bailouts are aimed at correcting the mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we'd have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future."
The aggregate result is that recent trends of deglobalisation coupled with the investment of billions of borrowed money into failed or backward-looking business models is actually compounding the problem and not getting us anywhere nearer to a solution.
In the business world we normally let customer sales show us whether or not our customer value proposition is viable and if it isn't and we don't learn or innovate we go out of business.
The same applies to the world economy and Malta needs the G20 summit scheduled to meet in London this week to set the ball rolling and re-globalise the world economy.
Mr Fenech is a partner at Fenci Consulting Ltd.
The theory of realism advocates that sovereign states are the principal actors in the international system, that self-interest and national security are the principal motivation of states and that relations between states are determined by their comparative level of power.
This sort of world is not conducive to a prosperous Malta and reverses the 60 years of global prosperity we've all enjoyed, spurring gains in both rich and poor nations.
Let's take stock of what seems to be going on in response to the global economic crisis: Countries in the EU, North and South America, Asia and other parts of the world are giving state subsidies in order to keep people in work and protect local industries (Malta being no exception!). Now, I can see (not necessarily agree) how this makes sense in the current crisis but where exactly does one draw the line? Is it when the crisis abates and economic growth is back in the picture or is it when governments retrieve their original investment for a small profit or perhaps when, and only when, everybody else stops state-funding and distorting the free market!
The idea of free trade is that countries specialise in the production of goods and services in which they have a comparative advantage. As a result, trade becomes a game of differing opportunity costs for all participants.
Sure, there are losers and winners but for a country like Malta "open and free trade" surely is the best option, especially if and over time everyone adopts an approach of dynamic comparative advantage.
In a deglobalised scenario, a micro-state like Malta surely stands to lose, even with the security of EU membership, which, presumably, would struggle to suppress the natural instinct of nation states pursuing a realist policy.
The WTO's director-general, Pascal Lamy, recently warned that free trade has suffered "significant slippage" this year, as countries have erected new barriers to imports in the form of tariffs, subsidies and other measures designed to protect domestic industries.
In fact, Mr Lamy wrote to WTO members a few days ago warning that "the danger today is of an incremental build up of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally."
Furthermore, the IMF predicts that the whole world economy will shrink and calculates a decline in output of between three per cent and 3.5 per cent in 2009, and that it will barely grow in 2010.
The World Trade Organisation forecasts that global trade (measured as exports in volume terms) will decline by nine per cent in 2009. This apparently constitutes the biggest global contraction since World War II.
The distressing news is that the big solution that our leading economies seem to have come up with in response to our "once in a century crisis" is to throw good money at failed business models rather than invest the same billions of dollars / euros / sterling in the businesses of the future. In the words of economist Joseph E. Stiglitz:
"Bailouts are aimed at correcting the mistakes of the past, so they are backward-looking. We would be much better off spending our money forward-looking. If we spend $700 billion on new technology and innovation, we'd have a stronger, new, real economy. Up to now, the discussion has focused on the sectors that have been mismanaged rather than the sectors that are creating our future."
The aggregate result is that recent trends of deglobalisation coupled with the investment of billions of borrowed money into failed or backward-looking business models is actually compounding the problem and not getting us anywhere nearer to a solution.
In the business world we normally let customer sales show us whether or not our customer value proposition is viable and if it isn't and we don't learn or innovate we go out of business.
The same applies to the world economy and Malta needs the G20 summit scheduled to meet in London this week to set the ball rolling and re-globalise the world economy.
Mr Fenech is a partner at Fenci Consulting Ltd.
Advert
Popular Stories
In Discussion
Advert
0 Comments
Post comment
Please sign in or create your Account to post comments.