Trends

ESPON, Project; 2012

This report presents a more detailed overview of the analytical approach to be applied by the ET2050 ESPON project. This Applied Research Project is conducted within the framework of the ESPON 2013 Programme, partly financed by the European Regional Development Fund. The partnership behind the ESPON Programme consists of the EU Commission and the Member States of the EU27, plus Iceland, Liechtenstein, Norway and Switzerland. Each partner is represented in the ESPON Monitoring Committee.

The approach presented in the report was presented and discussed with the ESPON Monitoring Committee, and the indications made by the ESPON Monitoring Committee were integrated, but still it may not necessarily reflect the opinion of the members of the Monitoring Committee.

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Paul Mason, Idle Scrawl Blog, 2011

It's Vorsprung Durch Technik versus "manyana", cold efficiency versus laid-back Mediterranean sloth, it's the Europe of no motorcyle helmets versus the Europe of precise train timetables. It is every cultural stereotype you've ever heard about the two kinds of people who inhabit this continent.

And for now, economically, it's valid: there are two Europes and they are diverging.

It's no longer a two speed Europe: it's a two tier Europe with the bottom half spiralling into low growth, penury and social crisis - and the top tier is booming. German industrial output, up 15% year on year today, stands in contrast to a slump in Ireland, Greece and now - once the austerity kicks in for real - Portugal.

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C.Lapavitsas, RMF occasional report, 2010

The public debt crisis of Greece and other peripheral eurozone countries has the potential to harm the European Monetary Union. But the eurozone project has already inflicted damage onto Greece and other peripheral countries. There are two related reasons for the crisis: first, the skewed nature of monetary union and, second, the economic upheaval of 2007-9.

Monetary union has removed or limited the freedom to set monetary and fiscal policy, thus forcing the pressures of economic adjustment onto the labour market. Guided by EU policy, eurozone countries have entered a „race to the bottom‟ encouraging flexibility, wage restraint, and part-time work. Labour has lost out to capital across the eurozone. The race has been won by Germany squeezing its workers hard in the aftermath of reunification. The eurozone has become an area of entrenched current account surpluses for Germany, financed by current account deficits for peripheral countries. Monetary union is a „beggar-thy-neighbour‟ policy for Germany, on condition that it beggars its own workers first.

The crisis of 2007-9 compounded the predicament of peripheral countries because of the monetary and financial structures of the eurozone. The crisis resulted in extreme shortage of liquidity for European banks. The ECB intervened, lending freely and making it possible for banks to start dealing with their weak position. But ECB reaction was very different in 2009 when states faced growing borrowing needs due to the crisis. The eurozone left each state to fend for itself in the financial markets. The ECB watched as interest rates rose, financial institutions speculated against state debt, and state bankruptcy raised its head.

Confronted with a public debt crisis, peripheral countries have been forced by the eurozone to impose harsh austerity. Yet, until early 2010, they have received no bridging loans to ease the pressure. This is grossly damaging, and offers no assurances of future growth. In effect, peripheral countries have been forced to accept IMF conditionality, but without an IMF loan.

Better policy alternatives are available, but they involve radical social and economic change. One option would be to reform the eurozone by relaxing fiscal constraints, introducing an enlarged European budget, guaranteeing a minimum wage, and providing unemployment insurance. A more radical alternative would be to exit from the eurozone, nationalising banks and other key areas of the economy as well as introducing industrial policy. Under all circumstances, peripheral countries face hard choices involving social conflict.

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Jonathan Portes, Blog NIESR`s, 2012

Following the GDP numbers published January 25, here is a further updated version of NIESR's chart showing the path of recession and recovery in various previous downturns. The chart shows that this "depression" - defined, admittedly somewhat arbitrarily, as the time period during which output remains below its previous peak, shown as the X-axis above - is now longer than that experienced during the Great Depression, and is not likely to end any time soon. It also shows how what was initially a reasonably strong, albeit patchy, recovery stalled in the autumn of 2010; since then there has been very little growth.

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Bert Colijn and Bart van Ark, Blog The Conference Board, 2012

While the European financial system is cracking under its own weight, unemployment is at record highs in many countries, and no short-term solutions to Europe’s problems can be expected. However, despite this crisis there are some positive points to be noted. Over the past years, structural changes have taking place which have aided in rebalancing the troubled European economy.

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Heiner Flassbeck, INET’s Berlin Conference document; 2012

One of the most poignant analyses of the deeper causes of the Euro Crisis, amongst the many presented in INET’s Berlin Conference, was a paper entitled ‘German Mercantilism and the Failure of the Eurozone’, by Heiner Flassbeck.

Europe is on the brink of a potentially lethal crisis. A dozen years after the start of the European Monetary Union (EMU) the system is in troubled water and the political leaders, blinded by an anti-government ideology are steering the boat towards some dangerous rocks and risk the end of a long and peaceful ride in a formerly war torn region.

