Global economic crisis: Who is to blame

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Poor nations are once again suffering as a result of deep globalization and the current economic crisis, which according to the World Bank’s report, directly resulted from irresponsible and imprudent borrowing practices in America.

As reported in the New York Times, the World Bank predicted that the global economy will shrink 1 to 2 percent in 2009. Calling the present a “dangerous year,” the bank’s president, Robert B. Zoellick, announced that global exports are expected to decrease 2.1 percent. This decline in global trade could prove the greatest in the past 80 years.

East Asia has been identified by the World Bank as the “hardest-hit region.” With declining exports to the United States and Western Europe, even those countries not affected suffer directly from the overarching deterioration of the region’s economy.

European Union members like Poland, Hungary and the Czech Republic, which have previously boasted a steadily growing economy, are now suffering from lowered exports to their western European neighbors. The countries are also hurting from a severe credit crisis. Major European banks have assumed tremendous losses on American mortgage-backed securities and have tightened credit to the local governments and companies as a result.

This global economic crisis also illustrates the handicap of deep economic integration, which has captured the international arena during the past two decades. Limited integration renders many developing nations incapable of dealing with domestic consequences of the global economic crisis.

Markets exist in non-market institutions, such as those provided by nation-state governments. Due to various cultural, religious and historical practices, nations – especially developing countries – require institutional diversity. This diversity proves an obstacle to economic globalization. Instead, the trend for deep integration requires minimal trade barriers, thus necessitating institutional harmonization.

While limited integration leaves room for national economic management and strong domestic institutions, deep integration, requiring elimination of all trade barriers, means either tighter world government or less stable domestic institutions. Absence of the former has led to proliferation of the latter. The current economic crisis illustrates just how dangerous deep integration has proved to be for individual nations.

For example, the Latvian government disintegrated at the end of February under pressure from public riots precipitated by economic and political turmoil in the country. This unrest in Latvia became the greatest since the collapse of the Soviet Union in 1991.

Latvia and its Baltic neighbors joined the European Union five years ago and for a while reaped the benefits of harmonized institutions and deep integration. They have been repeatedly praised for the highest economic growth rates in the region. Not any longer. The Latvian economy is expected to shrink by 12 percent by the end of 2009.

Latvia’s government became the second in Europe to collapse, following in the footsteps of Iceland, the government coalition which disintegrated in late January. Even such stable European economies as France and Germany are facing public unrest and dissatisfaction, while simultaneously working out measures aimed at providing jobs and stabilizing their declining economies.

Developed nations, such as the United States, have grown accustomed to reaping the benefits of deep integration by exploiting relatively cheap resources of the developing world. However now, the current economic crisis constitutes an instance that not only obliges developed countries to provide a stimulus package for the developing nations, but also requires the world to re-evaluate benefits of deep globalization. As recent events have proven, no one is immune from suffering the consequences of another’s unhealthy economic practices.

Elizaveta Zheganina is a graduate student in history. Please send comments to opinion@spub.ksu.edu.

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