Economy
Dozens of issues populate the Global Issues Matrix. There are myriad interrelationships among them. The issues have been grouped into seven major headings. Below are global issues under the general heading of Economy, with comments on their characteristics and relationships. The general consensus is that economic growth is necessary to both raise destitute populations out of poverty and provide employment for all people in developed countries. Many issues impact this goal, and some challenge it.
Commodities Speculation – The practice by investors of entering into financial agreements strictly for the purpose of profiting from fluctuations in the value of a product is called speculation. Typically a speculator has no interest in the product other than its tendency to rise or fall in value. Speculation in commodities such as oil and food can amplify the fluctuations, with the impacts felt around the globe. Much of the huge run-up in oil prices that peaked at $147 per barrel in 2008 has been attributed to speculation.
Investors are reasonably drawn to any financial mechanism that is likely to produce a profit. Investing in food commodities is a way of diversifying a portfolio. UN sources have attributed a portion of the increases in food prices in 2007-2008 to such speculation by institutional investors.
Countering claims of harming the normal functioning of markets, speculators tout the benefits of speculation. If speculators detect a shortage of a product and buy and hold much of it, the limited availability causes the price of the product to rise, slowing consumption of that product and extending the life of the supply. Producers seek to take advantage of the higher price by increasing production. However, in the case of food for a food-importing country, higher prices and limited availability work against the lowest income population.
Consumerism – Globalization is defined largely in terms of the flows of people and goods across national boundaries. Indeed, globalization’s progress is measured by the increase in value of those goods and services. Transnational corporations (TNCs) are constantly increasing their reach to satisfy the wants and needs of consumers worldwide. The pressure to consume is constantly stimulated by advertising.
Bumping against this trend is concern for the capacity of the earth to sustain ever higher levels of consumption. In her book, The Economics of Enough, Diane Coyle wrote, “[It] has become obvious to environmentalists that for growth to become remotely sustainable, big changes in the way we run the economy will be required, and in particular reduced consumption.”
Interestingly, economist John Maynard Keynes believed that capitalism would be capable of providing such abundance that a good life would be possible for all. However, in 1930 he projected that it would take one hundred years to achieve. In the interim, morals had to be put on hold.
Economic Development – Both developed and developing countries have economic development as a goal. In developed countries it means providing jobs for unemployed and under-employed workers. In developing countries it means improving the opportunities for the workforce to achieve more worthwhile lives. It is telling that Nobel award-winning economist Amartya Sen’s 1999 book was titled Development as Freedom.
The final communique from the G-20 London Summit in April 2009 stated the leaders’ belief “that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but future generations too.”
A contending view is expressed by Richard Heinberg in his 2011 book, The End of Growth. He states, “The central assertion of this book is both simple and startling: Economic growth as we have known it is over and done with.” (Italics by author.) Heinberg writes that depletion of natural resources including fossil fuels and minerals, and damage to the environment lead to snowballing costs. The recent economic crisis signals that on-going economic expansion is beyond the ability of our broken monetary, banking, and investment systems to service government and private debt.
Employment – While providing jobs for all people able to work is an objective of most of the world’s governments, the nature of work may be very different in the future. As computers are able to perform increasingly complex jobs, even highly educated workers will find it difficult to obtain employment. Technology may be capable of satisfying the needs and raising standards of living for people worldwide. While this view of the future promises the potential for more leisure time for workers, it will not happen overnight. Upgrading infrastructure, supporting research, and improving education at all levels remains the immediate goal and the bridge to this future.
Incentives – Given the objective by governments at all levels to attract economic development, the offer of incentives is a predictable strategy. Countries compete on a global scale to attract and retain businesses. Rather than viewed as distorting market fundamentals, incentives have become a normal part of business decision-making, and a potential enhancement to competitiveness. Energy technology offers a prominent current example. Hoping to take a lead in the field of renewable energy, Germany, China, Japan, and the United Kingdom are among 28 countries identified by KPMG as supporting renewable energy.
Standard of Living – Standard of living is a relative term. It means one thing in the U.S, another in Europe, and something else again in India or Ghana. It is not surprising that many people in developing countries aspire to a standard of living like that which they observe in developed countries. However, One Planet Living, a joint initiative of BioRegional and WWF, estimates that if everyone in the world lived like the average European, we would need three planets to support the population. If everyone in the world lived like the average North American, we would need five planets. So a reasonable question is, “Is it realistic to expect we can attain a sustainable standard of living, while fulfilling the aspirations of those living on a dollar or two a day?”
Subsidies – World Trade Organization rules prohibit governments subsidizing their industries so as to make the same industries in other countries unable to compete in international trade. Accusations of unfair subsidies are frequently brought before the WTO. Recent examples include disputes between Boeing and Airbus and between the U.S. and China over solar panels. Developing countries argue that they are justified in providing subsidies to nascent industries in order to make them competitive, noting that governments in developed countries did likewise during their developing years.
Subsidies by governments in the Middle East and North Africa are estimated to account for 20% of government revenues. In Indonesia subsidies exceed government spending on health, education, and housing combined. A cap on petrol prices in Brazil has forced the partly state-owned oil company to import supplies to sell at a loss. In July 2014 the government in Egypt removed a portion of the government subsidy on petrol, allowing the price to rise by 41% to a U.S. dollar equivalent of $0.70 per gallon. The perverse effect of subsidies is to encourage consumers to use more of the subsidized product.