World Economic Forum: Davos 2009TIME:
Stormy WeatherIt was, for a few years in the middle of this decade, the trope that you heard all the time. The global economy, it was said, was a "Goldilocks" one. Just like the bowl of porridge that the child in the fairy tale sampled, it was neither too hot, nor too cold. It was — wonderfully, warmly — just right.
It's worth thinking how that analogy might be extended into our times. The global economy, you might say, now resembles the sort of congealed, cold, gray, glutinous bowl of oatmeal, curling up at the edges, that was once to be found in the lesser sort of Scottish boarding houses, with a couple of flies dancing a lazy highland reel on its surface. (
See pictures of the global financial crisis.)
It is, in short, not an appetizing sight.
Since the summer of 2007, when nonexperts started to understand that
subprime refers not to a U.S. Department of Agriculture grade of steak but a mortgage whose originator had no real prospect of recovering its debt, the world's economic and financial systems have lurched from one astonishing event to another. The mayhem among U.S. commercial and investment banks in the fall of 2007, the Fed's panicky 75-basis-point interest-rate cut of January 2008, the fraud at SocGen, the fire sale of Bear Stearns, the bankruptcy of Lehman Brothers, the rescue of AIG, CDOs, TARP, recapitalization, Madoff, Satyam, Citi, RBS ... and so it goes, until even the most diligent of chroniclers runs out of acronyms and polysyllables and ceases to believe that the story they are telling can possibly have happened. Goldilocks? To describe the travails of the global economy in the past 18 months would require an imagination darker than that of the Brothers Grimm.
But this is a not a fairy tale. It is a story in which figures and financial flows (or rather, the lack of them) translate into reductions in life chances for millions, as jobs, household incomes and retirement savings accounts all disappear. This year, says Stephen Roach, chairman of Morgan Stanley Asia (and one of a handful of economists who can legitimately claim that they had long predicted that an economy built on debt and asset-price bubbles would one day collapse), will be "the worst recession year since 1982," with global growth of just 1%. Roach adds: "The risk is it could be worse." Jim Walker, from the research firm Asianomics, chooses a different comparator as he looks to the global economy this year. "We haven't seen anything like this since the 1930s," he says, guessing that the U.S. economy will contract by anything between 2.5% and 5% of GDP. Matthew Sharratt, an economist at Bank of America in London, predicts a 2.9% drop in GDP for the U.K., "the worst recessionary experience since the 1970s."
>>> By Michael Elliott | Friday, January 23, 2009
TIME:
Rethinking MarxThe book has been on the best-seller lists in Germany for nine weeks, and in the provincial town of Trier it has special resonance, especially in tough economic times. It's Marx's
Das Kapital, and dozens of copies of it are laid out in the bookshop in Trier's pedestrian-only town center. But no, this is not the seminal 19th century work on political economy by Karl Marx, who was born in Trier in 1818. It's a book by Reinhard Marx, the former Roman Catholic Bishop of Trier who is now Archbishop of Munich and Freising. He cheekily borrowed the title for his own thesis, namely that today's troubled economy needs to reconnect with fundamental Christian values if it is to be restored to health. The book's introduction is a letter to Reinhard's celebrated namesake in which he rejects revolutionary Marxist solutions. Nonetheless, as he surveys the wreckage of the global financial system and the growing insecurity of ordinary people, the Archbishop wonders: Was Marx's critique of capitalism right after all? "It lasted longer than you expected back in the 19th century," he writes, "but could it be that capitalism is just an episode of history that will end at some point because the system will collapse as a result of its internal contradictions?" (
See pictures of the Bolshevik October Revolution.)
The Archbishop is not alone. From Washington to Vladivostok, the task of warding off financial collapse and economic depression is now the overwhelming priority for government leaders, central bankers and regulators everywhere. Solutions differ, but all agree that the current situation is both dire and extremely perplexing: nobody younger than 80 has experienced such a rapid decline in global confidence and economic activity. Markets have failed, and in so doing they have destroyed the conventional wisdom about how to run an efficient economy. It's as if an intellectual fog has descended, and the global positioning system has broken down, leaving the world to grope its way out as best it can. "Ask the experts what to do," says Tony Blair, the former British Prime Minister, "and the most honest reply is 'I don't know.' "
Searching the library for ideas, many have rediscovered the 1930s policy prescriptions of John Maynard Keynes, who advocated massive government spending programs of the type now being promoted by U.S. President Barack Obama, British Prime Minister Gordon Brown and others. Other great thinkers of the past are also being rediscovered, from Adam Smith to John Kenneth Galbraith. But hovering out there in the fog, unavoidably, is the towering specter of Karl Marx, the grandfather of political economists, whose damning critique of capitalism's inadequacies played an outsized role in world history for a century after his death in 1883. (
Read a TIME cover story on Marx.)
Marx's utopian predictions about revolution and the triumph of socialism were dead wrong; indeed, many of the policies carried out in his name in the 20th century brought misery to millions in countries ranging from Russia to China, and including large chunks of Africa. Yet 20 years
after the fall of the Berlin Wall and Soviet-style socialism, it's still instructive to take the Karl Marx road trip around Europe, starting in Trier and ending up where he ended, in London. It's instructive because if you leave aside the prophetic, prescriptive parts of Marx's writings, there's a trenchant diagnosis of the underlying problems of a market economy that is surprisingly relevant even today. Marx, too, lived through an era of rapid globalization. (A famous passage in The Communist Manifesto, which he wrote with Friedrich Engels in 1848, is almost uncannily prescient about globalization's costs and benefits.) He was moved by glaring inequalities between rich and poor that are more topical than ever today. He thought work should bring personal fulfillment, and that labor should not be treated as a simple commodity — foreshadowing today's controversies over outsourcing and poor working conditions in developing countries. He wondered whether the middle class would be squeezed out of existence. And he identified how profits were taking an ever bigger share of the economy at the expense of wages, just as they are once again today.
>>> By Peter Gumbel | Friday, January 23, 2009
TIME:
Potholes On the Path to ProsperityHoang Van Ti was one of the winners when
Vietnam ended its long period of isolation and joined the global economy. Foreign investors flocked to the communist country, new factories making computers, clothing and other goods for export rose from the country's rice paddies, and suddenly jobs were no longer in short supply. In 2007, Ti landed work near Hanoi at a South Korean – owned kitchenware manufacturer, where he attached handles to pots on an assembly line. The pay, at $105 a month, was much more than the 22-year-old could ever earn back in his farming village of Hau Loc in central Vietnam. But two months ago, the world's severe economic slowdown hit home. Orders at Ti's factory dried up; his manager furloughed him indefinitely. Ti can no longer help his family in Hau Loc by sending them extra cash. As he chain-smokes at a makeshift tea stall near Hanoi, he longs to get back on the road to prosperity. "I'm trying to stay here to find another [factory] job," he says, "because life is even more difficult back home."
>>> By Michael Schuman | Friday, January 23, 2009
The Dawning of a New Dark Age (Paperback – USA)
The Dawning of a New Dark Age (Hardcover – USA)
