If you believe the headlines, the world is about to experience a serious economic slowdown with many developed nations likely to experience a recession.
Australia may even experience tough times ahead should China’s economic growth slow considerably, with many Australians likely to lose their jobs and houses at a time of higher prices for rent, food, fuel, utilities, and services.
Such a scenario follows 16 years of relatively high economic growth, although it did not prevent the labour share of the industrial world’s national income reaching a record low of 53.7 per cent while profits climbed to a record 15.6 per cent by 2007. The high economic growth also did not prevent record home unaffordability as Australia’s household debt to income ratio increased from 70 per cent in 1996 to 160 per cent by December 2007.
But the real issue of concern is yet to be addressed. After all, the current financial crisis is merely a blip of history within the ongoing struggle of nations competing for resources and the influence of particular ideas. With the governments of developed economies pouring hundreds of billions of $US into their banking system in an attempt to restore consumer confidence, it remains to be seen just whether further borrowing will maintain the West’s prosperity and international economic growth, or whether debt levels will become unsustainable.
So do not believe the lies that will soon emanate from a more confident simplistic Left who will attack the so-called neoliberal policies of recent decades which favoured the private sector and less government intervention.
Though the 2008 financial crisis is likely to promote greater government regulation and perhaps much greater public spending in time, this unfortunate situation is merely part of the ongoing and extremely difficult struggle of nations seeking to balance national and international considerations via freer trade.
As the recent financial crisis indicates, no group of nations (and their associated ideas) have ever proved capable of ensuring certainty and prosperity for the entire world. This is despite the endorsement of liberalism being paramount to promoting order and co-operation at the international level for many decades; at least from a Western perspective.
Hence, any ongoing criticism of recent policy trends has to give adequate attention to future policy difficulties if one is genuinely concerned about meeting the needs of poorer people around the world. After all, freer trade has helped developing Asia to average about 6.2 to 6.3 per cent annual growth in per capita GDP terms between 1988 and 2007. This is especially the case with China which increased its share of world GDP (in purchasing power parity terms) from 4.6 to 11 per cent between 1973 and 2007.
But there is also a need to reflect the competitive nature of international relations, including the ongoing reality that the wealthy democracies will always seek to uphold their high standard of living. This is a prime reason why the US, EU (25 nations), Japan, Canada and Australia alone still comprised about 69 per cent of world GDP (nominal terms) in 2007.
But if one is to believe that liberal-minded nations are both competitive and compassionate, at least more so than prior to balance of power arrangements before 1945, Western nations (led by the US) have had little choice but to adopt considerable economic reform to address their relative decline from the early 1970s; while maintaining general support for freer trade as part of their international leadership since the late 1940s to avoid the dangerous protectionism of the previous decade.
With the US effectively ending fixed exchange rates and capital controls during the 1970s in order to enhance its own economic competitiveness and attractiveness as a prime destination for investment, its policies had a profound impact with most Western nations (including Australia) floating their currencies and deregulating their financial sector in order to maximise national interest in line with the new rules of the international economy.
Competitive realities are a prime reason why Australian governments have adopted competitive economic polices since the early 1980s, including labour market reform and lower taxation rates for corporations, and high-income earners in line with developments in most OECD nations.
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