Global economy red light

Despite some encouraging trends in global economy in 2005, lurking behind them are some unsettling facts.

By JERUSALEM POST STAFF
global economy 88 (photo credit: )
global economy 88
(photo credit: )
Israel's was not the only growth economy in 2005. In Europe, gross domestic product has grown 1.6 percent, less than half the US level, but still an improvement on previous years, as the German economy has finally shown some long-overdue signs of vitality. In the US, four straight years of expansion are expected to continue in 2006, with personal income rising and unemployment remaining at 5 percent of the workforce. In Asia, Japan has emerged from its worst postwar recession, ending more than a decade of deflation and promising to carry with it the rest of its region into a year, and probably longer, of hectic growth. In fact, the economies of China, Japan, India and Korea are all expected to now grow simultaneously for the first time in several generations. Millions worldwide are reaching levels of opportunity and prosperity of which they could previously only dream. These are all encouraging trends, yet lurking behind them are some unsettling facts. First, Asia's growth is partly related, whether as a cause or effect, to weakness in other parts of the world. While Chinese and Indian cheap laborers benefit immensely from the relocation of European production lines, back in Europe millions of immigrants become more difficult to employ and easy to incite. In eastern Europe the quest for capitalistic earnings too frequently leads to trafficking in women, robbery of mineral riches and unchecked contamination of the environment. The knowledge that Chinese products are sometimes the result of involuntary work is equally unsettling. These phenomena are part of the "counter-authoritarian" - anything goes - character of today's global economy. Plainly the fact that individuals and corporations have finally, and (mostly) fortunately, been capitalizing on the opportunities created by freedom, has been misinterpreted by politicians as a license for administrative inaction and intellectual lethargy. The now universally appreciated principle that government intervention is generally "anti-economic" ought not be applied when historic processes are at play. Nothing demonstrates this better than what has been happening in recent years in the energy markets. Over the past half decade the price of crude has more than trebled, breaking at one point in 2005 the once unthinkable barrier of $70 per barrel. In the best tradition of erratic market dynamics, it was but six years ago that economists were discussing the prospects of single-digit oil prices, as prices sank to just above $10 per barrel. Back then, the markets were still basking in the unforeseen access to Siberian and Caspian oil fields made possible by the end of the Cold War. Yet just as they had failed to predict those supplies, economists failed to predict the soaring Asian demand for fuel in recent years. Set against this backdrop it is tempting to dismiss oil's travails in the commodity markets as but another financial instrument's (romantic, if somewhat adventurous), journey between supply and demand. It isn't. Rather, what has been happening to the price of oil is an emphatic vote of no-confidence on the quality of today's world leadership. Granted that since the mid-1970s embargo, oil has lost the ability to rattle the world economy. Indeed, 2005's near-universal economic growth came despite a massive oil crunch, and in fact was created by it, as Chinese and Indian demand sharply expanded. Yet that only demonstrates why oil prices remain much more meaningful than those of this or that bond, share or currency. Oil still fuels much of the global economy, and when its price appreciates sharply and steadily over years, it means that not just a particular industry, society, or region, but mankind itself has too little of what it needs most: energy. Here is where political leadership becomes indispensable. The developed world has at its disposal the best research institutions, budgets, and experts. Yet its leaders are presiding over a historic shortage whose long-term repercussions could prove dramatic, not to say tragic. Whether through improving access to and extraction of existing oil fields, or by encouraging the development of alternative energy sources and the invention of low-energy vehicles, something must be done. If energy prices continue marching northward, growth rates will soon head south. And life will become far more complicated than it was last year.