Friday, 1 June 2012

Global Crunch Twin Pack

Most of my blogs are techie, but occasionally I stray into politics. It looks like the global economy is about to take a second bite at the same, un-nutritious Global Crunch candy bar, I don't think it has to happen.

In 2008 I wrote a post about the Global Economy Crunch. In it I compared it with previous major economic collapses. My assessment at the time meant I connected those crashes with an unsustainable boom due to market deregulation and the following depressions due to protectionist (i.e. austerity) measures and only overcome due to practical implementations of Keynsian economic theory. I predicted that this crash would last at least as long as the worst of the previous ones.

Since then, although we managed to avoid a meltdown by the courageous step of major bailouts for banks and global financial institutions, governments have followed the predictably damaging path of Austerity to the point where it looks to me like we're heading for another, worse crunch than in 2008. Here's why.

Austerity measures in the UK mean that we're back in recession (as Labour predicted in 2010), whereas the US is not (though their crash was worse). The conservative government have been championing manufacturing, yet manufacturing is shrinking in the UK today (at its fastest pace for 3 years). So, there's no fall-back in the public sector (which has been downsized) and no pick-up from the service sector either.

Manufacturing in Spain and Greece is shrinking; there are major issues with the funding of banks in Spain and unemployment there is at a record 24% plus; Italy's bond yields are virtually unsustainable, Greece is about to vote on whether they exit the Euro (it'll be awful for them either way); Ireland's just voted for a heavier austerity package.

More disturbingly though is what's happening in East Asia as everywhere you look there the economy is slowing down. China's growth is down and even internal growth is slowing. India's growth is similarly slowing (an article just one hour before I've linked this argues whether India's growth is over) and it's manufacturing sector recently even shrank. South Korea is suffering a slow-down. In my opinion this is all relevant, because a major reason why we survived the original Crunch in 2008 was because the far East was doing so well and could basic bail-out the West; and doing so well to the point where it was understood that even if the West went under they'd continue pretty well.

The other concerning aspect is the way right-wing think tanks are continually arguing for business deregulation; eliminating workers rights through, for example no fault dismissals, which are supported by the PM, and more flexible working. Similarly in Europe, right-wing economists are arguing for more Austerity.

I don't believe that Austerity works at a macro-economic level, though it can work at a personal level. The reason is that at a personal level if you're frugal, everyone else can cope with you spending less - they only lose a fraction of a % of their income; but if everyone cuts back to suddenly make ends meet then the result is a self-inflicted vicious circle of deprivation. For example, tying the Greek bail-out to austerity meant that Greece becomes deprived of the engine (i.e. the workforce) they need to get out of their debt crisis. In that sense it's better to tie European a mandatory trade boost with Greece to internal cut-backs; which would be analogous to personal frugality, with the Greeks making do with an average lower standard of living, but gaining full employment (by virtue of the trade agreement) and thereby the means to overcome debts. Europe here would be taking up the economic strain, but we're in a better position to do so.

On the other hand, I think there's a better way: cooperative economics. Rather than penalising the very people who lost the most in the initial Crunch we would be better off by Enfranchising The Workforce; making it ludicrously easy for people to form cooperative micoenterprises and for working people to have a greater stake in their companies in lieu of the pay-rises they're not going to get for the foreseeable future. The thing is, we already have the resources with us; we don't need to Crunch twice on the same disastrous candy bar.