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