Not a New Year Economic Review

Thousands of Economists have written millions of words in forecasts for the performance of the economy in 2012; globally, country-by-country, through individual business sectors and from various perspectives.

Very few of the pundits are predicting that the eurorats can relieve the eurozone of the crippling problems that arise from the falsification and fudges that marked the establishment of the single currency. The European Union was founded on a fervent hope: that war in Europe could be prevented, permanently, by drawing all the potential belligerents into a single economic and political entity. Once in the Union, it was hoped that it would effectively be impossible for any state to leave it. There have been endless moves to lock member  countries into an 'ever-closer Union': which is interestingly different from the historic US aspiration to create a 'more perfect Union'. European integrationists have been content to drive through notably-imperfect measures provided each fudge received the assent of the member states, however reluctantly the consent was conceded. Once the deal was done the outcome was regarded as irreversible. The creation of the euro was the most significant single step in that direction. It went spectacularly adrift in 2010, then it continued to be an unsolved crisis through 2011. 2012 will be the year in which reverse gear is likely to be engaged; and at least one of the members of the eurozone who have been strapped into ejector seats may actually be parachuted out of the system.

At the end of 2011 China reaffirmed its aspiration to put a man on the moon by 2020, which implies leapfrogging the USA and Russia and the EU in the application of complex and significant technologies. A reconditioned Soviet-era aircraft carrier has taken to the high seas under the Chinese flag. Chinese agencies are buying huge areas of farmland in Africa, to add to their mineral rights and construction interests on the continent; and while China refused to take any direct part in a eurozone rescue fund their central bank has boosted its contribution to the IMF [which may be used to assist the European Central Bank. on appropriate terms] and it has frankly been admitted that Chinese agencies will be happy to buy European companies that control significant ik [see my book PPE]. Alien commentators who predict worsening conditions for the Chinese economy in the coming years should take note of the extent of the 'unnecessary' spending that the Chinese state is making on strategic and prestige projects that will deliver only long-term dividends, if any. China can cancel or defer a huge range of massive discretionary spending if the more short-term interests of economic and social stability call for such retrenchment; so China is unlikely to experience any shock to the system that cannot be compensated by easily deliverable actions.

India has much less flexibility over budgetary allocations because of the immense complexity and confusion within the social and economic structures where thrusting modernism contends with ruthless traditionalism. Publicly announced plans are never fulfilled on budget and on time, and only very rarely is legal action taken against corrupt politicians and administrators [in sharp contrast to China where dozens of death sentences each year ensure that most party figures and administrators are cautious not to get caught: often by committing no offences].

Very broadly, Latin American countries are consolidating their improved political situation. Venezuela has a very uncertain future which may partially be resolved by the election that is due this year, and the uncertain health of the President adds a further imponderable. The most significant headline in the continent is probably the relative success of Brazil's measures to limit the destruction of rainforest: and this achievement has not significantly been at the expense of economic growth which is taking Brazil higher among the 'top ten' global economies. Democracy is not fully consolidated in depth throughout the continent but blatant abuse is rarer than at any time since the expulsion the Spanish governors early in the nineteenth century.

