Global slow­down

Big-gov­ern­ment poli­cies are stalling eco­nomic growth

The Washington Times Daily - - Opinion -

The global scope of the eco­nomic down­turn is now of­fi­cial. On Mon­day, China cut its eco­nomic-growth ex­pec­ta­tion to 7.5 per­cent, down from the lofty 8 per­cent level where it has been since 2005. Un­less gov­ern­ments all over the world un­der­take sig­nif­i­cant struc­tural re­form, the down­ward spi­ral could con­tinue for a very long time.

The Euro­pean Union is slid­ing into re­ces­sion. Its gross do­mes­tic prod­uct shrunk 0.3 per­cent for the fourth quar­ter of 2011, and this year’s out­look is equally grim as ex­ports fall and busi­nesses cut in­vest­ment. The lack of in­vest­ment is a sure sign that busi­nesses see lit­tle prospect for ex­pan­sion in the days ahead. It’s hard to blame them as un­em­ploy­ment in euro­zone coun­tries reaches 10.7 per­cent and over 20 per­cent in trou­bled Greece. So long as gov­ern­ments stub­bornly refuse to ad­dress the root cause of the cri­sis, the smart thing to do is not to in­vest.

Ja­pan per­formed the worst of the ma­jor economies, con­tract­ing 0.9 per­cent over 2011. By com­par­i­son, the United States isn’t quite so bad off, but we’re still in a malaise. The U.S. econ­omy grew a pal­try 1.7 per­cent through 2011, and a mere 0.7 per­cent in the last quar­ter.

De­vel­op­ing world pow­er­houses Brazil and In­dia are feel­ing the pinch. Brazil’s growth slowed from 7.5 per­cent in 2010 to 2.7 per­cent in 2011, and the most re­cent data have in­dus­trial out­put grow­ing at a mea­ger 2.1 per­cent. Brazil has a strong cur­rency, which makes its ex­ports more ex­pen­sive, but the big­gest bar­rier to progress is high taxes. The cur­rent gov­ern­ment is cut­ting in­ter­est rates and print­ing money, which isn’t the best pol­icy for a coun­try with Brazil’s in­fla­tion­ary his­tory.

In­dia’s growth rate has slowed to 6 per­cent. That’s down from the an­nual rate of 8.7 per­cent that held from 2003 to 2008, a fig­ure sub­stan­tial enough to make a sig­nif­i­cant dent on the poverty rate. It did so with mod­er­ate in­fla­tion of about 5.5 per­cent an­nu­ally. Un­like so many of the Cen­tral and South Amer­i­can coun­tries, In­dia has man­aged to avoid the in­sta­bil­ity of rapidly ris­ing prices.

It’s easy to look at growth rates of 6 and 7.5 per­cent and think those fig­ures are high, but these are growth rates from a rel­a­tively small base. The per-capita in­come in China is about $7,570, and only $3,560 in In­dia, while the U.S. fig­ure is $47,140. China and In­dia need to sus­tain growth in the 8 per­cent to 10 per­cent range if they are to catch up to rich coun­tries. Based on the per-capita in­come fig­ures, they have a long way to go.

The slump in rich coun­tries in­evitably spreads to de­vel­op­ing coun­tries. The poorer na­tions rely on sell­ing their goods to and at­tract­ing in­vest­ment from the wealthy ones. The slow­down in Europe, In­dia, Brazil, China and the United States shares a com­mon fac­tor: gov­ern­ment in­ter­ven­tion. The so­lu­tion is like­wise com­mon. Coun­tries the world over must adopt mar­ket-friendly re­forms and re­duce the reg­u­la­tory bur­den on the pri­vate sec­tor. That’s the one sure path out of global eco­nomic stag­na­tion.

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