World economies rise and fall together

World economies rise and fall together

A year ago, all the talk was of the growth and productivity gains to be made from globalization. What is being felt on the streets of Moscow and Indonesia (not to mention the Square Mile and Wall Street) is the downside of the one-world economy, writes Ben Laurance.

LONDON: A year is a long time in economics. Twelve months ago all the talk was of a new era in the markets where globalization, free trade and the proliferation of technology would yield unprecedented growth and productivity gains across the board. There were, of course, a handful of naysaying killjoys who winced at the lack of world capital controls, and wrung their hands at the early warning signs in Asia.

A year later there is little to feel buoyant about in the world economy. What is being felt on the streets of Moscow and the beaches of Indonesia (not to mention in the jittery corners of the Square Mile and Wall Street) is the downside of globalization; like boats on the same tides, world economies appear to rise -- and at the moment fall -- together.

The downturn in the world economy should not have us scrabbling around for new paradigms, however. Just as eminent economist John Kenneth Galbraith reiterated in a recent Observer interview, there really is very little that is genuinely new about the predicament of the global economy.

Let's take the American economic miracle: the high-growth, low-inflation, technology-driven economy has had one or two evangelists madly proclaiming the death of the economic downturn. Now growth is slowing, corporate profitability is stagnating and shares are trundling downwards. The only thing growing is the trade deficit.

Or how about Europe? Here we are reassured that there is a genuinely new paradigm: the single currency. A pooled coinage means faster growth, we are told. The European Commissioner for the Single Currency, Yves-Thibault de Silguy, only last week suggested that Emu is a port in a storm that will help keep the collective boat afloat. There is some truth in this. Preparations for the single European currency have engendered a Europe-wide housekeeping rigor that is partly responsible for a fillip to European growth.

In the longer term, however, the Emu economic miracle will almost certainly prove illusory. Tell the former semiconductor makers on Tyneside (northern England) that they are protected by the sheltering warmth of European fraternity and they could give you a geography lesson that places Jarrow much closer to Japan than to Germany.

If we have learnt nothing else from the undulations in global economics during the twentieth century, it is that you can construct as many new paradigms as you like -- but the business cycle will still come back and bite you where it hurts.

-- Observer News Service