Reforming the world economy

Individual countries throughout the world have got themselves into enormous debt – either government spending debt, as in Greece, or personal debt, as in the Anglo-American economies (including Ireland and Spain), or a mixture of both.


EUROPE

Debt levels of the 4 largest economies in Europe

as % of GDP (2009 figures) + GDP growth rate

Country	Total debt	Financial Institutions	Household debt	Commercial debt	Government debt	GDP growth rate 2010 % p.a.
UK	466	194	103	110	59	1.25
France	323	84	44	114	80	1.50
Italy	315	82	41	41	109	1.3
Germany	285	80	64	69	73	3.5

Currently the centre of attention is the eurozone but this is a world problem. The European Union has a turnover of around 15 trillion dollars p.a, slightly more than the USA, so what happens here affects everywhere, especially highly indebted countries like the USA, UK and Japan.

USA, JAPAN and CHINA

Debt levels as % of GDP (2009 figures) + GDP growth rate

Country	Total debt	Financial Institutions debt	Household debt	Commercial debt	Government debt	GDP growth rate 2010 % p.a.
USA	296	53	97	79	67	3.0
Japan	471	110	69	95	197	4.0
China	159	18	12	96	32	10.4

If European banks start failing and governments default on their debt it will have a large global impact, especially on the USA and the UK, which are where unsound financial practices began and where the total debt burden is highest (private and government debt as % of GDP).  It seems to me highly unlikely that the eurozone will be allowed to break up, except possibly to eject Greece in an orderly, internationally coordinated way. All economic power blocs of the world recognise that the entire global trade and wealth generating system would be severely disrupted, probably for decades, if the eurozone broke up. 

The eurozone is a victim of the following, most of which originated outside the eurozone and from a worldview out of kilter with reality:

•  government over- spending by nations , largely made unsustainable by the need to rescue banks (especially in Spain and Ireland)

•  reckless individual borrowing to buy houses or finance consumption, together with the easy lending which exploited the naivety or vulnerability or greed of the borrowers.

•  gambling with shares, loans and derivatives by finance workers.

•  ignorance of the debt owed to the biosphere (clean air and water, plus an ecosystem that supports growth of food).

 It is difficult to know whether to call these practices sinful or stupid, but they certainly are not good in any sense. This is a global problem and it has to be solved if more poverty, war, revolution, starvation and economic stagnation are to be avoided.

To correct this situation most would agree to the following, all highly interconnected and requiring a lot of international cooperation: 

1. The governments need to become more financially efficient

 Honest presentation of government statistics with no hiding of debts or distortion of spending for party political gain. This will allow them to run the social, health, security and military services in a realistic way.

2. The debts need to be paid back or written off

All governments and banks need to repay what they owe over a sufficiently long but rigorously enforced period to avoid too much economic disruption. Some creditors of international investment banks will have to accept losses rather than expect tax payers to bear them. Overall the debt levels are so high that they will have to be partially passed on to the next generation.

3. Finance needs to be tightly regulated

Buying and selling of shares cannot continue on a short term basis: entrepreneurs wishing to build up a wealth-generating enterprise must be given a reasonable period, typically 5 years. Large corporations must pay the social costs of transferring their activities to the region of cheapest labour. City traders cannot be permitted to ride the real economy by buying and selling on short timescales (e.g. a fraction of a second), thereby creating a fantasy economy comparable in turnover to the real one which at some point has to be called in to rescue it.

4. The world economy needs to grow qualitatively rather than quantitatively

 To bring those burdened with poverty or starvation or disease to a reasonable living standard with enough leisure to make them fully human as well as to provide a qualitatively better life for all, where knowledge, skill and creativity are the drivers rather than consumption, the world economy needs to grow in some way, a very different way from the way it has in the past. This is probably the biggest challenge of all. One possibility is exploration of our universe and the celebration of God as revealed in the natural world.

5. Accounting needs to become realistic

There are many ways of presenting the annual balance sheets, profit-and-loss statements and cash flows of companies, charities and public corporations.  These are meant to reflect the real financial state and outlook of an organisation but in reality accountants tend to slant them towards vested interests, albeit within the letter of whatever convention they have adopted. Also, accountants have to work towards quantifying the cost of taking from the earth’s resources.   

These are technical problems but also, more importantly, ethical ones and have to be tackled on a world scale, in a spirit of humility and desperation, yet without attempting to turn our culturally rich and diverse world into a bleak monoculture run by demagogues. As a Christian I would say that to get it right we have to get into a right relationship with God but I am also aware that this will not be easy given the greed of humans and the pride of those who do not even acknowledge the existence of their maker.

Hopefully, time will not run out on us.

John

cosmik.jo@gmail.com

See also

The age of debt: the party's over

World debt: getting a grip