Monday, June 28, 2010

Future of World Economy (Part 2)

As wealth can nether be neither created nor destroyed, just imagine how much of prosperity can be gained if there is no violence and terrorism. However, factors like increasing population can say that in timeline gross wealth can be increased, but at any given limited time frame gross wealth of the world is constant.* There will be more money allocated to remove poverty. Purchasing power of people will go high and loss of property and lives will be minimized. There will be more investments in infrastructure and obviously standard of living in the third world will be upgraded. But, this is an unlikely scenario in the present world. Every nation is unsecured by its neighbor. 

The firework dilemma*:

With so much money spent in the fireworks, once a thought appeared; what if people stop wasting money in the firework. So much money can be saved. But economy is interdependent. Macro economy is an integration of all such micro economies. If firework industry will go busted, dependent workers will lose jobs. For many they may not be compatible skill wise to migrate to other works. Those who will manage to migrate with their skills or to other skills will dilute the net workforce demand of corresponding sectors. This will influence lower pay scale among people in the interdependent economies. Same effect will be observed in the dependent sectors of firework economy. This is an effect of job loss in one sector. Same is happening at the Gulf of Mexico. An Oil Spill has ruined so many lives. Same happened in the recent recession aftermaths.

Secondly, where the saved money has gone? It could be invested in other sectors, could be dormant and out of the circulation, or money saved could create extra demand for certain commodities and hence will be responsible for inflation.

Gradually, economy has the potential of adaptability. It is a complex debate, how any sector busted will upgrade or degrade economy as a whole. Certainly, a strategic thinking can make this sustainable and acceptable to the economic ecology. 

Afghanistan is now said to be sitting on the wealth of buried minerals under those rusted Russian Tanks and opium poppies. The Afghanistan economy can witness a boost, if these minerals are accessed. The access will result in investments in infrastructures, better livelihood and millions of jobs to Afghan people and inflow of foreign exchange for the poor economy. Hopefully the clouds of a war struck nation will fade away for their prosperity. In the same way Gaza blockade removal can boost that many sectors in the region which are now under not allowed list by Israel.

The previous blog post discussed how BRIC has evolved as emerging economies and how they are going to influence decision makers for coming decades. These economies are also facing challenges to overcome and become World Powers. 

Poverty is primary among them. These nations are not homogenously developed. As Western Russia is developed, but remaining part is underdeveloped. People still live nomadic life in the interiors of Russia. Same with China, western part is not that prosperous in comparison with Eastern part having the coastline. Same is with Brazil and India. The wealth transferred doesn’t reach everyone in the same ratio. 

Infrastructure is another challenge. This is the area where BRIC nations have started investing into, so that they can make their selves ready for the forthcoming growth. Infrastructure plays a really big role in a nation’s progress. Imagine how a small railway station where only few all stop trains halt in 24 hours contributes towards the micro level economy of that village. When the tracks were being laid and station was built many locals got involved in the construction work. Some people got an opportunity to have a part time income of selling food stuffs when train halts. Some people took this as a full time vacation to reach distant places as train vendors selling food and local crafts. Some educated also got job at the station for some different roles. That village stations served nearby villages too. Those who had bulls with them will earn livelihood by providing transportation facilities. Those were the benefits to count but listed few. They were all new vocations created by single tracks of railway line with couple of platforms. Point of emphasis is the role of infrastructure, enabling wealth to reach those places where it was not before. With infrastructure reaching interior parts of the economy, it will result in increase of gross consumption and hence will guide growth in GDP. That will be the payback or return on investment in the economy.

Defense investment is a necessary evil, as it safeguards investments done throughout the economy. But, lesser this evil more is prosperity. That is why USA is ridiculed by its own mass for heavy investments in Afghan and Iraq wars. Terrorism and internal violence is a major challenge for all economies in todays world.

Illiteracy is a challenge and Education is a weapon to eradicate the evils of an economy and lead it to the path of prosperity. If people are educated and dignified of knowledge they will not be brainwashed to con tribute devil’s underground economy. Underworld is also a parallel economy, which sucks the wealth out of the white system. Any contribution in grey economy doesn’t ads to the GDP of a nation.

Corruption is another devil which really blocks the economic growth. The World Bank loan becomes a Swiss Bank deposit. World Bank or IMF receives their paybacks by hard earned Income Tax or GST or VAT paid by common mass who are still deprived of those benefits which were actually meant for them. If economies owners will go honest, imagine how much of prosperity can be gained.

Communist philosophy of Marx was based on this ideal scenario where everyone got its equivalent share of his/her contribution towards economy. Where state did all the earning and does equivalent distribution of wealth among people. However, this philosophy upon its implementation went on extreme resulting in exploitation of folks and corruption by officials. It is now ended in Russia, transformed in China. Communist ideology is now only confined to lesser know regions like N.Korea or Cuba who have minimum connectivity and responsibility towards world economy. 

*Fireworks dilemma is writetr's own hypothesis, welcome your responses on this dilemma

Part 3 will feature the Economic Hopes of Africa.


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