La' Ziramjad 1: Understanding the Looming World Economic Meltdown

After recovering from the Credit Crunch or the Global Financial Crisis in 2008 that has been labeled by many economists as the worst financial crisis since the 1930s Great Depression, the world is now on the brink of another economic meltdown. The rising cost of living and unemployment rate that burdens almost every country in the world today clearly shows that the world may hit the wall again at any time in the near future.

Greece Default

To understand what might happen to Malaysia if an economic meltdown is to happen, it is very easy to just look at Europe and see the troubled Greece, which is now battling against its debt default. Greece is a perfect illustration of a country which had run its economy the wrong way and the repercussions of doing so.

With the European Union (EU) incessantly lending money to Greece while asking its government to cut its budget, many don’t realize that the EU’s help is rather futile. The economic models being used by many nations right now will need alteration at a global level in order to restore Greece and other soon-to-be-affected countries.

But at the moment, with Greece, we are looking into the ‘opposite approach’. EU was telling Greece, “we lend you money, so you must balance your budget, and you need to cut your social welfare programs, sell your investment, sell your transport.” Unfortunately, this will make Greece poorer as the tax in Greece is going to shrink. To put it simply, with no tax money, a nation cannot grow.

When Greece announced its debt default that sees its government no longer able to make out bonds, the banks, especially those in Germany, Spain and England will soon be affected as they were the ones that had lent the money to Greece. This would then ignite a chain-effect in other European countries and later spread to other continents like Asia as the economic models that are being use here are similar to those being used in Europe.

And intriguing enough, The EU is not solving the problem in Greece. Instead, they’ve been driving out from the crisis in reverse. The whole world must understand the current issues and grasp at the fact that the best way to resolve the problem is through collective efforts. The underlining problem is under-consumption and distributing money to the wrong community.

Understanding the Problem

These days, too much of the world’s wealth and income has gone into the corporate sector. That means our capital has flowed out to the likes of CEOs, shareholders of the corporate world and other related party of the corporations. This leaves the ordinary people getting less and less share of the profit.

The consequence of the ordinary people getting fewer shares is that the buying power among the population stop to grow. The capital is growing but manufacturers cannot go on to produce goods and products such as TVs, shoes and other things because people just cannot afford to buy them due to their limited buying power. This then leads to an overhang of supply and demand. This happens as the surplus of the capital cannot produce material anymore due to the slow market. When this happens, the capital goes into speculation, more bonds, foreign exchange and also future derivatives. This will spark a chain effect where the government will fail to produce foods, houses and many more other necessities simply because the people can’t afford to buy them.

In the Europe nowadays, due to the derivative bubbles, most of the governments are now spending a lot of their money to save the banks. The economic environment is so worrisome that government deficits have reached 1.3 times the country’s GDP. What happened to Greece now can happen to any country, as the capitalist economic system is currently ‘eating’ into the value for money while the profits are kept among the corporates.

The Solution

Since it’s all because of the under-consumption, the answer to the problem is to take steps to transfer the wealth of the society to the ordinary people. One of the steps to circulate wealth to the public is by setting up minimum wage. The minimum wages affect will bring the buying power to the people again, and that money can go into the demands again.

The other step is to make all country in the world to start charging tax on all corporate profit financial transactions. This measure will transfer the corporation money to the government. The results of this will see the government having extra money to spread among the organization members, the society. With this, the government can again start to congregate demands.

We must realize that we need to transfer the wealth from the corporate to the government, to the people. If the money from the tax were given to the government then the government can use it for welfares, education, healthcare, and all kind of interventions to help the people. Then there will be demand all over again. This is how the world is going to get out from this current crisis.

What Malaysia Has Done

Malaysia has wooed RM21.3 billion in foreign direct investments (FDIs) in the first half of this year and with prime minster Najib at helm the FDI is getting higher due to government’s hectic lobbying for foreign investors. Not that this is not good, investment is always good. However, we must be aware that, in this current economy, investors will not prosper the country in the right way. With a lot of foreign investors coming down to Malaysia to invest, the locals are getting lesser chance to gain the nation’s capital.

Najib has been saying that his wishes to liberalize the market and create more business people. These will only lead to corporation reaping the nation’s capital and the national income will obviously get smaller. Big businesses, railways, hospitals and education cannot be left to commercial interest, no matter how straightforward we are going with this economy.

The Wise Approach of the South Americans

While Europe and some Asian countries are now on the brink of economic system, countries like Brazil have prospered and managed to avoid themselves from the meltdown. Since the 35th president of Brazil, Luiz Inácio Lula da Silva took over the government in 2003, Brazil’s minimum wage have been raised three to four times. Brazil’s government has started to realize the importance in uplifting the poor people.

Brazil has started a program called ‘Bolsa Familia’ which gives money to poor family as long as they send their children to school. With such welfare system, the family would not only able to buy themselves foods, but the children would also receive education.

Since 2003, when the program first started, 12 million families have joined the scheme and received small amounts of money (around US$12 a month). Inequality has been cut by 17 percent in just five years, which is perhaps one of the most dramatic achievements in welfare ever recorded. The poverty rate has fallen from 42.7 percent to 28.8 percent.

In Brazil, with the introduction of such system, the corporate world is also started to receive demand again, because the people now have money in their hands, therefore their buying power has been restored. This will automatically encourage production of goods. In Brazil, all parts of the country are reaping something useful to satisfy all parts of the community. The Brazilian government, by giving money and buying power to the poor, has not only increased demand but also promote small local businesses to form.

The money will always stay within the country as the poor communities are not ‘customarily obliged’ to buy that imported US$199 iPhones. They are satisfied with the cheaper local-made mobile phones. The consequence to this is it would boost the local corporate companies.

Greed and Instant Gratification

The people of the world must now realize the situation, not only them; the corporate power on the other hand must be less greedy and help the market first, so that they can receive demands again for production. By adapting this new attitude, the under-consumption problem that we are facing now can be overturned.

Adam Smith was quoted saying that “you can be greedy as you like, but make sure you take care of your community”. This must be practiced by the corporate world. It is understood that the capitalist’s motive is to maximizing profits, but this shortsighted mentality should be chucked out so that more profits can be gained in the future.

Why Can’t People See It?

Understanding the economic situation might prove decisive to the world economy now. Socialists have proven that its economic analysis has found the core problem of the modern era economic meltdown. And to look at it and have a think about it doesn’t bring people closer to communism. This however is not the case as this is an economic analysis, not a political ideology.

So if someone asks why the economy is going to go through a meltdown, just tell them that we, and the rest of the world, have perceived the meltdown in a wrong way and dealing with it in a wrong way. Actually we have been doing the opposite of what we’re supposed to be doing.