the emerging market economies and the great recession ahmad seyf regent’s university london 26...
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The Emerging market economies and the Great Recession
Ahmad SeyfRegent’s University
London26 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
- Bubbles may look nice, but they are dangerous
- A Statistical recovery and a Human Recession
M C P C’ M’
LP
MP
M M’
- 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 Asia-
continued 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
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