The world is in a state of "destructive disequilibrium", says UNTAD Secretary General, Dr Supachai Panitchpakdi, Secretary-General of UN Conference on Trade and Development (UNCTAD), at the opening plenary of the 57th session of the Trade and Development Board in Geneva. Offering a completely different perspective on the global economic crisis and its aftermath, the statement should be closely studied by the travel & tourism industry as it ponders its future in the upcoming second decade of the 21st century.The multiple challenges now faced by the global community can perhaps be summed up in one word: imbalances. Imbalances in food, energy, housing and financial markets were allowed to grow during a sustained economic boom, becoming increasingly interdependent.
These mounting imbalances generated a level of economic fragility which eventually shattered with the collapse of Lehman Brothers. But despite the massive amount of public resources that have been mobilized to deal with the resulting collapse, the underlying forces have been left untouched in the aftermath of the crisis. They remain a toxic threat to stable and inclusive growth and the sustainability of the recovery.
Some emerging and developing countries have demonstrated relative resilience to the impact of the crisis. This is not just an accident; in several cases, it is the result of strategic actions and policies on the part of governments. The use of reserve holdings and massive economic stimulus packages, which in China's case amounted to 7% of GDP, helped stave off a full-blown depression. It also propelled the State back into the driving seat of economic management, with industrial, macroeconomic and selective trade policies helping to shore up against widespread market collapse.
The crisis has acted as a watershed, revealing new economic powers and exposing weaker ones. It is now clear, if ever there was any doubt, that in economic terms we are living in a multi-polar world, with new and emerging sources of trade, investment, and even aid. But there have also been other structural shifts in the past 10 years, most significantly involving surplus and deficit countries and regions. The pattern of global demand and output – in which US consumers accounted for roughly 16% of world output, and developing-country savers provided the credit lines that serviced US household debt – has proved deeply destabilizing and should not be resumed.
Replacing US demand cannot, however, be left to China alone, as is often assumed, given that China's rate of household consumption is in any case just one eighth that of the US. Moreover, an increase in Chinese consumption is likely to favour domestically produced goods and have less of an impact on imports. In such circumstances other surplus nations, in particular Germany and Japan, may have to rebalance their economies towards domestic consumption. This year's Trade and Development Report suggests that wage increases – albeit consistent with productivity gains – would support a move in that direction.
Over the past 20 years real wages have remained stagnant in many countries, including Germany, where productivity gains have tended to provide greater returns to capital. In developing countries, low wages have been the cornerstone of export-led growth, providing countries such as China with a competitive advantage in globalized markets and production chains. It is now time for countries such as China to encourage wage increases, and there are clear signs that this is already beginning to happen. UNCTAD believes that such pro-poor labour and wage policies will have an impact on several kinds of imbalances, at both the domestic and global levels.
A reduction in savings and the increase in wages – perhaps raising the price of exports – will also put an end to the subsidization of developed-country debt. UNCTAD's conclusion in this year's TDR is that wage increases and the provision of decent employment opportunities for the developing world's burgeoning labour force are essential for maintaining prosperity and avoiding a deflationary spiral.
Moreover, the large public deficits are the result of governments responding to corporate and market failure; banks and bondholders should now show patience with the unwinding of the resulting sovereign debt. Certainly, the re-emergence of speculative position-taking and the bonus culture in an industry that has perhaps become even more oligopolistic since the collapse of Lehman Brothers et al. is a step in the wrong direction.
Elsewhere, imbalances in areas such as food are also a source of serious concern for UNCTAD. On one hand, the problem is highly visible: some countries are facing an obesity epidemic even while they massively subsidize their agricultural sectors; others, meanwhile, are suffering famine and food insecurity. Yet we seem unable to comprehend the suffering of 1 in 6 of the world's population facing acute hunger, let alone the potential political and social insecurity confronting governments in those countries where household expenditure on food has risen to nearly three quarters of household budgets. As we know from countless historical precedents, not least the most recent in 2008, when people don't have enough food to eat, governments become particularly vulnerable and social and political instability ensue.
A low level of fixed capital investment in many developing countries is really a story for all sectors, where productive capacity has sometimes atrophied due to under-capitalization in the past 30 years. In agriculture, the picture for small farmers is particularly bad, not least because of the strategic importance of food for the welfare of citizens and for food security.
In the past 20 years, food and energy markets, and food and financial markets, have also become increasingly interlinked. The deregulation of commodities trading in the 1990s and the development of complex derivative products led to the increasing financialization of commodities and the development of food as a new asset class in its own right.
In general, inequality within, but also across, countries has been rising everywhere in the past 30 years, even as growth rates increased. In many cases, this has been associated with distorted economic structures, including the premature disappearance of industrial capacity. In Africa, by the end of the 1990s, the production structure was reminiscent of the colonial period, consisting overwhelmingly of agriculture and mining – that is, low value-added goods with decreasing returns to scale. Despite increases in commodity prices, the terms of trade for primary commodities today remain worse vis-Ã -vis manufactured goods and provide fewer opportunities for productivity increases or employment.
The economic crisis has represented a further transfer of wealth, as private debt was exchanged for public debt. Yet it is taxpayers and household savers – who cannot move their money easily, and who have pensions that are not easily liquidated – who are ultimately punished by having to finance corporate bailouts and endure public-sector cuts. The ultra-mobile super-rich have so far been able to protect their private affluence because of the inaction of governments and the G20 over income tax avoidance, or damaging currency speculation, such as the so-called "carry trade". It is time to close the tax havens and put a stop to the abuses of the privileges of wealth. Needless to say, this needs to be done in a coherent fashion to avoid arbitrage between tax jurisdictions, and the UN has made proposals on this in its report on the financial and economic crisis.
Over the past 10 years, the world has slipped into an "age of asymmetry", of destructive disequilibrium. This is a far cry from the promise of stable, sustainable and inclusive development that multilateralists and the UN in particular have always tried to promote. Almost everywhere one looks, one can see the pernicious effects of imbalances: between the widening incomes of rich and poor; between surplus and deficit countries; between agricultural subsidizers and food-insecure nations; between investor-exporter economies and between consumer-debtor countries; between market fundamentalism and the active intervention of the State, to mention only a few.
Perhaps the biggest elephant in the room is energy and sustainable development. Our work already risks overwhelming us, but we should not sacrifice our concern with long-term problems for the immediate pressures of short-term crises. Indeed, classifying the climate problem into its short- and long-term dimensions is no longer really appropriate; climate change and sustainable development should be at centre stage in our reflections about current and future economic strategies.
