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Where Is the Global Economy Heading?

In this column, Johan Galtung, rector of the TRANSCEND Peace University and author of "Peace Economics”, calls for growth with distribution rather than stagnation with inequality.

WASHINGTON, Dec 4 2013 (IPS) - In a passage in Charles Darwin’s The Voyage of the Beagle, he condemns an egalitarian native people at the tip of South America to remain primitive.

Development presupposes inequality, having chiefs – whether human, animals, races – to look up to and learn from. And the evolution theory emerging from a mind thus pre-programmed is obvious: competition, struggle for survival, not mutual aid, like the substitute narrative for Genesis 1:20-28, 4th to 6th day – but without God.

However, a man of God, Pope Francis – if anyone is saving Western civilisation from itself it is him, not economic growth presidents-prime ministers – has come out and decried inequality and “trickle-down economics” as a “crude and naive trust in the goodness of those wielding economic power”.

Or maybe “those wielding intellectual power” – the civil servants, the economists, instead?

Look at BRICS (Brazil, Russia, India, China, South Africa), accounting for 45 percent of the world population and 25 percent of the global world product. No to inequality and trickle-down: Brazil under Luiz Inácio Lula da Silva-Dilma Rousseff, Russia with revolution, China lifting the bottom up, South Africa breaking down apartheid. India has some trickle-down, but social walls are too strong to break.

The Asian Development Bank’s Social Protection Index score is three times higher for China than India (Japan’s is almost three times that of China – having started distribution already in the 1870s).

But in the U.S. and European Union, inequality is growing. This matters: more people are suffering, and may threaten the social “order”; even a minimal level of social protection costs; people at the very bottom have very low productivity; people at the very bottom consume with very low “consumptivity” (value consumed per person-hour); they are hungry, on the brink of starving.

Johan Galtung

Johan Galtung

Lift the bottom up and consumption and production follow. People with adequate food, health and education work better. The cuts in U.S. social protection are pathetic. Obamacare is a failure, Medicare-Medicaid-food stamps are shrinking, pensions are suffering from speculation, Congress has failed to increase the minimum wage. But states and local authorities may do so, lifting up the bottom in rich states (with the U.S. Southeast – Tea Party territory – lagging behind).

The four costs above add up to the U.S. committing economic suicide. Lift the bottom up so that they buy from the lower-middle classes who will buy more from the middle- middle classes. Wheels turning. Stimulus of cooperatives at the bottom will give better returns than stimulus for small existing businesses.

How about debt? The problem is not debt, but servicing debt at the cost of servicing people, and servicing by printing money. A debt is investment in a productive future managed by competent actors, not by stupid incompetence. The new debt ceiling day is approaching, with no new ideas floating in the air.

How about the EU debt relative to GDP? Five countries are – like the U.S. – above 100 percent: Greece (close to 170!), Italy, Portugal, Ireland; Belgium and France are in-between. Spain is doing slightly better, France worse

But then comes the private debt, by households and companies. Eight of the 17 eurozone countries have private debt above twice GDP: companies do not invest, and households consume less – like in the U.S.

There was the idea of cutting the numbers of people risking misery and exclusion by 20 million from 2008 to 2020. Instead, 24 million were added. Gone are great visions, in its struggle for survival to fill an EU niche in the world and to keep a Union between key creditor Germany and indebted EU members to the West and the South, with old enmities lurking beneath the surface.

For the world the key creditor is China. When the U.S. government had an 18-day shutdown President Barack Obama could not travel to ASEAN-APEC meetings to launch a Trans-Pacific Partnership (TPP) excluding China. Chinese president Xi Jinping did go, reviving a China-Asia maritime Silk Route that operated from 500 to 1500 AD, to which was added the Silk Railroad. Chinese inter-governmental diplomacy: equal footing, mutual benefit, compromise, non-interference.

By 2020 China-ASEAN trade may reach one trillion dollars, with China-Malaysia trade set to reach 160 billion dollars by 2017. Malaysia’s militarily pro-U.S. Prime Minister Najib Razak says he may pull out of the TPP to preserve sovereignty.

Deals come more easily for the world’s biggest creditor than for the biggest debtor. The U.S. is now better at breeding enemies than friends: with NSA-Edward Snowden the Transatlantic Partnership (TAP) may never be what the U.S. envisaged. The TPP and TAP make Big Business the winners through protectionism and increased inequality. Follow the leader! – while China is playing the mutual aid card.

Add the speculation that Wall Street – with JP Morgan Chase-Citibank-Bank of America-Goldman Sachs accounting for more than 90 percent of the known derivative trade – is perpetrating on the world.

Glen Ford, the editor of the Black Agenda Report, wrote that “Wall Street bets a quadrillion dollars of everybody else’s money”; 1.2 quadrillion equals 16.7 times the gross world product. Derivatives are valued at six times the world wealth. Sheer madness.

Add to this the contradictions in the U.S. economy between serving debts and serving people, between money in circulation and U.S. worth, and between the growth of the financial economy and the real economy. Which bubble will burst first is hard to tell.

But with 80 percent of U.S. workers seeing no real wage raise in the last three decades, and 400 individuals owning more than the bottom 180 million, the situation is worse than before the French and Russian revolutions.

Friends of the U.S.: give sound advice, but de-Americanise, keep your distance. The global economy is heading East and South: BRICS+ with a stagnant EU. Growth with distribution, not stagnation with inequality.

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  • Richard GLover

    I found the article hard to read, starting with the first sentence. Can the article be smoothed and have the barrage of information taken off its high register as if everybody is hip to these indexes? Need a little more ground work, sorry.

  • whatever

    I read your comment first, then the article, but I don’t think I was prejudiced by your thoughts. There are at least a couple of references to things he actually hadn’t said earlier, which always drives me nuts trying to find “above” what he’s talking about…very dense and unapproachable writing. Too bad, there’s a lot to be learned from it. I think.

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