September 27, 2012
All the signs are that the global economy after the global financial crisis continues to slow down. It is world of lower economic growth with the US no longer able to play the role of ‘consumer of last resort’, the engine of growth for the world economy as a whole.
Ben Hunt observes:
China’s stimulus of 2009 helped Germany, other advanced industrial nations, and commodity producers in emerging markets to rebound. The US stimulus, such as it was, helped Asian and European trade. But Europe always seems to have been the weak link in the chain, dragged down by its eurozone debt crisis. Whereas the US has been treading water, Europe has more clearly deteriorated. Chinese exports have slowed, in turn dampening prospects for China-bound exporters. Concern has mounted in the US regarding its manufacturing and export sector, seen as one of the bright spots of the economy.
This, in turn, reduces Australia's mineral exports.
So we have a crisis that is global with Europe generally seen as the critical problem area in the world economy. The harsh austerity being imposed is causing popular unrest and anger in Greece, Spain and Portugal.
Yet it is still the Western nations that can generate the demand necessary to rebalance the global economy, because China cannot do this on its own. China cannot become the global engine of growth in the near-term with the Chinese consumer replacing the US consumer as the driver of world growth.
Globalisation today means that the economy is global, but government is national. This suggests that the flaws in globalisation cannot and will not be tackled effectively unless and until there are much better mechanisms for politicians and people to hold in check global capital and global businesses. How in the hell is that going to be done?
Ha-Joon Chang points out in The Guardian that what is being done in Europe is a rewriting of the social contract. In this contract:
the renewed legitimacy was bestowed on the capitalist system, once totally discredited following the great depression. In return it provided a welfare state that guarantees minimum provision for all those burdens that most citizens have to contend with throughout their lives – childcare, education, health, unemployment, disability and old age. ...Instead of it being explicitly cast as a rewriting of the social contract, changing people's entitlements and changing the way the society establishes its legitimacy, the dismembering of the welfare state is presented as a technocratic exercise of "balancing the books". Democracy is neutered in the process and the protests against the cuts are dismissed.
The imposed austerity measures are damaging the European economies and threatening the very legitimacy of European democracies – not just directly by threatening the livelihoods of so many people and pushing the economy into a downward spiral, but also indirectly by undermining the legitimacy of the political system through this backdoor rewriting of the social contract.