In these tough economic times, every country – be it developed or developing - is trying to export their goods and services to markets where there is demand. And this is the way the leaders of the world are looking to find a solution to bring the global-economy to pre-crisis levels and bring back jobs to millions of people unemployed worldwide. And where there is demand for this? Not on planet earth as far as I know.
Rich countries are increasingly trying to increase their share of exports to emerging markets. There is nothing wrong with that. But these rich countries wanted to use this increase in exports to offset their large debt-loads and deficits. There is something wrong in this. Emerging markets and particularly the export-dependent ones are increasingly trying to stick on to their pre-crisis growth patterns, that is, exporting their relatively cheaper goods and services to rich countries. There is nothing wrong with that. But they wanted to do it indefinitely without diversifying their economies that will give more weight to their own people’s consumption rather than the debt-loaded but rich consumers in the west. There is something wrong in this.
There are talks about “currency wars” these days and every sensible person is afraid of the so called “beggar-thy-neighbor” policy – which relies on consumption of one’s goods and services by another person who cannot really afford it, through artificial means. However you call it - “competitive devaluation” or “competitive undervaluation” of a currency, it simply is not right and will not work. And the reason is “un-coordination” or “under-coordination” of global micro-economic policies by governments across the world or should I call it the G-20 countries that constitute around 85% of the global output. Yes, you heard it right – not macro but micro-economic policies and I know many people would laugh at me for saying this – after all, some would ask me, is it not a sovereign issue of a government to decide on what is needed for their populations? And I would laugh back again.
Demand is very weak, but still countries like Britain have gone for a severe fiscal-austerity program. And they claim that this is the time to reduce-deficits. Alright good, but do they have any program to increase consumption through real-money instead of borrowed money? – No. Do they have policies in place that will help sell the goods produced by their companies? – No. Oh well wait, yes they do, not policies but dreams, dreams of selling it to emerging markets where middle-class consumers are growing at enormous rates. Enormous rates! – Yes, anyone who was earning $5 a day yesterday and who earns $10 today has grown at a rate of 100%. Isn’t that “enormous”? And yes, now the rich-world companies can sell their $100 goods to these people - right?
Demand is very weak, but still countries like China and other oil-exporting countries depend just on their exports (and for that matter even Germany). Yes, just on their exports to debt-driven rich world consumers. And when asked how you can depend on selling it to these consumers, they say – they are the ones who would buy our products. And I ask again - Why? Why not your own people? Answer – we are still not ready.
Alright, so it is clear. The global economies and particularly the G-20 countries came together and coordinated macro-economic policies (interest rates and stimulus packages) after the dawn of the financial crisis. But what happened to that effort of co-ordination? Two things happened –
a. Stimulus packages in some countries were not sufficient to address the scope of the problem.
b. Stimulus was spent to “replay” instead of “re-balance”.
It’s difficult to co-ordinate on micro-economic policies. After all, it is up to the individual governments and people to decide on what they want. But at the same time, there is difference between “I don’t want it ever” and “I don’t want it now”. This recession should have been the period where many export-dependent markets should have taken steps to diversify their economies and many over-consuming countries should have taken steps not just to reduce consumption but to re-balance their consumption.
Take this case – statistics say (although varies all the time) that around 60% - 70% of the population in India depend on agriculture or agricultural related activity for their livelihood. Yet, were there any investments in agriculture during this crisis period? – No. Infact, in 2009, poor monsoons made many poor Indians go hungry due to the enormous increase in food prices and which still exists and hovers with a food-inflation rate of around 10%-15%. And take this case, in US and Britain, where educational investments have not taken place during this crisis period but agricultural subsidies have remained. Now can you see where the distortion lies? Countries like India should have imported irrigation-related technologies from rich-countries using their stimulus money and countries like US should have invested in education and technology to make more people produce technology at increasingly cheaper and efficient rates. With this, the agricultural markets of western countries should have been opened more to benefit real growth in poorer countries like India when at the same time this growth in the large sections of the population should increase imports of quality rich-world products.
Now who can advise this to the governments? Aren’t they supposed to know this? Well, after all, every country has its own bright people. But I don’t get then why do we see distorted investment patterns in the global economy today? It’s perplexing to see the underlying reasons for governments to not know what their populations require. Is it the absence of a “long-term” vision or the presence of “short-term” ambitions? I don’t know. But without any domestic investments, if exporting to demand-existing markets is the way governments are going to bring the global-economy back on track, then we should be exporting to new markets – the markets where aliens live!
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