A lot has happened since the onset of the worldwide financial and economic crisis in 2007.
After a false start by letting Lehman Brothers go bankrupt, an impressive set of measures were taken by governments around the globe to stabilize the financial markets.
The results are positive. The US is seeing economic growth and has high hopes for a shale gas-led re-industrialization. In Europe, southern countries seem to be turning the corner. China is continuing its high-speed economic growth, but no longer at double digit growth rates. Japan has copied the quantitative easing model of the US and stock markets are up.
On the downside, fundamental changes to the financial and economic structure of the global economy seem to come slower or are less ambitious than anticipated a few years ago. Unemployment is at staggering heights in Europe and improving very slowly. Rock-bottom low interest rates are fuelling the stock markets and improve or sustain the real estate markets in many countries. China has an impressive stock of empty private apartments, held by speculators gambling on even higher real estate prices.
The hoped for inflation is not being seen where it is most needed: in the real economy. If there is one place where inflation is very strong, it is sadly to be found in the debt levels of countries and central banks. The US Federal Reserve may well have lowered its threshold of purchases of debt under its quantitative easing program, but the total amount of several thousands of billions of dollars is still growing by tens of billions of dollars every month. It only adds to the already very high overall debt level of the country.
Having said that, optimism has returned to companies and consumers in certain countries, such as Germany. Its economy still relies heavily on exports to China, but consumer spending, helped by the introduction of a minimum wage, is on the mend.
At the same time, political stability is fragile in quite a few regions: North Africa, Syria, Thailand and Ukraine. China and Japan are at odds over a group of rocky islands. North and South Korea keep their long-lasting dispute.
Where should we look for structural improvement to the world economy?
Since debt levels are already unsustainably high, it will have to come from the private sector – the real economy. Currently, we see concerted efforts by many countries, led by the Organisation for Economic Co-operation and Development (OECD), to make sure that particularly large multinational companies pay a certain amount of tax and in the countries where they are active. At the same time overgenerous social systems are coming under strain, particularly in France, Italy and southern Europe.
A pair of other solutions could come from the internet.
Although the internet is the most magnificent revolution in the last hundred years, it has flaws that need to be mended. One of the most important of these is the fact that added value is freely available on the web, instead of paying for it. This is a contradiction in a capitalist system and should be tackled. Another flaw is related to the fact that surfers disclose their private details too cheaply on the web, unaware of what will be done with them and without fully understanding the possibly ever-lasting consequences.
The practical implementation of those solutions may be easier than it looks at first sight.
The first issue can be solved by taxing the added value that these currently free internet services produce (VAT). The result will be that those services will no longer be completely free. The privacy issue on the other hand can be solved by charging a privacy levy to companies asking for the disclosure of private details from their private clients. This will encourage these companies to give private users two options: a paying option for the service without disclosing their private details and an almost free option when they disclose their personal data. A governing body should to be created to keep privacy in check on the internet.
If one considers the huge number of surfers and internet services, the VAT and privacy levy need not to be high to have an important effect, and thus they should not deter surfers from continuing their active use of the World Wide Web.
Whatever solution or combination of solutions is chosen, there is no time for complacency since the total debt levels of most countries are far too high. The other option is a debt haircut for all. But even that would not last without structural measures to reform the real economy. Time to act.