The financial crisis

I just went to a fascinating talk about the current financial crisis by one of my professors, Howard Nicholas. I think he is one of the most influential professors I’ve had, especially in terms of understanding economics and the global financial system. Some of his main points:

  • We will see a major shift in global power relations in our lifetimes. This will be due to a massive shift of wealth from the advanced countries to the developing ones. Multi-nationals have already started this shift: they are laying off thousands of people in western countries and moving more and more offices and plants to developing ones. In 20 years it is predicted that there will be unemployment rates of 30% in European countries. Phillips, for example, has shifted major parts of its Research & Design sector to Singapore.
  • The power shift is already happening. The US accounts much less of global trade than it did 30 years ago, and its GDP has reduced dramatically in comparison to other countries. Now they comprise 33% of world GDP.
  • One major reason that the west will decline is the fact that it is cutting education budgets. ALL western countries except Germany have made cuts in education, including the Netherlands. The Netherlands didn’t even have to make big cuts, but it chose to do so in education. This means that in 30 years, there will be lower levels of education in the west, as compared to the developing world where there is MASSIVE investment in education now, especially in the private sector. Thus we may see an imbalance in the future, with westerners having to occupy low-level jobs and people from developing countries filling the skilled jobs (I can’t believe I might live to see this day!)
  • Yet another problem for the west is its aging infrastructure. The infrastructure in many western countries is old and thus in need of repair/upgrading. In the US, a proposed budget of $3 trillion would only fix 5% of roads and bridges in the country! The developing world, on the other hand, has relatively new infrastructure.
  • A major problem for the advanced countries today is the amount of debt they have. The US debt, for example, is 1500% of its GDP – that’s the highest it has ever been. Developing countries, on the other hand, have extremely low levels of debt. China is 20%, India is 70%.
  • The roots of the crisis in the US have not been properly addressed. The government has given money to the banks (who are responsible for the crisis), and the banks have started lending again. Consumer debt is startin to rise again, suggesting that many Americans haven’t learnt their lesson or are forced to continue borrowing to survive/pay off previous debt.
  • Before the crisis, banks were making 40% of ALL profit made in the US market. This shows how much power and control they had. Today, AFTER the crisis, they continue to make over 40%!
  • Much of US debt is in the hands of China, and this is significant in terms of global power relations. Although China is also vulnerable and tied to the US, it is in no way as vulnerable as the US is right now.
  • Pure capitalism is only being practiced by countries in East Asia. This comprises of a strong state which controls capitalism, that stifles the financials sector (especially the banks), and that builds infrastructure. Re-distribution (as in Taiwan for example) is also an aspect. The IMF, which has always been against capitalism for developing countries (don’t want any competition for the west) managed to ensure that most developing countries did not apply pure capitalism. This destroyed many of these countries, but they are coming back now (Brazil, Argentina) and they’re pissed (hahaha).
So basically we may see something monumental happening in our lifetimes: the decline of the west and the rise of the developing world. I have to say, this would be simply amazing. Not that the west will decline (after all I doubt they would reach levels that the developing world reached due to colonialism), but that the developing world will rise. After centuries of brutal colonialism and exploitation (usually by the west), the people in the Global South deserve a break.