Reflection on the World Economic Forum – Davos, Switzerland

February 19, 2010

By Padmini Arhant

The World Economic Forum on January 27 – 31, 2010, at Davos, Switzerland contemplated the global economic crises.

Speakers from the large consortium expressed their thoughts and hope or the lack thereof about the global economic prospects at the annual meeting.

Summarizing the summit issues:

The general focus has been:

The economic recession.

The financial crisis and the need for financial reform.

U.S economy, the dollar, the deficits and the gridlock in Washington due to Special Interests’ control of Congress.

Skepticism on the EURO currency strength and concerns regarding European market from the economic struggles in Greece, Spain, Iceland, Ireland, Portugal, Latvia to name a few further exacerbated by the majority euro members surpassing the 3percent budget deficit cap, a criteria for the euro currency usage.

ECB (European Central Bank) role in easing the liquidity crisis.

UK urging banks to assume responsibility – i.e. resume credit to the frail economy.

National Debt from bailouts – A common symptom shared by the major global economies.

Emerging Markets’ potential in stimulating economic growth through international mergers and acquisitions.

Corporate leadership in risk undertaking, growth sustainability and resisting or embracing reform.

Technological impact on business and adapting social networking concept to promote global agenda.

Google – China controversy on hackers and censorship.

Green Technology and consensus on the climate change policy.

Humanitarian issues related to natural resources such as water scarcity, inadequate food supply in fighting hunger, poverty and disease worldwide.

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Economic Synopsis – By Padmini Arhant

Global economic recession – The general agreement is:

The massive capital interjection with public money in the private sector particularly the finance and the auto industry in the United States was essential in the year 2008 and 2009 to avert a major catastrophe – a full blown depression.

Following that, the bailed out bankers have supporters and cynicists to defend or vilify the mega rewards via executive bonuses amid severe financial meltdown mostly attributed to the current economic crisis.

Another contentious issue related to the financial sector is:

Should governments continue to bailout banks under the banner?

“Too Big to Fail.”

Regardless, it’s clear from the recent experience that a serious financial reform is no longer an option but a necessity to counteract risk undertaking in the financial market.

Moreover, the finance industry being the vehicle for the economic growth, it cannot resist regulations due to the uninsured public funds management by the private sector.

Evidently, the real estate slump exacerbated the liquidity crisis in the global economies viz. Iceland (nicknamed as the “subprime economy”) Ireland, Spain and not sparing the once booming commercial real estate capital – Dubai, UAE,

Leaving the United States not unique in the burgeoning residential and commercial real estate decline.

In terms of stimulating the economic growth, industrialized nations and the emerging markets face a common dilemma – stimulus packages, bailouts and the rising national debt.

Government stimulus programs target specific industries in the domestic economy with the green technology touted as the promising field.

Unequivocally, the green technology should be promoted by all nations big and small besides infrastructure projects and reviving the manufacturing industry.

However, the stimulus activity is bound to create national debt from the budget deficit because of sluggish GDP and the negative current account balance for import-oriented economies like the United States.

U.S Economy:

Although, the multi-trillion dollar deficit has not drastically affected the U.S credit rating as the investor confidence in the U.S market is not lost,

The status quo cannot prolong with the persisting Republican members’ opposition against tax hikes to protect self-interest and special interest.

Notwithstanding their blockade in the financial, health care and energy sector reform.

Therefore, the American electorate must be careful prior to swinging their support to the Republican members in Congress.

The ideologues were responsible for bringing America on its knees under the disastrous Bush-Cheney administration.

Now, the same republican members are determined to stay on the course to debilitate the U.S economy with an utter disregard for the ‘average’ Americans.

While comparing the economies in the stimulus funding, it’s clear that the nations investing in the domestic economy like China, Japan, India, Brazil… have survived the worst crisis through quasi participation.

Private sector project with public capital infusion is seemingly a viable economic strategy to reduce unemployment and curb public outcry over increasing national debt.

It’s attention worthy that President Barack Obama has similarly approached the economic woes with the SBA loans to boost small businesses, tax credits to the corporations and the green sector only to be browbeaten by the “fiscal conservatives” in name only on both sides of the aisle.

Again, something to remember about the so-called “fiscal conservatives” successful derailment of economic progress.

So far, the opposition policy in every national issue is “Penny wise and Pound foolish.”

Not to mention their conduct exemplified in the tarnished U.S image at WEF with,

Communist China scorn democracy by citing the Special Interests’ dominance in American politics.

The statement is not far-fetched except for scapegoating democracy against totalitarianism.

United States should adopt big and bold economic actions to contain the high unemployment and that would be:

Job creation in the infrastructure projects, innovate the manufacturing sector with technology alongside revolutionizing industrial growth on eco-friendly foundation.

Energizing the small businesses and retail industry is equally important to enhance the per capita income, an appropriate inclusion in the economic progress measurement rather than reliance on GDP growth alone.

United States is rich in resources in every aspect with an advantage of being the pioneer across the economic spectrum.

The rumor about United States weak economic status and attempts to denigrate the U.S dollar as the international currency is nothing but smear tactics by the competitors vying for the leading role in the world economy.

What the investors should bear in mind is the U.S economy’s resilience to rebound in the face of worst economic and political crisis and history is testimony to that effect.

In addition, the democratic system is a positive factor in attracting investments within and offshore.

European Economy:

The EU and the ECB (European Central Bank) proposals are pragmatic in many ways.

