Is the Global Economy on the Verge of Another Meltdown?

Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Baltimore.

We’re continuing our series of interviews about the global economic crisis. Now joining us again from Geneva is Dr. Yilmaz Akyüz. He’s the former chief economist and director of the Division on Globalization and Development Strategies at UNCTAD. He’s now chief economist of the South Centre, an intergovernmental think tank of the developing countries, based in Geneva. Thanks for joining us again.

So how dangerous a moment are we in? How dangerous or how close are we to another major global economic meltdown? Will the developing world’s markets save the global economy?

YILMAZ AKYÜZ, CHIEF ECONOMIST, SOUTH CENTRE: I think we are in a sort of a global depression situation, in the sense of economic capacity, productive capacity, is not fully used. And China, which is the only developing country that’s capable of continuing with rapid growth, is in deep structural difficulties, recognized by the policymakers, and therefore slowing. I’m not anticipating, I’m not predicting a meltdown in China, as some do, but a significant slowdown in China could mean a lot for other developing countries.

The other BRICS, if you exclude Russia, the oil–major energy exporter, exporter of commodities, you have Brazil, India. Actually, these countries are not major players in the world economy. They may look like major players, but their share in world trade, their share in world income–not measured in purchasing power parity, because purchasing power parity is a misleading measure when you are looking at the country’s global importance–it may be useful to compare living standards, but not to assess countries’ global importance. So neither Brazil nor China are important players, and they’re actually looking elsewhere, including China, in the case of Brazil, for further growth.

And, in fact, these are structurally deficit countries. They are not–they are facing balance-of-payments problem as soon as they start growing. And we saw it in the case of India recently: their payment deficits are rising, despite the fact that India receives more than 3 percent of GDP in remittances from workers. India is exporting skilled and unskilled labor, a lot of them manufactures.

Brazil is increasingly becoming dependent on commodities. In fact, during the new millennium, in the latest surge in capital flows and commodity prices, there has been a continued deindustrialization in Brazil.

So these countries are not big enough, important enough players to come to the rescue of the world economy. And if China slows down considerably, then a lot of countries exporting commodities are in trouble. So the situation is more on the side of the real economy.

Now, when downturns come in a big way–in China, of course, you had the risk of a bubble bursting, debt problems emerging for state economic enterprises and local governments, although I believe the Chinese government will be capable of dealing with these problems. But still this won’t prevent the economy from falling or slowing considerably.

So what I see is actually I see more difficulties ahead for developing countries in the coming years. And I’ve been talking about that in the last six years, almost, or five years, what have you.

There was this exceptional performance of developing countries before the financial crisis, when growth rate in these countries exceeded the growth rate in the north by five percentage point. That is unprecedented compared to one percentage point in the previous three decades. And people thought that developing countries actually decoupled from the north. Even before–in the early days of the crisis, many people expected them to decouple from the difficulties of the north, including the IMF. But after the collapse of Lehman Brothers, they all went down.

But because of, first, the quantitative easing and interest rate cutting in the United States, which–and Europe, of course, which played a major role in the recovery of capital flows to developing countries, mainly speculative type, and secondly, which played an important role in the recovery of commodity prices as a result of financialization of commodities, and secondly, a strong investment package in China–and that explains the continued upturn in some developing countries in 2010-11, and many of which actually exceeded growth rate higher than before the crisis; but that growth was demand-led, domestic-demand-led rather than export-led.

But from 2011 onwards, we have considerable slowdown. So all of them are going back to their historical averages. India grows 5, 6 percent. Brazil, Latin America, Turkey, South Africa, it was 2 to 3 percent, 4 percent.

So what I’m seeing is that the exceptional performance of developing countries before the crisis was actually due to bubbles created by the United States and Europe, bubbles created by United States and Europe. And these bubbles were unsustainable. And because of that, the exceptional performance of developing countries that they show before the crisis are not sustainable. I’m not saying that they did not propose reform, there weren’t domestic factors, but a very large proportion of this upswing in developing-country growth was due to the bubbles created by policies in the North and China, and both of them have come to an end now.

JAY: So what does the rest of this decade look like, assuming these policies don’t change?

AKYÜZ: Well, the rest of the–I mean, IMF chief economist has said that this crisis will take at least ten years to clean up. And it seems that we run out of ideas what to do about this crisis, because in the case of United States and Europe, as I said earlier, we’re operating in the orthodox domain, we’re not–we don’t have the courage to think beyond that, to think beyond that in terms of debt writeoffs, in terms of government spending not adding to government deficit spending.

In the case of China, the problem is recognized, the problem I’ve been talking about is recognized by the Chinese authorities. But I think there must be some political impediments to bringing out the solutions as rapidly as they can. So as a result, I think the years ahead [are] going to be quite difficult, particularly for developing countries, particularly for developing countries, including Latin Americans and Sub-Saharan Africans dependent on commodities. And these countries do not have much policy space. Two most important determinants of economic performance in Latin America and Africa are capital flows and commodity prices, neither of which are within the national control. They’re both beyond the control of the domestic policymakers. So they do not really have much policy space in responding to global slowdown in the coming years.

JAY: And what does this mean for a country like Canada?

AKYÜZ: Canada, I mean, like Australia–of course, Australia is having some difficulties recently. I think these are–although commodity-based economies, they are quite diversified. They’re not commodity-based in the same way as Brazil, as Argentina, or as Sub-Saharan Africa or Russia. There are diversified economies we have also in Europe, commodity-based economies, commodity-rich, natural-resource-rich countries, some Nordic countries–Norway, Sweden. But they are highly diversified economies with strong manufacturing sector.

JAY: Okay. In the next and final segment, we’re going to take another look at what should be done, what kind of policies might make a difference. So please join us for the continuation of this series of interviews on The Real News Network.

End

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