Global Economy In Transition, The: Debt And Resource Scarcities

Debt and Resource Scarcities

Jørgen Ørstrøm Møller

• Publisher: WSPC
• Year: 2013
• Print ISBN: 9789814494861
• eBook ISBN: 9789814494885
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

This book is a collection of essays written by Ambassador, Professor Jørgen Ørstrøm Møller from the middle of 2009 to end of 2012, commenting on global economic and political events, which reflect Moeller's judgment and evaluation on these issues.

Readers get an overview to the collection of essays and the worldview they represent in an introductory chapter weaving together strands of economics, politics, and societal issues. Møller goes a step further by sketching up a picture of how a future economic model and political system may look — forged by debt, scarcities, economic integration, and the rise of Asia.

Part I deals with global systems and possible long trends shaping the future over the coming decades, as the current political system and economic model, having run their course, come to an end.

Part II discusses how the era of scarcities will change economic behaviour in terms of economic models.

Part III looks into the global debt problem, which confines the world to low growth over one or two decades as the world tries to get rid of the debt burden.

Part IV forms an analysis of what has happened in the Euro-zone and how the global debt crisis has compelled the Europeans to take the next steps in integration and address the shortcomings and flaws in the original treaty from 1992.

Part V turns to Asia and its future in the global economy. It concentrates on Asian integration and how the Asian countries will fare in the future under much changed circumstances compared to how things looked when the Asian adventure started some 30–40 years ago.

At the end, readers will find a short post-scriptum with some of Moeller's afterthoughts on the important issues discussed throughout the book.

Contents:

• The Global System:
  • Introduction to Part I
  • China's Effort to Redefine Corporate Governance
  • Welcome to the Age of Angst
  • Wikileaks and Consequences for Modern Diplomacy
  • The Deadly Cocktail
  • Private Gain, Public Loss
  • Making Profit at the Cost of Society's Interest
  • Conventional Economic Theory — A Critique Highlighting Flaws in American Style Capitalism
• Scarcities — New Economic Thinking:
  • Introduction to Part II
  • Key Events Driving the Future of Chinese Economy
  • Saving Resources with a Tax on Their Total Use
  • Want a Way Out of the Recession? Create Jobs by Saving Resources
  • The Era of Scarcities
  • Asia Redraws the Map of Progress
  • Tax on Commodity Profits Could Postpone Scarcity
• Debt:
  • Introduction to Part III
  • The Way Out of the Debt Trap
  • Global Debt Picture Not Very Pretty
  • Inflation or Deflation? Both!
  • US More Worrying Than Europe
  • Why Debt Does Not Go Away
  • Global Economy Faces Wealth Redistribution
  • Has the Fed Got It Wrong Again?
  • The Markets Prey on Debt-Laden Nations
  • Nationalism or Capitalism? Sovereign Wealth Funds of Non-OECD Countries
  • Agonising Wait for US Economy to Rebalance
  • Get Out While You Can
  • US Recession: Spend Now, Save Later
• The Euro-Zone:
  • Introduction to Part IV
  • Lessons Asia Can Learn From Europe
  • Europe, Not Euro, May Break Apart
  • Now Comes the Hard Part for the Euro-Zone
  • Why the Euro Will Survive
  • In Europe, North Battles South
  • Europe After the Debt Crisis
  • Painful Euro Crisis and Lessons for the World
  • The Euro-Zone Fights for Survival
• Asia in the Global Economy:
  • Introduction to Part V
  • Economic Integration — The Future for Asia
  • From Asian Financial Crisis to the Western Debt Crisis
  • The Asian Supply Chain Becomes More Compact
  • What Makes S'pore Different
  • Lessons for Asia From the Global Financial Crisis
  • How Will Southeast Asia Position Itself in Asia's Future in an Age of Scarcities?
  • How Can ASEAN Stay Relevant?
  • Asia Faces US Default on Its Sovereign Debt
  • US and China May Move to Cap Military Spending
  • China to the Rescue: Growing Out of the Financial Crisis
  • How the US and Asia Can Help Each Other

Readership: Researchers, professionals, or graduate students interested in globalization, corporate governance, and policy-makers or business leaders involved with economics and politics, who are interested in current global economic trends and issues.

