Protectionism

It’s time for a pause for breath while we look around to see what’s really happening in the world economy. There are few reasons to be cheerful. It now seems probable that unless we all get very lucky there will be entire countries whose insolvency might result in their needing large scale, long -term economic assistance.

Principal amongst these countries are the Baltic States who are in grave danger of becoming basket cases. The drop of manufacturing in the rest of the world is hurting Russia’s reliance on its export of raw materials hugely. Even the Chinese manufacturing powerhouse is beginning to falter as demand is decimated. This slack cannot be taken up by infrastructure projects, however ambitious.

Most of Africa was, as ever, already in dire economic condition and as a peculiar quirk of the financial tragedy will probably notice the worsening situation less than the rest of the world. How does a diet of war, civil strife, corruption and starvation get worse?

The Anglo Saxon countries, previously the leaders of the laissez faire market model are very severely damaged. America and the UK are both starting to feel the first major problems of the current recession with unemployment rising fast, businesses going broke, industrial output collapsing and the bottom falling out of the property market.

It is becoming a real possibility that the UK might become a bankrupt nation if the present economic trajectory continues. Hopefully the measures being taken by the government will gather traction and succeed because there are few, if any meaningful further courses of action available to it. This year we will discover whether Prime Minister Gordon Brown is a super hero only in his own mind and it’s the IMF who has to come flying to the rescue.

One of the most worrying signs in the UK is the fact that the Quantitative Easing, effectively the last ditch printing of money to purchase gilts, which started yesterday, shows no sign of freeing up money in the banking system it was designed to achieve. The huge sums of money pledged to follow this type of route in both continents will now be filtered into the system over a period of years. There is an argument for quicker and even more drastic action. But the principal concern is whether any of the actions being taken can or will be successful. Already tried has been the central bankers first line of defense, which was to decrease the interest rates. Now these are almost sitting at or near 0% and it has yet to make any difference to the lack of lending from the banks to businesses and individuals. The banks need to be compelled by government to do this for the good of all.

If we are to fully rediscover our former prosperity we have to address fundamental problems and these are the even more intractable and relate to how our societies are structured. As a correspondent wrote to me;

“N.Y. time headline today: "Job losses hint at vast remaking of U.S. Economy" (Experts see permanent restructuring)

This is what my travelogues through the rust belt were getting at long ago when we first started corresponding. This is why I couldn't fathom the Iraq war. This country (America) is in no position to do anything but figure out how to educate itself--history would be a start for some, but science is more pressing at this point. Now that the former union people in the east will be competing in earnest with people in India, Korea and Mexico, you have to ask yourself why anyone would hire a fat, narrow-minded diabetic over someone with a real education. ..The Palin/Bush/Limbaugh stuff is symptomatic of a country that does not quite get what the labor force of the future is likely to resemble. Community colleges are suddenly swamped and there is push to re-train--o.k. but the Indians and Chinese actually have training in math, logic, poetics, English grammar--this is not something you fix with a community college. Where are the new starts that will actually create the new economy?

So...unemployment at 8.1 percent, but if you factor in those who have given up looking, it is 10 and if you factor in part timers who would like to be full-time it's 14 percent. Stay tuned.” - Brad

I am in total agreement with this view. We have lost sight of the ball and the West’s leading economies have, for a long time, foolishly misdirected our attention in an attempt at easy money, soft education and even physical sloth. Countries like India and Chine have been working harder, and are being better educated. Our leaders have been playing with winning elections whilst theirs look strategically to the future.

In the immediate future we must address our educational shortcomings more realistically and think seriously about the direction we want our societies to travel.

It’s time to consider how we make our money in the longer term as more of a priority than how much we can gain from short term fixes.

In the future will we be able to sustain prosperity by outsourcing production to the cheapest suppliers, whoever and wherever they are?

The present crisis proves that we have to plan strategically for all eventualities, even those that might seem improbable when the sun is shining. We are yet to learn any of the vital economic lessons, and are whistling in the dark as the bogeyman is stalking the shadows, still carrying his mighty axe.

The biggest threat to the entire world economic order is the distinct danger that countries and groups of countries will retire behind growing barriers of trade protection. It is this natural inclination for protectionism, which could yet send us into a full-blown Second Great Depression. It must be avoided at all costs.