Regular readers will know that I tend to take a contrarian view.  This is done at least partly in attempt to stimulate debate in the strategy field.

There are a couple of subliminal assumptions (or hopes) that I believe are circulating in the strategy world at the moment that need a touch of contrarian analysis.  These are:

  1. That the global economy will spring back to pre-2008 levels of growth.  There are real reasons why this may not happen.  Observers better qualified than me in the economics field can explain why a more likely outcome is a slow and bumpy recovery (see [1] and [2]).
  2. Benign globalization.  That we will return to ‘benign’ globalization, where everybody wins and that US influenced definitions of capitalism will prevail.

Dealing with the issue of benign globalization, a couple of articles have come across my desk that may help us to understand why the future road for globalization might be a bumpy one.

One, America Cannot Resolve Global Imbalances on Its Own [3], presents an interesting analysis of Larry Summers’, the White House economics director, position that the US must become an export led as opposed to a consumer led economy and must rely upon ‘real engineering as opposed to financial wizardy‘.

As the article states, there are at least two drivers behind the need for macro-economic restructuring.  The first is the issue of budget deficits and the second is the issue of the strategic impact of a reliance long-term on foreign investors.

Dealing with the first, there are now real concerns that the level of US borrowing will hinder its room for manoeuvre – officially the 10 year budget deficit is expected to be over $7,000bn (60% up on the figure projected just 5 months ago in March 2009).  Some say the deficit will be over $9,000bn[4].  In the the medium term this could present problems for the US in raising further funds, especially if we experience the dreaded “W” double-dip recession.

The second issue relates to concerns regarding the US’s  independence as a super power if parts of its financial sector or other ‘strategic’ elements of the economy fall into foreign ownership.

So the real issue is a wholesale re-engineering of the world’s largest economy.  An economy that must go back to an export led foundation if it is to overcome the budget deficit problems referred to above.   But, amongst the advanced economies, the US may not be alone.  Some may be be interpreting messages from London that the UK is questioning the benefits of being a world leading financial services centre[5].

If we do see a long-term move to re-engineer consumer-led and financial service based economies then that move in turn will cause trouble for other export led economies (for example China, India, Germany) as they come under the weight of  new competition.

Could, then, protectionism rear its ugly head?

As they say, interesting times.

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References
[1] N. Roubini, “The risk of a double-dip recession is rising,” FT.com, Aug. 2009.
[2] W. Munchau, “How toxic finance created an unstable world,” FT.com, Aug. 2009.
[3] F. Bergsten and A. Subramanian, “Op-ed: America Cannot Resolve Global Imbalances on Its Own,” Peterson Institute, Aug. 2009.
[4] S. O’Connor et al, “US says debt outlook worsening” FT.com, Aug 2009.

[5] G. Parker, “FSA chief backs City curbs with global tax” FT.com, Aug 2009

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