Part I
The Global System

Introduction to Part I

People today may take the economic model and political system for granted — something that has always been and will always be there.

History tells us, however, that every age of civilization shapes its own way of producing wealth, its own economic model to do it, and its own political system to distribute the wealth. So it is with industrialization, manufacturing, mass consumption, or whatever label we prefer for the phase of civilization we have seen over the last 250 years, that brought us to where we are today.

Therefore it is not only likely, but almost certain that the economic model, which is primarily a market economy focusing on the individual’s possibilities for creating wealth, and political system — which is primarily representated by democracy — have run their course, as has the industrial age itself.

Over the last decades, the flaws, failures, and shortcomings have been all too apparent. It is both a question of ethics — how do we behave and what is permissible — and distribution plus allocation of wealth and income.

Inequality is one of the best illustrations. Figures are available showing that income and wealth are increasingly concentrated in the hands of relatively few people. One percent of richest people worldwide owns 43 percent of wealth. Fifty percent of the poorest own 2 percent. Not only that, these people through their wealth and their economic power command influence far beyond pure economics and business life. A total of 1318 of the largest transnational enterprises control 80 percent of global business life. Ten percent of those control 40 percent. The world has never seen anything like that.

The negligence of negative side effects on nature and depletion of resources — external diseconomies in the jargon of economics — has started to threaten not only continuation of growth, but the well-being and health of large masses of people.

It may still be so that the market economy (in whatever edition we meet it) is the “best” to produce economic growth, but the flaws in the concentration of wealth in the hands of few and to undermine the future of economic growth through extensive use of resources are obvious.

Corporate governance has been developed to focus almost exclusively on profitability. In many reports, good corporate governance is depicted as augmenting profits by retrenching large number of workers. While that may make sense in business, outside the realm of business, people ask: if employment and the well-being of fellow citizens are not the goals for corporations, then what is their objective? To make as much money as possible for a limited group of persons — the stockholders — seems a strange goal if the only one? If it is so, why should society support these corporations, which do not give back to society? Two banks — Barclay’s and UBS — have agreed to settle accusations that they tried to rig benchmark interest rate by paying US$ 1.9 billion (more than one pro mille of U.S. GDP). The U.S. government has taken Bank of America to court seeking at least $1 billion in damages alleging the bank saddled taxpayers with losses by misrepresenting the quality of home loans sold to mortgage-finance firms Fannie Mae and Freddie Mac.

The link between workers and owners that is so vital for the first phases of industrialization has been broken with ownership slipping into the hand of institutional investors, many of whom do not take the slightest interest in how the corporation is run. Instead, they are on the lookout for opportunities to split it up and sell parts of it separately or seek a fast financial profit through other ways.

The combination of the concentration of wealth and income, and the control over half of global businesses to less than 200 transnational enterprises, has turned the global economic system into some kind of institutionalized corporative capitalism — not state capitalism, socialism or genuine private ownership capitalism, but structured and organized capitalism , exercising power through enormous funds, many of which are outside political control and can evade being on the radar screen.

This kind of corporate governance is linked to the need for capital via the stock market. It is therefore a Western — an American — model with corporations not only listed on the stock market, but in reality owned by stockholders, from which much of their capital is obtained from. In Asia, it is different. Most of the large corporations are owned both by the state or families, and in some cases both. They may be listed on the stock market, but they do not get their capital from there. It is therefore a different and less profit-oriented form of corporate governance.

The public feels that there is something “wrong” with the way the system works, more than many decision-makers do; that is so maybe because decision-makers are part of the system while the general public tend to see it more from the outside, where they experience the inequality and abuses of powers that divides “them and us” or “Main Street versus Wall Street”.

