Amid news that capitalist countries are on the road to recovery, real economic indicators show that developed economies are still struggling to rise above the ravages of the near-collapse of the global financial system.
In 2008, governments released trillions of dollars in public money as handouts, loans, and guarantees to save the world’s largest financial institutions and corporations from collapsing. Major banks bailed out a year ago are announcing record profits, fuelling a bullish mood in stock and commodity markets in recent weeks.
Likewise, the United States (US), China, and other major economies are posting growth in their gross domestic products (GDP). Global trade appears to be picking up as well.
Not yet over
These macro-economic indicators, however, are not fundamental indicators of economic recovery. The more reliable indicators of economic recovery are the levels of employment and job security, real incomes, social spending, and the incidences of poverty and hunger.
One year since the global financial system’s near-collapse, the army of unemployed workers is still rising by the millions. The International Labor Organization (ILO) forecasts an increase in global unemployment of between 39 and 61 million workers in 2009 against 2007 levels amid continued labor market deterioration around the world. The World Bank also estimated that 90 million more people will suffer from hunger by 2010.
Private rescue, public burden
Last year, the world witnessed how Northern governments quickly bailed out and infused money to failing private corporations to stem the worst financial crisis in decades. Totalling US$12.6 trillion, these bailouts and stimulus funds are financed by government debt which is already soaring. The burdenwill ultimately be shouldered by the people through higher taxes and cuts in social spending. Already, the US federal government has US$11.8 trillion in debt, and is facing a deficit of US$1.8 trillion for 2009 alone. The US is sure to be saddled with trillion-dollar deficits every year for at least the next decade.
In other G8 countries, fiscal stimulus programs are also translating into huge public deficits at levels not reached since World War II. In the US for instance, fiscal stimulus programs amount to 13.5% of GDP; 11.6% in the United Kingdom; 0.4% in France; and 10.3% in Japan.
Indebtedness in the US is projected to increase further in 2010 as 40% of US government revenues will come from debts. This will result in the US national debt nearly doubling over the next 10 years to about US$20 trillion. By 2019, the US national debt will increase to nearly 70% of GDP, up from 48% this year. Meanwhile, some 40 poor countries are projected to plunge into a new debt crisis.
The phenomenal bailouts and consequent rising budget deficits and debt have made one thing clear: private financial institutions are rescued by governments while taxpayers are footing the bill. While capital is being concentrated further in the hands of few finance oligarchs, losses are passed on to the working people. Belt-tightening measures in the form of reduced government spending for social services are also borne by the public.
Record-level unemployment rates
Following the bailouts were massive lay-offs in developed countries, while the remaining employed are forced to work longer hours without due compensation. According to the Organization for Economic Cooperation and Development (OECD), the unemployment rate in advanced economies reached 8.6% in August 2009, 2.3 points higher than last year.
In the US, the latest unemployment rate 9.8% is the highest in 26 years with the number of unemployed increasing by 7.6 million to 15.1 million since the onset of the recession. Meanwhile, the seasonally-adjusted official unemployment rate in the 27-member European Union (EU) rose to 8.9%, reflecting an increase of 246,000 in the number of jobless people to more than 21.5 million in June 2009. Japan’s unemployment is at its highest in 53 years, reaching 5.7% or 3.59 million unemployed as of July 2009, a million more than in July 2008.
More than 1.6 million people worldwide have been pushed into reduced hours, casual, or part-time employment. Almost half a million people are stand-ins or temporary workers because they cannot find permanent jobs, while nearly one million work part-time because they cannot find full-time employment.
Global forecasts on unemployment levels show that the worst has yet to come. According to the ILO, global unemployment could reach 219 million to 241 million in 2009 as the labor market deteriorates. It is projected that the jobs crisis will linger for up to seven to eight years after the market has recovered.
Poverty and Hunger in the Third World
The ranks of the unemployed will eventually add to the growing number of the world’s poor. It is projected that 98 million more people will be poor by the end of 2009. Sharp increases in food prices from 2005 to 2008 have already pushed 130 million more people into hunger. This means that over a billion people now face a daily battle against hunger across the world. According to the United Nations (UN), despite world food prices decreasing in the last half of 2008, domestic food prices generally have remained very high and are projected to continue to rise. In the first half of 2009, commodity prices rose again, reflecting the return of financial speculation to commodity markets.
The recession’s impacts are harsher in the South, whose backward economies have been made further vulnerable to the volatile financial flows and reduced trade. The UN estimates that 105 to 145 million more people would remain poor or fall into poverty because of the current economic crisis. Much of this will come from East and South Asia affecting 95 to132 million people, of whom about half are in India. The crisis could keep 5 to 7 million more people in poverty in Africa and another 4 million in Latin America and the Caribbean.
The crisis also has graver impact on employment in developing countries. Job losses have continued, especially in mining, textile and garments, metals and metal products, automobiles, jewelry, construction, transport and information technology, as well as tourism.
In the Philippines, people experiencing job insecurity as of April 2009 numbered 10.8 million (4.2 million unemployed and 6.6 million underemployed), on top of the 9.2 million forced to work abroad as overseas Filipino workers (OFW). Crisis-related retrenchments from October 2008 to April 2009 affected 50,000 workers. Most of these are in the export processing zones in sectors such as electronics (29,000), garments (6,179), and automotive (3,436). An additional 17,600 workers are threatened with losing their jobs – 8,000 from Philippine Airlines, 5,000 from North Harbor, 3,000 from the Wyeth-Pfizer merger, and 1,600 from Triumph International’s closure. Meanwhile about 6,500 OFWs have already returned to the country since October last year because of the global crisis.
These are just among the many statistics depicting the wide range of human suffering worldwide made more insufferable by the global economic crisis. All these serve to belie the claim that economies, including those of the most developed countries, are already moving towards recovery.
The manner by which capitalist countries have dealt with the crisis is severely limited. They have responded to it with bailouts, corporate rescues and stimulus packages, perceiving the problem as merely due to financial excesses and the resulting instability. However, the crisis is rooted in the systemic contradiction between private profit and social production, and in the resulting crisis of overproduction.
The US financial crisis continues to send tremors across the developing world through economic channels such as trade, investment, debt, and overseas remittances. Southern governments must realize the undue vulnerability that indiscriminate integration to the global financial and trading system has brought them.
The global crisis should prove to developing countries the importance of building a strong domestic economy by instituting genuine agrarian reform, agricultural development for food security, and national industrialization.- IBON Features
Jenny Guste is a Senior Researcher with IBON Foundation
