The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. (Antonio Gramsci)
by Jayati Ghosh
Part 4 - Profit-Led Costs
The collapse in Northern export markets that followed the recession brought that process to a halt, and recent moves towards more protectionist strategies in the US and elsewhere, as well as the persistent mercantilist approach of surplus-producing countries like Germany, have made it more difficult since then. In any case, such a strategy is unsustainable beyond a point, especially when a number of relatively large economies use it at the same time.
In this boom, domestic demand tended to be profit-led, based on high and growing profit shares in the economy and significant increases in the income and consumption of newly-globalised middle classes, which led to bullish investment in non-tradeable sectors such as financial assets and real estate as well as in luxury goods and services.
The patterns of production and consumption that emerged meant that growth also involved rapacious and ultimately destructive exploitation of nature and the environment. The costs – in terms of excessive congestion, environmental pollution and ecological degradation – are already being felt, quite apart from the implications such expansion has on climate change.
There have been other negative impacts. Within developing Asia, for example, it led to an internal ‘brain drain’ with adverse implications for the future. The skewed structure of incentives generated by the explosive growth of finance directed the best young minds towards careers that promised quick rewards and large material gains rather than painstaking but socially necessary research and basic science.
The impact of relocation of certain industries and the associated requirement for skilled and semi-skilled labour led to increased opportunities for educated employment, but it also led bright young people to enter work that is typically mechanical and does not require much originality or creativity, with little opportunity to develop their intellectual capacities.
At the same time, crucial activities were inadequately rewarded. Farming in particular became increasingly fraught with risk and subject to growing volatility and declining financial viability, while non-farm work did not increase rapidly enough to absorb the labour force even in the fastest growing economies of the region.