Sun Dec 04 22:24:53 SAST 2016

THE BIG READ: We're in this together

Chrystia Freeland
Reuters | 2012-06-25 00:05:46.0
CASH CRUNCH: An advert next to an ATM in Madrid shows a happy family, in contrast to Spain's sad financial situation. Its banks need à51-billion to à62-billion in extra capital to weather new losses
Image by: Picture: SUSANA VERA/REUTERS

There are three questions of global importance, writes Chrystia Freeland

Russian writer Leo Tolstoy may have been right about families: "All happy families are alike, each unhappy family is unhappy in its own way", but the opposite of his famous first line is true when it comes to countries: The world's unhappy nations are alike when it comes to the causes of their unhappiness.

That's not immediately apparent. Austerity-strangled Greece, cheap-money US and military-ruled Egypt all exhibit different symptoms. But it is no accident so many of the world's economies are sputtering at the same time, or that so many people around the globe are angry.

One reason for the synchronised gloom, of course, is the synchronisation of the global economy. But the world is suffering from more than a shared cold.

Rather, we are all, both together and apart, trying to figure out three big questions. Our answers will shape the 21st century.

The first is how nation-states fit into a globalised world economy.

Different countries are wrestling with different versions of this problem. Small states with their own currencies and open trade policies have just endured a version of the Asian crisis of 1998, and they have come to similar conclusions - survival requires a fortress-like national balance sheet and export-led growth. That's why Baltic leaders these days sound an awful lot like Southeast Asian ones.

The rub, as former US Treasury secretary Lawrence H Summers likes to point out, is there are no Martians. Export-led growth can't work for the whole world: Someone needs to be the net importer.

The truth of this is being experienced painfully today by south Europeans, whose economies are constrained not only by inflexible labour markets, which are being reformed, but also by a currency union that has lifted north European exporters, particularly Germans, and weakened everyone else.

So the euro, which was attractive to smaller European states in part as a shelter from global economic storms like the Asian tsunami of 1998, turns out to be a perilous haven. An effective global economy will require more than a World Trade Organisation and free and fair commerce between companies.

Currencies shape trades most of all, and those currencies are guided by national policies on exports, credit and government surpluses or deficits. If we want a global economy we need to devise a way for the currencies of the world to work, and to work together. Call it the 21st century's Bretton Woods moment.

The second question is even knottier. Global capitalism is the best economic system devised so far: Worldwide growth in the three decades before the financial crisis delivered, strikingly, a huge rise in incomes to poor people in countries like India and China that, a generation ago, economists had all but given up on.

Latin America has benefited, too, and Africa seems to be on the rise. But 21st-century capitalism is failing at delivering jobs and rising incomes to the middle class in rich countries. US families are no better off than they were in 1992. For ordinary Americans, it is as if the post-Cold War windfall and the technology boom never happened.

Much of Europe is in the same fix, only worse, with even higher unemployment rates and a less forgiving mortgage default system. From today's vantage point, the rise of European tigers like Iceland, Ireland and Spain feels like a mirage.

A popular meme in Western societies is to lament the mulish unwillingness of democratic majorities to support sober, centrist political leaders. Much of this refusal to follow the erstwhile wise men can be traced to the failure of the policies of the past few decades to deliver for the middle class.

This shortchanging has been going on for some time. If it seems new, that is because the easy money of the pre-2008 world economy hid sins: In the US, the middle class thought it was rich because of cheap consumer credit; in southern Europe, the middle class thought it was rich because of state jobs, state pensions and state services funded by cheap sovereign credit. That credit has dried up.

As British politician Lord Paddy Ashdown recently told Canadian civil servants: "You alienate the middle class at your peril. The middle class always leads revolutions."

The third question is the one we speak about the least and should probably worry about most - can rich women be persuaded to have children? Rich, here, doesn't refer to the wives of the plutocrats. Once a country achieves middle-income status, its middle-class women stop having many children.

This demographic squeeze is another big contributor to Europe's malaise. It is likely to become more severe. As countries, as middle-class individuals and as families (or as women who choose not to have them), we are struggling to find our place in a world that is in the midst of convulsive change.

The global family will be unhappy until we find a power configuration that works. The good news - and the bad news - is we will only be able to figure that out together.

"Everything today is connected to everything else," Lord Ashdown said.

"The most important part of what you can do is what you can do with others. There is no problem anymore that is solvable alone."


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