Once again the world’s most prominent business gurus, leading economists, statesmen and opinion makers gathered in Davos, as they did every year for decades, at the World Economic Forum to discuss the globe’s economic future. Huddled together in their Swiss Alpine retreat, more than 2,000 delegates interacted informally to inspect prospects, ideas and challenges. This year the Davos slogan of “Committed to improving the state of the world” seemed more distant than ever before.
The state of the world is not improving. Far from it, a global crisis is looming large, and capitalism, which celebrated its triumph over its communist rival less than 18 years ago, is in deep water. This has always been a summit for the rich and mighty, and the poor, in their billions, were always absent. But this year was different. The American economy, the largest on our planet, is officially in a recession and, as a result, the economies of Europe, China, India, Japan, South America and the Middle East are feeling queasy.
After years of robust economic growth that was felt in most continents, the biggest economy on earth is finally slowing down. Feeling the pressure is developed, as well as developing, countries, and few have reliable safety nets.
Recessions are part of the economic cycles in a free market economy. They are unpredictable and are usually managed through fiscal and monetary policies, but in a globalized and interdependent economy their effects are yet to be measured. Last week was a case in point. As the US dollar tumbled, after a whopping 0.75-point reduction in interest rate by the Fed, American stock markets, which have been volatile since last summer, took a sharp nose dive. Following in their path were the markets of China, Japan, Europe and the Middle East. Saudi Arabia’s stock market lost over 10 percent of its value in few days while India’s shed 15 percent. Panic took over investors in almost every world market and a selling frenzy took over.
The Davos meeting is not designed to come up with specific solutions, but it has become a forum for influential business leaders to voice opinions and highlight concerns. But during these tumultuous times nothing they did or said could overshadow a growing fear that avarice capitalism may have run its course and that it has little to offer to battle the global challenges of climate change, increasing poverty, limited natural resources, pollution, runaway inflation and regional financial crises.
Such is the predicament of many emerging economies, including China, where the phenomenal growth of the past decade has had its toll on the environment while widening the gap between the haves and the have not. Concentration of wealth in the hands of the few has become a recurring reality in many developing countries thus affecting its political, social and economic conditions. In many countries economic growth did not go hand in hand with political reformation, good governance and transparency.
In the countries of the south, the endemic problems of poor health service, pollution, hunger and illiteracy continue to hamper human development. In many African countries, infant mortality rates remain dangerously high and corrupt governments have failed to come through to help millions of citizens. Even in countries with rich natural resources such as Nigeria, crime, violence, tribal conflicts and poverty are still rampant.
Unplanned urbanization has created slum towns and ghettos on the outskirts of big cities in Asia and South America, while thousands of villages and towns are dying because young people are migrating to cities in search of jobs and daily subsistence.
Even in the industrialized countries of the West, the welfare state model is under pressure and basic services such as education and health are suffering from acute budget cuts. An aggressive consumer culture has taken over and tens of millions of citizens are spending and borrowing beyond their abilities. Consumer spending drives growth but it also fans the flames of inflation and may lead to sudden shocks as it did with the US subprime market last summer, drying up the flow of credit and costing financial institutions hundreds of billions of dollars in losses.
The unreigned liberalization of the economies of Southeast Asian countries in the early 1990s has, in view of Nobel Prize-winning economist Joseph Stiglitz, led to that region’s financial crisis ten years ago. The East Asia meltdown quickly spread to other emerging markets including South America. Even today, many of these countries are still recovering from the dire effects of that crisis.
The capitalist system, which has dominated the move toward globalization, needs to be re-examined, especially now that the world’s largest economy — of the United States — is facing fundamental problems. There are those who believe that the US, a country of no less than 37 million poor, is paying the price of its earlier success.
The Arab countries, most of which have adopted the free market capital-driven system, need to heed the warnings made by Stiglitz and Microsoft’s Bill Gates, who called at Davos for “creative capitalism” where the interests of the poor are taken into account.
The oil-rich countries can afford to take a pause and look ahead with the aim of averting future crises. They can begin by looking again at their immediate region and find ways to help stabilize the economies of their less fortunate neighbors. They can also press with a more humane form of capitalism where the gap between the rich and the poor can be contained not through charity but by creating opportunities and sustaining social development across the board.
— Osama Al-Sharif is a veteran journalist and publisher based in Amman.
