[All numbers cited in this essay are from the World Bank’s latest Global Economic Prospects. The analysis is mine.]
The economic prospect for the world in 2014 is best described as uneventful. It is a strange world we live in that this is the good news. After six years of turmoil marked by financial crises and long stretches of recession in several countries, it is indeed heartening that we are headed for uneventful times with a slow pick-up in global growth.
The world in 2013 grew by 2.4%. We are forecasting a growth of 3.2% in 2014. This is the point forecast. There is a lot that is happening around it, with some countries expected to make a strong recovery, some weak, and some actually slowing. And for each country there are bands of possibilities around their respective point forecasts.
Riots broke out across Tunisia last weekend, as citizens reacted to the government’s latest efforts to trim its budget deficit. Officials are struggling to cut spending and increase revenues, all while responding to the demands of a citizenry increasingly dissatisfied with high unemployment and continued inflation.
The economy grew by close to 3 percent last year, but it has not been enough to create new jobs. Making matters worse, many manufacturers and business owners have been forced to lay off workers in response, they say, to a rise in informal trade and “unfair competition”.
A big issue for the business community, informal trade has been equally as troublesome for the cash-strapped transitional government. According to recent World Bank research, the Tunisian government is losing a significant amount of public revenues-- duties, value-added tax and other taxes-- from informal trade along the Libyan and Algerian borders.
The central puzzle has often been wondered about in a thousand and one fora since the global financial crisis that began in 2008 erupted, wreaking havoc with several economies and millions of lives: how is it that social convulsions have not been the resultant of the financial crisis, the deep depressions it led to in the major economies of the West, the misery inflicted on millions, and the super-elite-pampering policies introduced to deal with the crisis? Why did puny efforts at protest like Occupy Wall Street and its many imitators vanish like candlelight in a storm?
In the new e-book, The End of Protest: How Free-Market Capitalism Learned to Control Dissent,[i] Alasdair Roberts, who is the Jerome L. Rappaport Professor of Law and Public Policy at Suffolk University Law School in Boston, takes on this puzzle and offers an explanation.
Trade and growth go hand-in-hand. When the 2008 global financial crisis hit, both collapsed.
Since then both have steadied somewhat. But recovery has been jobless in many countries. The biggest challenge that developing countries will face: sustaining economic growth, while maintaining their focus on reducing poverty and inequality. Trade can be an important weapon in the policy-maker’s arsenal to help tackle these dual objectives.
Broadly, economists agree that declining levels of poverty have been accompanied by sustained periods of rapid growth and openness in all countries. In India, there has been a wealth of econometric work that demonstrates the links through which openness to trade has contributed directly to poverty alleviation – via growth and employment. More recently, Arvind Panagariya and I measured the impact of trade on poverty across different social groups – castes and religions – in India. We found that trade openness lifts all boats, for schedules castes and tribes, and for marginalized communities. Interestingly, the impact was especially strong in urban regions. Other research finds that states whose workers are on average more exposed to foreign competition tend to have lower rural, urban and overall poverty rates.
A New Year traditionally comes with upbeat thoughts. New resolutions will make life better. Past mistakes will not be repeated. And calamities are seldom predicted. These positive thoughts are not always justified, but they provide necessary energy during the first cold months of the year all the same.
At the beginning of 2014 some economic optimism actually seems defensible. Five years after the start of the global financial crisis, Europe is finally exiting their recession, albeit slowly and hesitantly. The U.S. economy is accelerating and so is growth of global production and trade. True, the BRICs are no longer as vibrant as they have been for a long time, but growth in China (a key concern of markets in recent days) is still expected to be three and a half times growth in high income countries.
Given the tradition of New Year’s optimism it is salient that the EBRD starts the New Year on a rather gloomy note with their new Transition Report. The title of this year’s report is "Stuck in transition?." But in the text they change the question mark into a firm exclamation mark, even as the report contains some suggestions of ways to escape the current impasse.
As many across the world entered the New Year in a celebratory mood, others are still struggling to recover from the effect of the recent economic downturn. Five years ago began the worst economic recession the world has experienced in generations. With life support by Governments and Central Banks, the global economy seems to have stabilized, but the ‘patient’ is still weak. In 2013, the global economy is estimated to have expanded at a modest 2.2 percent rate (despite a contraction in the Euro zone) and for 2014 the World Bank and IMF project a slight uptick to 3.0 percent.
But what do these numbers actually tell us about the well-being of people? Does economic growth capture what really makes a difference in peoples’ lives?
Kaushik Basu has a new piece being carried by Project Syndicate that appeared in The Global Times, one of China's leading English language news sites. Titled 'Policy stasis raises odds of 'L-shaped' recovery', it cautions that the tenuous recovery in advanced countries, while buoyed by the latest US indicators, will only hold if economists and policymakers move away from ‘stasis’ positions that fail to promote entrepreneurship and innovation.
He warns that avoiding analytical creativity is dangerous and stresses that, at times, intuition and theory are needed to get out of economic ruts and to keep up with the pace of technological change in our globally integrated world.