The Islamic world has been intrigued by the 'Arab spring' which began last year, but it is far too soon to jump to any conclusion that democracy must develop and become entrenched in countries where closed systems of government have been disrupted. It has proved naive to assume that the momentum of progress will spread to unseat other oppressive regimes. Iran continues to make bellicose gestures which are partially generated for the age-old reasons of distracting the population from domestic oppression and partially in reaction to aggressive murmurings from Israel and the United States. It is widely assumed that the USA is not capable [either logistically or psychologically] of waging a full-scale war with Iran, while Washington shares the Israelis' determination to do what can be done to prevent Iran from being able to wage nuclear war on Israel. The presumed progress of the Iranian weapons programme, and of the related missile development, will determine whether Israel is able to hold off from intervention of the sort that has already caused delays to the project. The stand-off between Israel and Iran is an important component of the 'Palestinian question', even though Iran is not an Arab country. As Zionist settlements continue to be developed in occupied territory, and the rhetoric arising from the settlers [and from their supporters in Israeli politics] becomes more strident, the chances of a 'two-state solution' diminish and the relevance of Tony Blair's hugely overstated role as a peacemaker is more conspicuously diminished. Israel will continue to be the most important external influence on US politics, less because of the power of the conspicuous 'Jewish lobby' within the USA than because of the the increasingly clear parallels between the fate of the Palestinians and that of the 'Indians' who were dispossessed and allowed to die as the Frontier was pushed out over the lands that became the continental USA. If West Bank settlements are offensive to human rights and probably contrary to International Law, so was the establishment of most of the towns and cities of the USA. Nobody should be surprised if the vast majority of Americans have no wish to contemplate the similarities of the two situations [see my book Fundamental Tensions]. The longer the standoff between Israel and the Palestinian Authority continues, the more the settlements will grow and the self-confidence of the settlers will increase. The harrassment and alienation of Palestinian families will increase and lead to demands for more vigorous reactions from the Authority [or from rival structures if the Authority continues to accept American money and influence]; and self-selected surrogates for the Palestinian cause - including Iran and terrorist groups - can cause a great deal of damage. This problem will not be resolved during 2012, and at worst it can disrupt many aspects of world business by restricting the open market supply of oil, by creating instability in various Gulf states, and through the damaging potential impact of random terrorist attacks on worldwide targets.

The simple term 'Sub-Saharan Africa' has implicitly  confirmed an impression in other parts of the world that the continent was somehow subnormal in economic performance, and in democracy, in legality, in culture and social cohesion. The nineteenth century concept that Africa was [or contained] a 'heart of darkness': of cults, primitive religion, tribalism, low intelligence and slavery continued to be quoted. Positive developments over recent years have done very much to make traders in the other continents aware of the economic opportunities, and of the increasing legitimacy of some governments that have reasserted the rule of law and even suppressed corruption. In some part-Muslim countries violence against Christians is increasing; but such incidents are being reported internationally. The depressive mood of crisis that infests Europe is sharply in contrast to the optimism that has been spreading across Africa. Despite the awful failures like Somalia and Zimbabwe there is very much positive thinking in and about Africa: which is really good news.

These pointers to the prospects for the world in the next few years all pivot on political data, and the key fact that the economic prospects of the various countries are heavily influenced - if not absolutely determined - by their politics. But these signs do not point down any single path. In Latin America the strongest economic growth is apparent in countries with the best achievements in democratic politics, while in Africa the maintenance of the rule of law - which is essential for secure growth - is less closely associated with electoral democracy and constitutional legitimacy. India is proudly [and genuinely] the world's biggest democracy: but the institutions of the state are as much inhibitions on growth and development as they are supportive of progress. The European Union is recognised to have a 'democratic deficit': most voters resent the loss of powers by their state parliaments even though they recognise that significant benefits derive from a common market and a commitment to peace. There is a great and growing tension between the eurorats of Brussels and the mass electorate, which is not articulated adequately at the interface of the European Council of Ministers and the Commission of the EU. Japan is publicly a chaotic democracy, and works efficiently because there is an effective, secretive Imperialist elite that can get things done regardless of the apparent weaknesses of the official government; while in China omnipresent [and unabashed] manipulation by the Party also makes the formal constitutional institutions irrelevant. These Asian models have been successful. Japan's much-described 'decade of stagnation' has been statistical rather than experiential, and there is little doubt that most Chinese welcome economic development and would not swap it for democratic stagnation.

The world is a patchwork of different political models, each of which serves some economies better than others. There seem to be no general rules: the American belief in the universal export of Democracy is not generally accepted, especially by people who prefer improving living standards to the irregular opportunity to have a negligible impact on the outcome of an election. The unedifying state of US politics in this election year is likely to be the worst possible advert for democracy: Brazil's economic success is a shining example of it. We face interesting an uncomfortable times!.