Transcript Document

The Emerging market economies and the
Great Recession
Ahmad Seyf
Regent’s University
London
26 March 2015
University of Cambridge
- Introduction:
- The economics and Politics of the Great
Recession
- Bubbles may look nice, but they are dangerous
- Emerging economies and the Great Recession
- Conclusion
INTRODUCTION:
“…Speculators may do no harm as bubbles on
a
steady
stream
of
enterprise.
But
the
position is serious when enterprise becomes
the bubble on a whirlpool of speculation.
When the capital development of a country
becomes a by-product of the activities of a
casino, the job is likely to be ill-done...”
(Keynes, 1936, p. 142)
Neoliberalism:
- Perpetual international imbalance
- Debt-led Consumption in Deficit countries
- Export led growth model in Surplus economies.
- The economics and Politics of the Great
Recession
- Two phases
- Feb 2007 with HSBC and others facing life
difficult.
- Sept. 2008, The Lehman Brothers
- The first phase led to a “ financial crisis” but
in post Lehman this become an economic
crisis, i.e. the Great Recession.
- Conversion of ‘Private sector’ debt, into ‘ public
sector’ debt.
- Sovereign debt crisis
- Globalisation of Austerity.
- Little growth, more, recessionary pressure.
- This economic mismanagement has a longer
history …. The 1970s, the Great Stagflation
- Three developments:
- A return to pre-Keynesian economics
- Globalisation encouraged
- Financialisation
- The Great Recession = failure of this model.
- The root of the problem goes to the 1970s
- The rate of profit falling, and over-capacity
emerging
- 1- old and less productive capital stock should
have been destroyed and replaced by new
investment.
- 2- In the UK and USA, the first part done, but the
second.
- A process of deindustrialisation set in.
- 3 Outsourcing and a restructuring of global
manufacturing
- 4- Reorganisation of labour process
LP
M
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MP
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- Bubbles may look nice, but they are
dangerous
- A Statistical recovery and a Human Recession
Figure 1: The Great Recession in Global GDP and Trade
Figure 2: Annual Average economic growth, 19952013 (GDP in constant prices)
Figure 3: Annual GDP growth in emerging
economies, 2000-2014
- Decoupling
- Re-coupling: Post Lehman panic
- Re- decoupling, differentiation among emerging
market economies
- Initial impact rather weak: why?
- Balance sheet not exposed to toxic assets
- Little use of derivatives
- Little use of credit default swap
The impact of the Great Recession is different
Capital inflows stopped
International Credit seized up
Those with big foreign debt or large deficits were
very badly affected
- Exports fell
- Given the Recession, devaluation did not help to
expand exports to get out. Income in foreign
currencies declined.
- Global GDP down by 6%
- Output in Emerging markets down by 4%
- This is the average, Europe fell more and Asiacontinued to have positive growth
There was a strong belief that BRICS could act
as a new engine for global recovery and growth
I do not share this view:
These economies, in my view, are structurally
weak and dependent,
- Not enough was done to enhance domestic
demand
- Unequal income and wealth distribution like
the rest of the world.
- In the case of China, too much investment
and for India, too much poverty
Table 1: Workers Remittances
Table 2: Capital Flows, Export Financing and
International Reserves
The overall policy of Bubble creation is being
repeated in the emerging market economies
China is the biggest and most dangerous example
but it is not the only one,
South Africa
Thailand
Turkey, just to name a few.
Two reasons for the bubbles in the emerging
markets
Deeper Recession in the West
Less demand for goods
- Hence little motive to invest in the real sector
- A kind of ‘ Financial Outsourcing’
- Speculative capital can do nothing but
speculate
- Where?
- Bonds markets
- Share markets
- Real Estates
- Let me say a few words about China
China
India
South Korea
Indonesia
Figure 4: Contribution to World GDP
Growth
Figure 5: China’s debt, 2000-2014
Figure 6: China’s Investment Rate
Figure 7: China’s Property Bubble
- Conclusion
- Fundamental change of direction
- Bubble, crisis, bubble
- Glass-Steagall
- Tobin Tax
- Redistribution of Income and wealth