ECB intervention to pull the European financial markets from the liquidity crisis would facilitate the anticipated credit flow in the union.

Economic setbacks in Greece, Spain, Portugal, Ireland, Latvia and last but certainly not the least Iceland are significant and cannot be abandoned for it might reach a crescendo irrespective of the trade volume.

Accordingly, the conditional offer from Germany and France to bailout Greece is vital to protect the EU economic interest with Greece being the union member.

The leadership in the Mediterranean nation under the Greek Prime Minister George Papandreou is capable of salvaging the dire economic situation.

When the reckless banking sector was bailed out for speculative trading, otherwise gambling of public investments,

The Greek economy with labor capital, entrepreneurial exuberance and political stability deserves EU / IMF /World Bank assistance to survive the economic turmoil.

It would be detrimental to hinder the borrowing opportunity for Greece and other ailing economies predominantly due to the regional impact.

At the same time, Greece and Iceland should be transparent with facts and display fiscal responsibility to the international monetary oversight for creditworthiness.

United Kingdom is right on target in demanding the financial sector to resume credit to the frail economy.

U.K has been forceful in urging the much-required global financial regulations even though not surprisingly, the conservative political faction is against it.

France – Recommendation on the long overdue closing of corporate tax havens is a step in the right direction.

In fact, the rule of thumb for the global economies dealing with budget deficits is to:

Eliminate redundant expenditure

Differ or limit discretionary spending

Scale back unaffordable commitments like wars, conventional stockpiles and nuclear proliferation not barring extravagant agenda like moon travel more for prominence than purpose.

Revision of tariffs and taxation laws to expand the revenue horizon.

It’s imperative to consider tax increases and close tax evasion loopholes through tax havens.

Spending freeze with tax cuts and synonymously tax increases with skyrocketing expenditure would be oxymoron at any given time.

Emerging Markets viz. BRIC countries (Brazil, Russia, India and China):

The salient feature in the group is their ability to focus and invest entirely on the domestic economy.

Unlike the United States and NATO, none of the four nations is currently engaged in active warfare though; cross border tension is permanent with contingent defense forces on the periphery.

Still, the four nations ‘combined defense spending falls short of the exponentially escalating U.S military expenditure appropriated for –

Two overt wars in Iraq and Afghanistan,

A proxy war in Yemen with drones and fighter planes provided to the Yemeni forces,

Over and above the U.S military base situated nationally and overseas.

Poignantly China more than Russia is engaged in the lucrative arms race to Iran, Syria, Lebanon, Pakistan, North Korea, war torn Africa – Darfur in Sudan, Congo, Somalia, Guinea, Rwanda…

Yet, not competitive enough to the United States in this respect and confirmed by:

The New York Times article By THOM SHANKER – Thank you.

Published: September 6, 2009

Despite Slump, U.S. Role as Top Arms Supplier Grows

“Despite a recession that knocked down global arms sales last year, the United States expanded its role as the world’s leading weapons supplier, increasing its share to more than two-thirds of all foreign armaments deals, according to a new Congressional study.”

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Economic Synopsis – By Padmini Arhant

BRIC countries impressive performance is expected to continue with the investor confidence higher in these regions than Europe.

Their view on the U.S domestic job creation as isolationism or protectionism do not bode well since the BRIC nations have adapted the domestic investment policy to expedite economic revival.

The irony is the characterization of the United States and Europe adhering to similar strategies as ‘protectionism.’

It’s noteworthy that Brazil, India and China have benefited from globalization with transnational ventures in their shores.

Such anomalies beckon paradigm shift in the globalization concept among the emerging markets.

Some U.S corporations as the global operators echo the sentiments much to the displaced domestic workforce anguish and disappointment.

They remain oblivious to the facts that the United States being the largest consumer base and a major importer is struggling to contain high unemployment, fragile housing market and credit crunch in the financial sector.

U.S economic recovery is paramount for the global economic stability.

Optimize Technological Applications:

World society is more digitalized than before and technology embedded industry maximize efficient output. Incorporating technology in every imaginable field is the cornerstone for the present and future generation.

Green Technology and Climate Change Policy:

Industrialized countries along with developing nations are grappling to arrive at a consensus on climate change policy.

Fortunately there is tremendous enthusiasm towards green technology and the economic powers are reluctant to make the swift transition by renouncing fossil fuel and nuclear power to natural sources like solar, wind and hydrothermal energy.

The main problem lies with the profit guiding politics by the energy behemoths obstructing the fossil fuel and nuclear technology abandonment against all natural elements for energy production.

Life survival and sustenance on the planet is dependent upon clean air, water and food chain maintenance, not achievable without an aggressive climate change policy.

Hybrid policy targeting carbon emissions through carbon tax and cap & trade is the viable solution from the economic and political standpoint, other than possibly winning bipartisanship in the climate bill legislation in the United States.

Humanitarian Issues:

Water scarcity and inadequate food supply is the global challenge confronting humanity.

Emerging markets favoring globalization have a primary responsibility in addressing the plight of the vast majority in their domain rather than exclusively focused on GDP growth.

The population in Africa, Latin America, Asia and the Middle East cannot be ignored by the affluent nations and their $100 billion commitment in economic aid during the G20 meeting reflects meagerness and not eagerness to alleviate suffering on the planet.

Poverty being the reality, the global community can provide to the needy by reining in on personal greed.

Communal development against concentrated growth guarantees a bright future for humanity.

Global progress and prosperity begins with economic equality, social justice and political freedom.

Thank you.

Padmini Arhant

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