Greetings from Geneva, Switzerland! Currently, I am working at the International Labor Organization so I will try to blog not only about U.S. happenings, but add to that an international perspective and how the rest of the world sees these events. In the future, you may see interviews with some ILO officers.
As the world economy literally melts down this week with protests erupting all over Switzterland and a record low GDP growth rate of 0.5 percent, the world’s leaders are heating things up at the mountain resort in Davos, Switzerland, for the annual World Economic Forum. This year’s theme is titled, Shaping a Post-Crisis World. The GDP growth rate is an indicator of the economic health of a country. Quarterly growth rates provide a snapshot of how the economy performed in the last quarter, and how the economy is expected to continue into the next. The problem with this indicator is that it may be distorted due to inflation or another unique events. Comparatively, annual rates measure growth for whole year.
It might be a little too early to start shaping a post-crisis world, when the global economy is still very much in the middle of it and it seems like there is no end in sight. Last week, the U.S. revealed that GDP for the fourth quarter was down by 3.8 percent, surpassing the rates felt in the 1990s recession. Globally, 51 million jobs are expected to be lost as unemployment looks to reach 7.1 percent at the end of 2009, according to ILO estimates. Within the U.S., which is expected to weather some of the worst job losses, the unemployment rate climbed to 7.5 percent in January, the highest in 16 years. Despite these losses, developing countries are expected to be the most significantly hard hit by the crises as much of their economy is based on foreign direct investment and the remittances workers send over from industrialized countries.
Can the world leaders at Davos really do anything about this at one weekend long conference? One of the main criticisms about this meeting is that the conference’s attendees are out of touch with the needs of the developing country and cannot adequately address their economic realities. Worse, many developed countries have the most say in these types of conferences; they drown out alternative perspectives that some developing nations may have to offer. Too often, the emphasis is on national issues as opposed to having a global focus. Though admittedly, it will be hard to think about countries when one’s own nation is knocking at depression’s door.
The biggest criticism of all of course stems from the fact that the very same conference attendees are responsible for the current global economic situation. Advocating a system of free trade, capital market liberalization, and deregulation, many of last year’s attendees will not be participating in the conference this year because the system upon which their work was founded has collapsed. Bankers have taken a back seat to economists and trade ministers.
What about the place for international organizations such as the World Bank and the International Monetary Fund? They too have been criticized for their role in the crisis and keeping developing countries in their place by implementing poorly designed loan programs, such that developing countries will never be able to pay the banks back. This is especially the case for developing nations who rely on agriculture as their main industry, but are unable to compete with the rock-bottom prices of produce grown in Western nations where subsidies are plenty available. This is one of the reasons why the last round of trade talks failed — countries such as the U.S. and France refused to budge on pulling farm subsidies, so developing nations really never had a chance at all to compete. Attendees at this year’s forum pledged to try to resolve some of these issues to restore trade.
Ultimately, the attendees at the conference need to recognize that the world is still very much in a crisis world. The leaders at Davos need to not just focus on dealing with the economy in a post-crisis world, but also develop methods to ensure that a crisis of such a grand magnitude is mitigated in the future. They need to re-evaluate the system itself and whether it has achieved the kind of world people actually want to live in. With economic recovery not expected to begin until mid-2009, the theme, Shaping a Post-Crisis World, is better reserved for next year when the global economy has achieved some stability making real change possible. As for right now, the economy is still in a free-fall.