TeaThis was a time when the world’s leading economies were the engines of global growth and countries in their different ways were to be emulated – the United States, Northern Europe, Japan and China. However, over the past 15 years, they have become a source of global instability.
The 2008 financial crisis stemmed from the excesses of American financial capitalism and COVID from laboratory collaborations between American and Chinese researchers. The governments of many of these countries responded to growing economic troubles with massive bail-outs, first of banks and companies and then of consumers, raising monetary policy to its normal limits to collect debt and control repercussions. pushed beyond.
More recently, fears of the existence of a declining superpower made matters more complicated, even as the growing commerce benefited from years of unchecked mercantilism. For the first time in several decades there has been a geographic merger through war, while a rising power may do the same, even if its mercantilism has led to trade distortions between countries and inequalities within them.
Increasing inequalities in turn have forced the question of who benefited from globalization, and the legitimate shares of owners of capital (profits) and contributors of labor (wages) in an economy. Almost inevitably, the world has passed the high noon of the liberal (critics would be called “neo-liberal”) era, as disillusioned voters sought refuge in nationalism, nationalism, populism and thinly-veiled racism.
Political shocks have also come from the power centers of the world. Even the most confident democracies like the United States face an uncertain political future, when opinion polls show that half the country says it will not accept the results of the next elections. In Europe, right-wing neo-fascists have gained support all the way from Sweden in the north to Italy in the south.
Now economic stagnation has begun in the economic superpowers, with even more shocks reaching a helpless periphery. Rapid interest rate fluctuations are moving capital in and out of countries, and currencies are swinging up and down. Free trade was supposed to prevent war through the creation of inter-dependence. But as the world is divided into hostile camps, the supply chain of globalization is breaking down because the primary goal is now resilience, not efficiency.
Read also: Held back by oligarchs – Ukraine’s political, economic fate should be a warning to other countries
YesGovernments (including a struggling China) wrestle to break free from slow or anemic growth, but are burdened with debt and caught between the paradoxical pull of recession and inflation – the latter partly caused by an economic war. that accompanies military warfare. Britain’s desperate response has been a budget-buster disguised as a “mini-budget”, which provokes a fall in the currency and risks a heart-stopping freeze of the bond market, Lehman style.
America, China, Europe – these remain the financial, strategic and economic centers of the world, but they are all systematically challenged together. So one has to look beyond the headlines indicating chaos and focus on the structural fault lines. Could the real problem in China be that it now faces a middle-income trap, unable to find new growth engines to replace labour-intensive exports and the artificial asset boom? What will happen to the transition of power to Asia and its future form when neighbors Japan, Korea and Taiwan are all high-income success stories?
In America, are sparsely populated states trying to turn the electoral clock back to the pre-civil rights era and ensure permanent minority rule? Would a country with a radically different racial mix from the 1960s accept such abduction? And in Europe, would Russia have to be permanently upset, was it possible, to reassure its isolated neighbors to the west, who do not have geographically defendable borders? If there was another way, would the Ukraine war have been averted?
Such questions do not warrant immediate answers, but they have domestic resonance. How does an emerging middle-power like India shape its response to future shocks that will surely come in a changed world that is unbalanced? The answer should be the same for individuals and companies in turbulent times: stay alert, build defenses and capabilities with outward focus, and keep room for maneuver.
By special arrangement with Business Standard
Read also: Why the late India has an advantage in embracing the green economic transition