Thursday, December 20, 2012

World Economic Decline: Reasons And Remedies

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An excerpt from an article which appeared in the United Nations Foundation Newsletter stated the obvious. After you've read the article (it's brief), I'd like to share some of the reasons and possible remedies with the readers of The Internationalist Page Blog:

UNITED NATIONS (AP) — The world economy grew at a significantly weaker pace in 2012 and is not likely to pick up enough in the next two years to recover jobs lost during the global financial crisis, the United Nations said Tuesday.

The U.N.'s report on the World Economic Situation and Prospects 2013 said that with existing policies and growth trends it may take at least another five years for Europe and the United States to make up for the job losses caused by the 2008-2009 recession.

According to the report, world economic growth is expected to reach just 2.2 percent in 2012 — a drop from the 2.5 percent predicted in June — and is forecast to remain "well below potential" at 2.4 percent in 2013 and 3.2 percent in 2014.

"Weaknesses in the major developed economies are at the root of continued global economic woes," the report said.

Rob Vos, the U.N.'s team leader for the report, warned that "a worsening of the euro area crisis, the 'fiscal cliff' in the United States and a hard landing in China could cause a new global recession."

"Each of these risks could cause global output losses of between 1 and 3 percent," he said.

The report said the U.S. economy "weakened notably" during 2012 and growth prospects for 2013 and 2014 remain sluggish. The "already anemic pace of 2.1 percent in 2012" is forecast to drop to 1.7 percent in 2013, and then rise to 2.7 percent in 2014.

Several European economies and the euro zone as a whole are already in recession, and unemployment in the euro zone increased to a record high of almost 12 percent this year, the report said.

The U.N. said output in Germany, Europe's largest economy, has slowed significantly while France's economy is stagnating.

According to the U.N., the economic woes in Europe, the U.S. and Japan, where deflationary conditions continue to prevail, are spilling over to developing countries which are seeing weaker demand for their exports and heightened volatility in commodity prices and the flow of capital.

The largest developing economies including China, India and Brazil, are also facing home-grown problems including weakening investment, excess production, and structural bottlenecks, the report said.

Africa remains a bright spot, despite numerous challenges including conflicts, with the U.N. forecasting only a slight drop in economic growth from 5 percent in 2012 to 4.8 percent in 2013.

View - Douglas E. Castle:

Regarding the underlying reasons for the continuing and steepening global recession (and I promise not to say "The Emperor has no clothes," though tempted), here's a brief list, in no particular order, but with each item significant:

1) The self-fulfilling prophesy of major capital markets, financial institutions and government failures;

2) Loss of credibility in the integrity of national and international regulatory agencies (the LIBOR crisis, as an example;

3) The increasing disparity between the world's wealthiest and poorest citizens, as well as the increasing erosion of the middle class;

4) The transition by major industrial nations into outsourcing, service-oriented economies;

5) The replacement of many lower- to middle-skilled jobs by automated processes;

6) A general loss in the rate of personal savings and an increase in financing of recurring and ordinary expenses by debt;

7) The increase in per capita debt service in the larger English-speaking nations, coupled with decrease in real wages -- add to this the increasing cost  of healthcare and the increase in longevity and the associated cost of healthcare for senior citizens;

8) A decrease in the availability of small and middle-sized businesses (SMEs) to gain adequate funding through the banks and conventional capital markets to  create employment for skilled workers;

9) The spiraling costs of healthcare procedures, diagnostics and treatment and the reduction in the availability of viable healthcare insurance; and many others...

To summarize and to generalize: In a world economy where there is an increased reliance on credit, big government, the banking sector, increased service sector size (versus industry sector size), non incentive-based management and telecommuting, the economy will stagnate and employment opportunities will be fewer for middle-management and the middle class, especially. The whole structure of civilization and commerce is changing, and neither government nor people's preparations are adequate.

Regarding the remedies, none will be easy, or popular amongst the entrenched privileged class, or fast, but there are some. Not listed in any particular order:

1) An increase in practical education and training for an era of automation and a more service-oriented civilization;

2) An increase in management and promotion on an incentive basis;

3) A decrease in dependence upon big government and its financial and managerial institutions and structures;

4) An increase in incentives for entrepreneurship and jobs creation -- and these would have to be substantial so that even the middle-sized and larger companies could be benefited by spawning and sponsoring small businesses;

5) A less-centralized and more localized system of government, with an accompanying increase in rewards for entrepreneurship and localized jobs creation.

It's worth thinking about.

The people entrusted with power have failed their respective nations and states, and there is an absence of "made here, buy here." As a practical reality, even an Internationalist must acknowledge that a radical change in the basic structure of the world's economics brought about through technology, outsourcing and a frightful concentration of economic and political power needs to change its expectations, educational systems, incentives and trust.

Again: The whole structure of civilization and commerce have changed, and will continue to change at an increasing rate due to increased dependence upon technology, automation and service-based employment. Sadly, both government and the majority of the world's population (especially all of middle management and what used to be the middle class -- today's new working or unemployed poor).

If productivity is to increase, and the global economy to improve, then governments, institutions, education, compensation incentives, longer-term healthcare (perhaps based more on wellness than on protracted procedures and treatment) and peoples mindsets must change to reflect this and to keep pace with it.

Governments and individuals alike must keep pace with this change or see power and wealth in the hands of an ever-increasing minority, and see the majority of people struggling to pay tribute and tax to the few and powerful. This is not a political statement. This is a statement of reality...because reality is driven by change and adaptation, or the failure to adapt.

As always, thank you for reading me, re-tweeting and completing me.

Douglas E. Castle for The Internationalist Page Blog, The Mad Marketing Tactics Blog, The Global Futurist Blog, The CFI CrowdFunding Incubator Blog and The CrowdFunding Incubator Blog.  

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