Who runs the global economy?

admin — Sun, 09 Nov 2014 17:47:16 +0000

The world financial crisis has made it clear that, although we have a globalised world economy, there is no clear way governments can work together to solve global economic problems. ut the lack of co-ordination, both now and in the future, could mean a deeper and longer global recession with more unemployment and poverty around the world. The G20, an ad-hoc grouping of the worlds major economies, has stepped in and performed a major role during the past year. But the crisis has also spurred efforts to reform the existing global financial institutions, the World Bank and the International Monetary Fund (IMF), which were set up at the end of World War II to help revive the battered global economy and whose job it is to lend to countries in trouble.

Out of date

Countries contribute funds to the IMF according to the size of their economies, and they then receive voting rights based on their contributions. But the current voting structure does not reflect the rise of powerful new economies like China and India, which are leading the world out of recession even while growth collapses in Europe and the US. And a row has broken out between the US and China on the one hand, and Europe on the other, over how much voting rights should be changed.

Although all sides have pledged to come up with solutions by January 2011, there are significant practical problems. European countries, which make up 25% of the world economy, hold 40% of the votes. The US, which makes up another 25% of the world economy, only holds 17% of the voting rights. But under IMF rules, all major decisions require a majority of 85%, making the US the only individual country that can block any decision.

The US and China have proposed that European countries give up 5% to 7% of their quota in order to provide more votes to the emerging economies. But smaller European countries, such as the Netherlands and Sweden, are reluctant to give up their seats on the 24-member IMF board. Even the UK is resisting immediate pressures for reform. A UK Treasury official told the BBC that, as Europe had made the biggest contribution to renewing IMF funds (lending over $150bn of the $500bn asked for), now was not the time to ask it to reduce its authority.

Changing China

Strengthening the role of China and India in the newly emerging system of international economic governance is going to be essential if they are to play their proper role in the world economic system

Most economists doubt that the US and Europe can return to their role as the consumers of last resort for the rest of the world, fuelled by lots of debt, believing they will have to grow in future by increasing their exports. That would mean China would have to reduce its exports as a proportion of its economy and shift towards greater domestic consumption – a tall order.

This would go a long way to solving one of the fundamental causes of the current economic crisis – the growing global imbalance between China as an exporter with a trade surplus, and the US as the worlds biggest consumer, living on borrowed money. The US is no longer able to play this role, and the sooner China turns to domestic consumption, the more likely it is the US can grow by producing more for export, rather than consuming more and increasing its debts. So giving China a bigger role in the IMF may encourage those within China who want to shift its priorities in a way that would help the world economy to grow.

Reform and revive

Reform is all the more important given the new powers and resources the IMF and the World Bank were given at the London summit. The World Bank lends long-term funds to developing countries to help them build infrastructure such as dams and roads and to improve their health and education systems.

The IMF – which gives short-term support to countries facing financial hardship – was given vastly expanded resources to deal with the crisis. Countries pledged an extra $500bn (�300bn) in loans, and $250bn in Special Drawing Rights, a currency facility which countries can draw on without restrictions.

The IMF was also given more authority to monitor the world economic situation and report to the G20 leaders. In return, the IMF pledged to moderate the often harsh conditions attached to its loans – a practice that has frequently attracted complaints from developing countries in the past. With hopeful signs in the global economy, at least compared to six months ago in London, this week is meeting could determine whether the G20 emerges as the key organisation with influence over how the world economy is run, or whether it will disappear into insignificance when the immediate crisis is over.

China workers return to cities

admin — Sun, 09 Nov 2014 17:44:21 +0000

But it seems that pattern of migration is reversing as China economy begins to pick up. He had been working as a waiter in a city hotel in the south, but the 30-year-old had to return to his home village in central China.

Now, as the world economy picks up and Chinas economic growth touches 8%, Chu Ching-Hu is heading to Guangdong province to work in a pottery factory. He is just one of the millions of migrant workers in the country who lost their job amid the global economic downturn. The crash forced these workers out of the coastal cities they had been working in to return to the countryside.

Long journey

Sitting in a vast, humid waiting room in a railway station in Changsha in Hunan province, he explains why he has decided to return to the city again. “In our local area there are no factories. We live in the countryside where there is no money and we need to travel a long way to get any work.”

He is indeed on a long journey. He left Jiangxi province at 8am. He will finally arrive in Guangdong at the same time the following morning. He is waiting in Changsha for the overnight train to the south and what he hopes will be a better life for him and his relatives. “My family is back in the village. For family expenses we need to send money back home from working away. It will mean my parents can have easier lives and there will be better conditions for my kids.”

Getting better

He is making this mammoth journey with Gan Lei Chun who is taking Chu Ching-Hu and two others to work in his sons factory making chinaware. Sitting among the boxes that contain some of the migrants possessions, he says the family business has been affected by the recession in their Western markets, but says that things are looking up. “Some foreign buyers had paid deposits for their orders, but when it came to it they couldnt afford to pay the rest of the price. But recently the economy has started to improve. Business is going to get better. “The government in Beijing says 95% of the migrants who made the long journey back to the countryside are now back in the cities, either working or looking for work.

It has been estimated by Western academics that about 10 million of them cannot find jobs. But a recent study has suggested that even those who are lucky enough to get a job are being employed for fewer hours and are being paid less. “The Chinese migrant worker is really at the bottom of the world supply chain and they are the guys who can be easily expended,” says Professor Kam Wing Chan, an expert on Chinas internal migration at Washington University in Seattle.

Casual labour

Liu Zhao Xiang is one of dozens of men who are hanging around under a motorway bridge in the centre of Changsha. All are dressed in the clothes of their trade and some have even brought their pneumatic drills with them. Others have small, painted signs by their feet, listing their skills.

Liu Zho Xiang was paid the equivalent of $10 (�6) the previous day to knock down a wall, but he has been hanging around in this casual labour market for hours now and he has not seen a single potential employer.

Among the car fumes and honking car horns, this 55-year-old man with a lifetime of hard work etched on his face says things are tough. “Its harder to get work this year because there are too many workers.”

It seems surprising these construction workers cannot find a days pay here. Changsha, like every other city in China, seems to be a huge building site. The central governments massive economic stimulus plan means new roads, railways and clinics are being built all over China.

“I just cried”

Someone who is benefitting from the governments spending binge is 22-year-old Tan Mei, who came back to her family in Jiuhua, a few kilometres from Changsha, earlier this year. She had been working in a factory making parts for mobile phones. “My familys financial position was not good so I had to get work to support them. I missed my family and my home so much, I just cried,” she says. “But the factories were hit by the economic crisis and they didnt need so many workers. “She has managed to get a place on a government-funded training course, learning how to assemble parts at a local DVD factory. The factory boss says that if Tan Mei passes the course, there is a good chance she will get a job there.

“Wise policy”

The man who oversees the training is Wu Anguo, the head of the Social Affairs Bureau in Jiuhua. “Many people lost the income they need to survive,” he says. “The Chinese government encourages training for those who have lost their jobs and offers subsidies to pay for the training programmes. It is a wise policy.” But the future for Chinas estimated 150-million migrant workers is far from certain.

Many of the jobs have been created thanks to government spending programmes. They will not last forever, even if the level of spending is increased in the short term. The migrants desire for a city job and a better life is understandable and is also encouraged by the government. But whether they will have enough factories, hotels and building sites to work in depends to a large extent on whether consumers in developed countries start buying Chinese-made goods.

Hiep Law Firm

Who runs the global economy?

China workers return to cities