Much has been said about the folly of pushing countries to cut public expenditure, increase taxes and put pressure on wages in the middle of one of the deepest recessions in modern history. However, even the outspoken critics of this approach rarely go to the core of the matter and discuss the long established economic policy strategy of the country that has come out of that recession like a phoenix from the ashes and is still celebrating its unique role and success. To the contrary, Germany is considered by many as the role model for the rest of the union. That is the biggest mistake and the real reason why Europe is committing economic suicide instead of tackling its problem at the root.

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Jesus Felipe and Utsav Kumar, Working Paper, 2012

Current discussions about the need to reduce unit labor costs (especially through a significant reduction in nominal wages) in some countries of the eurozone (in particular, Greece, Ireland, Italy, Portugal, and Spain) to exit the crisis may not be a panacea. First, historically, there is no relationship between the growth of unit labor costs and the growth of output. This is a well-established empirical result, known in the literature as Kaldor’s paradox. Second, construction of unit labor costs using aggregate data (standard practice) is potentially misleading. Unit labor costs calculated with aggregate data are not just a weighted average of the firms’ unit labor costs. Third, aggregate unit labor costs reflect the distribution of income between wages and profits. This has implications for aggregate demand that have been neglected. Of the 12 countries studied, the labor share increased in one (Greece), declined in nine, and remained constant in two. We speculate that this is the result of the nontradable sectors gaining share in the overall economy. Also, we construct a measure of competitiveness called unit capital costs as the ratio of the nominal profit rate to capital productivity. This has increased in all 12 countries. We conclude that a large reduction in nominal wages will not solve the problem that some countries of the eurozone face. If this is done, firms should also acknowledge that unit capital costs have increased significantly and thus also share the adjustment cost. Barring solutions such as an exit from the euro, the solution is to allow fiscal policy to play a larger role in the eurozone, and to make efforts to upgrade the export basket to improve competitiveness with more advanced countries. This is a long-term solution that will not be painless, but one that does not require a reduction in nominal wages.

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Steve Randy Waldman, interfluidity.com blog, 2012

Besides justifying labor-hostile monetary policy, unit labor costs are often trotted out to blame unreasonable wage expectations for troubled economies’ “lack of competitiveness”. For example, here’s a chart published last year by Paul Mason (ht Paul Krugman):

It is a common trope that labor costs in the European periphery have grown to unsustainable levels, while in the prudent and virtuous North, costs have been contained.

But the chart is misleading. Let’s take a look at the same information presented a bit differently, from a wonderful Levy Institute working paper by Jesus Felipe and Utsav Kumar, “Unit Labor Costs in the Eurozone: The Competitiveness Debate Again”

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Loren Goldner, 2005

The following is a “thought experiment” which attempts to see fictitious capital in relation to the end of capitalism. By pursuing the concept of fictitious capital as far as we can, by illuminating the unbelievable distortions it has fomented in what is called “economic development” on a world scale, we can highlight the nature of contemporary struggles as well as explain why there are not more struggles. We can also address the reasons why a “society beyond capitalism” seems such a remote possibility at present.

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Wayne Stevens, New Zealand Treasury Working Paper, 2007

Globalisation, being the trend towards increasing global economic integration, is one of the largest forces, if not the largest force, affecting world economies at present. The current period of global economic integration is unprecedented and the pace and extent of globalisation will continue to have major ramifications for the world, regional and New Zealand economy. It is highly unlikely that the process of increasing global economic integration will reverse.

Globalisation offers both risks and opportunities. New Zealand can achieve significant benefits from future globalisation. The challenge will be to ensure that we are one of the adaptive economies that can successfully adopt policies that maximise the benefits and minimise the risks.

In responding to globalisation it is necessary to consider policies that promote a globally competitive environment for New Zealand businesses. Further consideration of how domestic policy settings look when viewed through an international competitiveness lens is imperative. This report offers preliminary views on what some of these policies should be. It does not answer fully the question of how New Zealand should respond to the challenges and opportunities of globalisation but it outlines initial views in order to stimulate debate on this topic.

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Adjiedj Bakas, Book, 2006

Among these imagined scenarios for the future of Europe;is a vision of 2050 in which then;European Union has been dismantled; Western Europe has become Islamic and has tied itself economically, politically, and culturally with Northern Africa and Turkey to become Eurabia; and in Middle and Eastern Europe, a New Europe has arisen, where non-Islamic migrants from Western Europe have found salvation. This gripping;discussion of Europe;future and;its impact on the rest of the world analyzes seven key trends, or "megatrends," that will radically reshape European business, culture, people, thinking, beliefs;countries, and cities over the next 50 years. Providing insight into the new social, political, and economic landscape of Europe, this futuristic study explores;current challenges;in the development and marketing of products and services;to provide a glimpse into the future;of the New Europe.

