Liquid times


Despite the 2009 financial crisis, the year 2010 was a point of time that actually shows two decades of strong worldwide economic growth. In the 1990-2010 periode, the global economy rose from $22.8 trillion to $58 trillion. The leader and champion of this growth, China now exports more stuff per day than it exported for the whole 1978cyear. Since reforms began in China out of poverty has raised 400 million people. Country’s economies changed a lot. 20 years ago Brazil and Turkey were typical examples of developing countries with huge inflation, poor private sector and a fragile political system. Now, these countries show steady growth. That the results that we could see, but what are the factors that changed qualitative and led to this results? According to Yulia Latynina there are 3 broad factors: “The world is liquid. Everything — people, money, and ideas — always flow to the most attractive and investor-friendly locations.”

Money flow

A long time ago when the world was consistent money’s moving was a hard process. Now it is fairly easy to do. The global banking system operates and moves about $2 trillion daily, and that money tend to the country which conditions are most favorable.

The flow of money closely correlates to regionalism and inequality issues. Two main forms of money flow are foreign direct investments came from business firms and investment portfolios, diversified with foreign assets. In the Global Economic Prospects 2011 analytics report that the growth rate for the world economy was 3.9% in 2010 and is likely to be to 3.3% this year, then 3.6 % in 2012.

By the way the losses precipitated by the financial crisis have been enormous. Total capitalization of world stock markets halved in 2008 – about $32 trillion of wealth. The losses in household wealth during 2008 were about $11 trillion in the United States ($8.5 trillion in financial assets and $2.5 trillion in housing assets) and were estimated at $1.5 trillion in the United Kingdom ($0.6 trillion in financial assets and $0.9 trillion in housing assets). Losses of such magnitude have significant wealth effects on consumption and savings. Industrial production fell sharply in many developed and emerging countries and for the first time since 1929, world trade contracted in 2009.( Global Stability Reports; IMF Survey Magazine). But the main question is where to invest the money in terms of the future economy growth?

In Doing Business 2010, there were the top 10 of reformers: Liberia, the United Arab Emirates, Tajikistan and Moldova, Colombia, Egypt, Belarus, the Former Yugoslav Republic of Macedonia, and the Kyrgyz Republic. Colombia and Egypt have been top global reformers in four of the past seven years. But those events are timely. Most of the firms in those countries’ economies have suffered from lower demand and a drop in private capital flows. Start or invest into businesses in low-income economies on average still have unresolved problems, such as transferring property, filing taxes or resolving a commercial dispute through the courts.
Moreover there are some problems in the Europe and Central Asia Region. While most other countries have to invest in systems expanding and increase access, the challenge in this region trying to find resources to operate and maintain existing assets to ensure reliable service at acceptable quality. The financial market situation in parts of the Euro Area still seems suspicious to invest in it. And the biggest problem that may appear in the nearest couple years is a huge money flow going into nine middle income countries because of seeking higher yields by large investors.

People migration

As for the flow of people, an August 2010 survey by analytics revealed that 73 percent of the most economically active citizens from developing countries would like to leave the country. By the way the real percentage of immigrants is almost impossible to determine, since no one slams the door: people just live and work in another country, being their own country’s citizens. “More than 210 million people worldwide are living and working outside their home country. Of those, roughly 15 to 20 percent – or as many as 42 million people – are believed to be undocumented guests.”

From one side immigrants willing to take a chance in a new country, that mean high level of motivation and risk taking, their average age is 28, and they contribute to the workforce. From other side immigrants fill niches in the labor market where demand is highest relative to supply, 45% of them have extremely high skill levels that mean higher expectations and lower salary on this area.

The problem is that the unemployment rate in high-level economy countries keep increasing

And expecting to grow in 2011-2012 on1.2%, while the similar rate in Asia-Pacific and BRIC region is much smaller and expecting to be the same. The World Bank forecast shows that the global economy will slow in 2011, and warned that rising commodity prices could spur a return to the sky-high inflation of 2008. The Washington-based development lender estimated the world economy will grow 3.3 percent this year compared with 3.9 percent in 2010, a year of rebound from the 2009 recession. Emerging and developing countries were expected to expand 6.0 percent, more than double the 2.4 percent annual rate of high-income countries, the bank said in its latest Global Economic Prospects report. So, where the people flow will turn?

Rainfall of ideas

Ideas always were free to move. Scientists were the first humans to the XV century who can freely traveled all over Europe. Copernicus studied in Krakow and then in Bologna and Padua. Tycho Brahe was born in Denmark (then owned by Sweden), studied in Leipzig, worked for the Swedish king, and later moved to Hamburg. Kepler worked first in Styria then moved to Prague and then in Silesia. As for now, the situation is catastrophic. Ideas flow more like gas than liquid. Without favorable conditions, they dissipate instantly. There are certain places where you expect research to be happening such as prestigious universities, world renowned colleges and institutions. UK, India, China, Israel, US, Germany, France, Ireland, Japan are in the top-list of where we will get surprises in the nearest 5 years (http://seedmagazine.com/place/). Most of those countries already raise their tuition fee in 2-3 times, so let’s wait for unexpected discoveries.

Finally, the lesson on those years is that in the global world closed economies do not stagnate; they regress, and do it fast. From the country with close economy washed away money, people and ideas.

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4 comments

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