This introduces an ugly phenomenon in the form of nationalism and populism. The general public finds it difficult to understand what is going on. They thought we were living in a society where burdens and benefits were shared, albeit with a degree of inequality within limits and under control, because they believed that to run a society, talent and exceptionalism must be rewarded. Yet, events proved them wrong. They look for whom to blame; they fall back on foreigners and the outside world. The easy answers and explanations are what they seek and accept.

They do so because the authorities used to have a near-monopoly on news and could in many ways control the access to information, although not completely so. This is however no longer the case. Information and communication technology combined with the negative feelings that the authorities have failed, make every bit of information — wherever it comes from, whatever it says, and whoever is behind it — on an even footing. The playing field is leveled. The authorities face an uphill battle, which they are losing, because they are held accountable to every bit of information and news while many — maybe most — other sources are not scrutinized in the same way. This game puts the authorities on the defensive because they are forced to respond. Seen from the outside, it looks like they are being pushed around in the arena, unable to set the agenda and if that is so, there must be something wrong with what they are doing and saying. They lose credibility and in a world overloaded with information, people tend to believe those who have precisely that: credibility. The authorities — the establishment — have not learned how to handle information under new circumstances.

Measured by any yardstick, the progress of humanity over the last 100 years has been monumental. Nonetheless, many people are gripped by angst and uneasiness over what the future will bring. Polls show that this angst is deeper in the Western world than in many of the emerging economies where the population is convinced that their children will have far better lives than they had themselves.

Economic globalization may be the biggest and most overwhelming peace-making and peace-keeping machine the world has ever seen. It is however firmly anchored in the economic model of market economy, giving little attention to factors outside the spectrum of economics. It sounds like a normative — negative — statement to call it American capitalism, but that is the truth. Since 1945, the world has lived under the spell of American values and that has served the world well. Many of the virtues of American society could and was adopted by other countries around the world. The Americans believed in their own model and felt that it was worthwhile to “fight for” and put forward as a suitable model for others.

Over the last decades or so, these sentiments have changed and the change has accelerated since the financial crisis.

The American style capitalism and what is embedded in it may no longer resonate so strongly with what people in other parts of the globe wants. And the Americans themselves may have come in doubt.

That puts the problem squarely before our eyes — where to go from here, where to find leadership, and from where to expect thinking to frame our future.

The American dominance not only is economically and militarily coming to an end, but the first element running out of steam is the American right to lead via “superior” ethics, morale, and values, in short: a civilization model that discloses what is right and what is wrong, gathering a majority of people all over the globe behind it.

China’s Effort to Redefine Corporate
Governance^*

Corporate governance as it exists today was practically invented in the United States. Current questions about the values embedded in the U.S. economy, the uncertain future of the American enterprise system, and — crucially important — the fragile status of morals and ethics in business management appear like writings on the wall, warning that the present form of corporate governance may have run its course.

Looking at what happens in the real world, good corporate governance as practiced by a number of large enterprises actually means bad — and in some cases, very bad — corporate behavior in the eyes of everyone but a select circle of people who live inside a world of their own.

J. P. Morgan can lose $9 billion on speculative trading in financial derivatives. Bank of America has lost $40 billion over the last four years on their failed acquisition of the mortgage lender Countrywide. A large number of big U.S. corporations pay no taxes to the federal government; instead, many of them receive tax benefits from the government. The Greek government can be forced to pay €436 million to secretive investment funds known as vulture funds who speculate against the established network of governments, central banks, and international financial institutions.

People watch all this with disbelief. It is not a question of whether the law makes such behavior permissible. It concerns the ethics of the very system that supports national economies and underpins the global economic structure.

