The Global Financial Crisis of 2008 exposed particular weaknesses in the global financial system, regulatory regimes and some government’s inability to effectively respond to the economic misery imposed on the global populace by the worst crisis since the Great Depression of the 1930s. The general global populace carry the burden of failures not of their own making, but of policy-makers caught napping at the wheel. Slow economic recovery in many economic jurisdictions, particularly the Euro-zone, can only mean a protracted misery for the millions of who lost their jobs and businesses that suffered during the crisis; and obvious repercussions on economic partners.
Leaders of the world’s twenty most powerful economies, the G20, met in London in 2009 at the height of this global financial mess. They proposed “the Global Plan for Recovery and Reform”, under which they all resolved to undertake “unprecedented and concerted fiscal expansion”. Their Keynesian approach to the global financial crisis was the right thing to do, given the need for public spending to stimulate global economic growth, generate jobs and resuscitate consumer demand.
In 2010, the G20 leaders again converged on Toronto, Canada, and again the common consensus was to “Sustain (economic) recovery … follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand.” The Toronto G20 Declaration came amid deepening debt woes and growing threats of double-dip recession across Europe; largely (in my “expert” opinion) exacerbated by the Euro-zone’s nonsensical policy response to the crisis.
There has been growing fixation with “austerity” among Euro-zone leaders, especially Angela Merkel and David Cameron, who have — contrary to the Toronto G20 Declaration and the Global Plan for Recovery and Reform — pursued spending cuts. This increased drive to implement austerity measures was the source of contention between Obama and these European leaders who at the G20 Summit were proposing immediate deficit reduction, despite the immediate negative consequence to the global economic recovery effort posed by such proposals. Germany and the UK have pursued spending cuts at the time when Euro-zone economies are only growing at an average of 1%. Their policy response would only serve to hamper the coordination of global efforts to promote economic recovery. Even China is coming to the party and allowing devaluation of the Yuan.
The Nobel Laureate for Economics and former Chief Economist of the World Bank, Professor Joseph Stiglitz, has advised governments to focus on stimulus rather than austerity in order to encourage business spending. He said, “We have to get the economy going before firms are going to invest…There is an idea somehow that when the government cuts back, the private sector will get confidence and that will lead to more spending. The fact is that the households in America and many other places around the world are burdened by debt, and business is not going to spend as long as government and exports and consumers are not spending.”
The Obama administration, unlike its counterparts in Europe, announced massive stimulus packages which have assisted the US economy to recover from recent recession. In the fourth quarter of 2009 the US economy grew by a remarkable 5.7%, the fastest growth in more than six years.
Unemployment, which peaked at 101% in October 2009, also dropped to 9.5% in May 2010, although this is still high in terms of historical standards. However, growth estimates for 2010 have been revised down due to growing concerns about developments in other parts of the world, in particular the Euro-zone’s debt woes, which weigh heavily on the US recovery efforts. The IMF forecasts US growth at 3,3%, which is in line with the latest revised forecast of between 3 and 3,5% by the US Federal Reserve; but such forecasts can only be attainable if there is global collaborative effort on recovery.
Barack Obama has been under increased pressure to cut spending due to valid concerns about the US’s ballooning budget deficit. When delivering his speech at Suntory Hall in Tokyo, November 14, 2009, Obama said, “Now that we are on the brink of economic recovery, we must also ensure that it can be sustained…We simply cannot return to the same cycles of boom and bust that led us into a global recession. We cannot follow the same policies that led to such imbalanced growth. One of the important lessons this recession has taught us is the limits of depending primarily on American consumers and Asian exports to drive growth.”
However, the Obama administration has agreed to work to reduce the US fiscal deficit to 3% of GDP by 2015, in recognition of the urgency to balance the need for continued growth in the short term and fiscal sustainability in the medium term. Obama said, “The timeframe and the measures that have been adopted are consistent with our view that it is important for us to make sure that in the medium and long term, we’re paying attention to the big deficits and debts that we have out there. But we must recognize that our fiscal health tomorrow will rest in no small measure on our ability to create jobs and growth today.”
Germany and UK cannot, hile economic activity in their respective jurisdictions accelerated by 0.2% and 0.3% in the first quarter of 2010, insist on cutting spending. The immediate and urgent task should be stimulation of economic growth and creation of jobs. David Cameron may be buoyed by the latest release by the UK’s Office for National Statistics of unemployment figures — which dropped to 7.8% in the three months to May. But it is recognition of the fact that such improved unemployment data is not attributable to the Cameron administration’s fiscal policy implementation that should refocus them to the urgency of the now.
South Africa’s economy was primarily rescued by massive spending on infrastructure by government in preparation for the FIFA 2010 World Cup. That has largely managed to keep the economy afloat. Going forward, it is rather clear that austerity is not anywhere in the ANC government’s radar.
Wasteful expenditure and unrepentant plundering of state resources appear to be Zumanomics and — with all fairness to Jacob Zuma – that would naturally have been inspired by the Keynesian Theory.
South Africa faces worsening unemployment crisis and deep poverty levels despite the economy expanding by 4.6% in the first quarter of 2010.
Estimates suggest that about 50%of the population live below the poverty line, while unemployment is at 25%. The income inequality gap also continues to grow. The trouble here is that Zuma went to the G20 Summit in Toronto and preached about the need for the developed world to give attention to Africa, while having no medium and long-term economic strategy for his own country. The developed world has the urgency of addressing their own economic problems and for an African leader at this time of the crisis to preach “Africa” is misguided and ill-timed.
Our problems as a country appear to be more structural; yet there seem to be no concerted effort on part of government to address these pressing and urgent issues. Universities cannot continue churning out graduates whose skills and qualifications are not demanded by the economy. Short-term measures by government to address unemployment and poverty are geared towards creating temporary employment for “unskilled” labour, while unemployed graduates continue to thaw in the sun in townships. There is no direct alignment of tertiary curriculum and the dictates of the economy. Until government wakes up and addresses these pressing issues our economic recovery and growth cannot be sustainable.
The economic troubles of Europe and US have a direct bearing on our own economic destiny. Without economic foresight and leadership, which we lack as a country, there is less hope for the immediate future, unless of course you are a politically connected tenderpreneur like a certain Minister of Communications. Since Obama came into office, it has been easy to point out what he has been busy with in office, for example, passing the health-care bill, Wall street reform bill, economic recovery efforts. I would be hard-pressed to tell you what Zuma has achieved and been busy with since assuming the presidency, besides jumping from one scandal to another!
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