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EEA (European Environment Agency), Document, 2010

This exploratory assessment of global megatrends relevant for the European environment focuses on the impact of major global trends on Europe. A global-to-European perspective is relevant for European environmental policymaking because Europe's environmental challenges and management options are being reshaped by global drivers such as demographics, technologies, trade patterns and consumption. The assessment provides analysis of 11 relevant megatrends, summarises the links between megatrends and Europe's priority environmental challenges, and reflects on possible implications for policymaking.

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Maxim Pinkovskiy and Xavier Sala i Martin, NBER Working Paper No. 15433, 2009

World poverty is falling. This column presents new estimates of the world’s income distribution and suggests that world poverty is disappearing faster than previously thought. From 1970 to 2006, poverty fell by 86% in South Asia, 73% in Latin America, 39% in the Middle East, and 20% in Africa. Barring a catastrophe, there will never be more than a billion people in poverty in the future history of the world.

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David Gregosz, publication the facts and findings, 2012

The situation in which the world finds itself at the beginning of the 21st century is not an easy one. Economic upheavals and ecological problems are challenging decision-makers all over the globe. We can already envisage today that some developments relevant to (economic) policy will be instrumental in shaping the years up to 2020. This paper is to serve as a basis for discussion, providing an overview of the impending challenges in the remaining years of the current decade. The trends, which are set out in the form of theses, indicate possible developments in a future characterised by random events, discontinuities and the unexpected, which may not necessarily materialise in that form. In spite of this proviso, it will be helpful to reflect deeply on the described phenomena – the pressure for consolidation, new power centres, population growth, resource shortages and digitisation. It is possible to give some direction to the future from within the present through political decisions.

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Wilhelm Hankel and Robert Isaak, The World Financial Review, 2011.

Several megatrends will shape the face of the global economy of tomorrow:

“The New New World will be dominated by the sea change of economic dynamism shifting away from the West to the emerging economies, led by the exploding middle-classes in the BRICs…”

“The old structure of the world economy, in which the industrialized world pulled out its raw materials from the less-developed world and processed them, belongs to the past.”

“With 40 percent of the world’s popultion, the BRICs already account for 25 percent of global GDP and are intensely increasing their trade with one another, often in local currencies, and becoming more independent.”

“In terms of the classical Western economic model, the question has become whether or not the West can afford to pay for the freedom of its own corporate and government speculations.”

“A related issue is whether or not the classical model of free trade will fade out as a process of “regionalization” around each of the BRICs is developed.”

“Will the Arabs look to develop their own unique models instead, or even use models from Singapore for inspiration? There is a high probability that they will develop their own internal models culture by culture.”

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Jeff Harding, The Daily Capitalist: the unconventional economics wisdom, 2009

We are plunged deep into the biggest credit-business cycle in world history. Many cycles have been worldwide, but this one dwarfs all others, including the Great Depression. An ocean of money and credit flooded every corner of the globe. The culture of easy wealth worked its way into the smallest economies from Norway to Chile, from Iceland to Mongolia. Economies built on commodities exports, even energy exporters, have felt its impact. The inevitable bust sent the world into economic decline wiping out trillions of dollars of wealth. Built largely on credit, the resulting debt is now being liquidated causing worldwide deflation.

Business and credit cycles are always created by central banks and this one is no different. While we can blame the greed of Wall Street and London’s City, capitalists are just players on a stage where greed always exists. It takes something more than greed to create massive cycles like these, and that something is the creation of money and credit out of thin air, something only central banks and governments can do.

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Stefan Hajkowicz, CSIRO Global Foresight Project 2012

This report describes the outcomes from a CSIRO global foresight project. It presents six megatrends that will redefine how the world’s people live.

The six interrelated megatrends identified in the report are:

ESPON Territorial Scenarios and Visions for Europe 2050 (ET2050)

Trichet: welcome to my great big fat Euro fiasco

Eurozone Crisis: Beggar Thyself and thy Neighbour

Recessions and recoveries: a historical perspective

Despite the Chaos, Europe’s Economies are Regaining Comptetitivenss through Improvements in Unit Labor Cost Performance

German Mercantilism and the Failure of the Eurozone

Unit Labor Costs in the Eurozone: The Competitiveness Debate Again

Competitiveness is about capital much more than labor

Fictitious Capital and the Transition Out of Capitalism

The Risks and Opportunities from Globalisation

Megatrends Europe

SOER 2010 Assessment of global megatrends

Parametric Estimations of the World Distribution of Income

Economic Megatrends up to 2020. What can we expect in the forthcoming years

Megatrends of the Global Economy of Tomorrow

Economic Megatrends That Will Drive Our Future

Global megatrends that will change the way we live

Megatrends: the 6 gamechangers that will change the world in the next decades

Beyond GDP: Measuring and achieving global genuine progress

Global Economics Essay