History books are full of pages describing how originally successful systems have dug their own graves by allowing distortions, aberrations, exploitation, and abuses — in short, forgetting why they were established. Any political system or economic model finds its legitimacy in delivering human security, wealth, and welfare to the people. But what we see now is that a growing share of the enterprise system, particularly in the area of financial institutions, is violating this golden rule.

Do not forget, however: ordinary people are the voters, so they decide who is in government. Their patience may be long, and their willingness to suffer may be taken for granted, but is limited — especially when the aberrations are played up by mass media and come to dominate discussion in social networks.

Many of those who exploit the system are not entrepreneurs. They have not launched new products, and they feel no responsibility to safeguard the livings of their thousands of employees. They merely shuffle financial assets around, they invent new and sophisticated financial instruments, and they display this ingenuity simply to enrich themselves by grabbing money from elsewhere.

As the profits they earn do not stem from production, they must come from other parts of the economy. Consequently, the part of the economy providing goods and services is forced to subsidize the nonproductive part.

The high and growing share of Gross Domestic Product (GDP) in the United States and Great Britain (close to 10 percent in each) now ascribed to the financial sector is an affront to the rest of the population. People normally do not mind when entrepreneurs, who have invented something or stand behind the growth of successful enterprises, get rich. They deserve it, more or less. They have contributed to the development of society and created jobs for thousands of people. But when people in the financial sector shuffle financial instruments around, what do they deserve? This has become a crucial question for the capitalistic system and corporate governance.

The system, though apparently blind to its own shortcomings and failures, is still not beyond repair — if only the will were there. Conditions in the financial industry today are reminiscent of the run up to the French Revolution.

The overwhelming majority of American and European corporations are shareholder-owned enterprises listed on the stock market. As long as the majority of shares were held by individual investors, the population was at least more or less linked to the enterprise system. The American population owned the corporations that provided the goods and services they needed. They worked in corporations owned by their fellow Americans.

The savings of ordinary people were channeled into corporations, and the profits were sent back to these same people. There was an intrinsic link between the owners, the corporations, and the workers in that all shared the same fundamental interest: Higher production produced benefits for all to share. We may call this an unwritten social contract among the various stakeholders all looking to balance profits, jobs, and contributions to society and all directly involved in running of the corporation. It was not perfect, but it worked, at some level.

This social contract does not exist any longer. Now, the individual investor has been replaced by the institutional investor. In 1965, more than 80 percent of all stocks in the United States were held by individual investors. In 2007 it was barely above 20 percent. At the same time, the financial industry has more than doubled its share of the GDP.

The point can be made that institutional investors are no more than individual investors who act together through pension funds, etc. But it does not work out that way. These investors no longer feel themselves to be part of the system. The workers no longer know for whom they actually work for, since ownership through funds is frequently obscure. The management and board of directors tend to be a tightly knit group.

The financial industry’s move into the role of ownership through funds has greatly increased the pressure to produce short term profits. The aim is to maximize return on money invested and to run all corporations with this as their overriding goal. Many investors have little or no interest in the corporations they invest in; they merely seek to turn a quick profit — even if this means splitting corporations up to sell their individual units separately.

This creates a thoroughly unsound market situation in which capital chases profits instead of being channeled toward sustainably productive investments. In this merrygoround system, the basic idea of enterprise and what ought to be the plinth of corporate governance — namely, how corporations contribute to the society in which they produce and sell — tends to be completely forgotten, with long-term disastrous effects.

Chinese/Asian ownership structure differs from that in American and to a certain extent from corporate structure in Europe, as well. Western companies primarily depend on the stock market to raise capital; Asian companies do not. It is, in fact, difficult — almost impossible — to cite more than a handful of large Asian corporations that are true multinational co...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Foreword
• About the Book
• About the Author
• Preface and Acknowledgements
• Contents
• Overview of The Global Economy in Transition: Debt and Resource Scarcities
• Part I The Global System
• Part II Scarcities – New Economic Thinking
• Part III Debt
• Part IV The Euro-zone
• Part V Asia in the Global Economy