The Death of Economics

The world economy is falling apart. And no one has a clue what’s going wrong – least of all the economists.

Whereas in the past, supply and demand had a way of evening themselves out, we now swing from hyperinflation to soaring unemployment as slump follows boom. The once predictable business cycles which drive the market economy have gone out of control. The economic statistics issued by governments seem more unreliable than ever. And, for the first time, politicians have started talking about ‘the death of economics’.

Speculative Greed

A major cause of the crisis has been the business sector’s ruthless pursuit of capital. It was largely corrupt property speculators and poorly managed financial institutions that caused the collapse of the Japanese economy in the 90s and the subsequent ‘Asian meltdown’. The dotcom boom at the beginning of the 21^st century was also motivated by short-term speculative greed. More money actually changes hands in four and a half days on the global currency markets than is exchanged annually through trade in merchandise and services. Business, it seems, is a very slow way to make money. The fastest way to make money is money.

Merger-mania

Two decades of bigger and bigger mergers and acquisitions have compounded the problem. In 1997 alone $ 1.6 trillion were spent on M&As. For the board members and shareholders of the companies concerned, there were huge windfall profits to be made, but for the companies themselves it was not always good news. Not was it good news for the thousands laid off as a result of bringing ex-competitors together. In the new globalised economy, the need to grow at all costs has also led companies like Enron and WorldCom to become increasingly creative in their accounting methods. In some companies has become common practice.

Different Worlds

But the real long-term crisis is the widening gap between rich and poor. Thirty per cent of the world’s population represents ninety per cent of the world’s GDP, whilst the other seventy per cent have to survive on the remaining ten per cent. The income ratio between the richest and poorest countries went from 30:1 in 1960 to 74:1 in 1997 – and it’s getting worse. So it isn’t trade deficits, post-communist chaos or the global arms build-up that pose the greatest threat to the world economy. Nor is it political instability in Africa and the Middle East, international terrorism or the Latin American debt crisis. It is the emergence throughout both the developed and developing world of a vast and permanent underclass of seriously poor.

Cheap Labour from the East

In some cities in Central and Eastern Europe, unemployment is running as high as eighty per cent. Wages have fallen so far behind escalating inflation that immigration controls in the West have had to be tightened to prevent an influx of workers from the East. But, of course, this hasn’t stopped some Western companies exploiting cheap labour in both Eastern Europe and South-East Asia, and putting their own employees out of work.

The Working Poor

In the USA, where unemployment benefit is cut after six months and staying out of work is not an option, they are creating jobs at the cost of decreased incomes. For in many of the inner cities of the USA they have something approaching a Third World economy. According to the latest figures, 12.7% of Americans currently live below the poverty-line. The problem is not so much unemployment as under-employment, with millions of people in low-paid, dead-end, so-called ‘McJobs’ that have zero prospects.

Corporate Rule

The result of all this is that corporations now exercise an unprecedented influence on the global economy and the distribution of wealth, as the world’s governments, powerless to regulate them, become increasingly irrelevant. Near-monopolies like Microsoft are hard to fight and in industries like telecoms, the top ten companies control eighty-six per cent of the market. In fact, half the world’s richest institutions are not countries but companies. No wonder then that both countries and companies try to conceal the real figures. As the famous saying goes, ‘It’s often easier to be economical with the truth than truthful about the economy’.