As much as I consider myself a realist on matters related to the global economy – indeed some call me a pessimist – never would I have believed that in my lifetime I would be seeing anything remotely resembling the 1930s.
The gravity of the current situation is beginning to be recognised. The recovery is likely to be “L-shaped”; the global economy could be entering a “lost decade”, comparable to what Japan experienced after its crash and financial implosion in 1991. But that was one country, now it’s the world.
In reality, things could get much worse than that. The greatest threat the world economy faces is a resurgence of protectionism. This would, as it did in the past, decrease growth and dramatically increase unemployment. This calamity would be occurring at a time of a huge increase in the youth of the developing world, when hundreds of millions of young people will be coming on to the labour market.
In the 1930s it was unemployment, following the great crash and the trade wars, that gave rise to extremist political movements, xenophobia and eventually to war. The social protection, wealth and demographics of the West make it unlikely that a 1930s scenario will be repeated. However, the situation in the developing world is different and far more alarming.
Furthermore, while the last couple of decades saw a quite remarkable decrease in global poverty, the current crisis, protectionism and unemployment could see a dramatic reversal of this process.
An international financial crisis, surging unemployment and protectionism were the ingredients that fuelled the cataclysms that ensued in the 1930s. We have an international financial crisis, which will not go away tomorrow, unemployment is rising, protectionism is rearing its very ugly head, but there is still time to act. And this is where business leaders must stand up and be counted.
The event that sparked the outbreak of unbridled protectionism in the 1930s was the Smoot-Hawley Tariff Act (1930). Over a thousand economists sent a petition to Herbert Hoover pleading that he veto the bill. They were ignored. There is no record of the business community having mobilised to exert overt pressure to prevent protectionism. Apart from the fact that no doubt many were themselves seeking protection, there was no sign of business leadership acting in enlightened self-interest.
Catastrophes occur not only because of acts of commission, but also because of acts of omission. Had the business community taken a stand – had business leaders shown guts – history may have turned out differently. It would also have given business leadership the kind of respect it abysmally failed to deserve not only in the 1930s, but even worse in the 1940s.
In the past couple of decades, many business leaders have talked quite effusively about globalisation and its benefits. It is now urgent to walk the talk.
The next G20 summit is to be held in London on 2 April. What the world needs to try to prevent the current crisis turning into a tragic drama is to have a minimum of 1028 business leaders, preferably far more, signing a petition addressed to Gordon Brown (host of the summit) expressing the clearest and strongest rejection of protectionist measures and the imperative of maintaining, indeed enhancing, the global market economy.
The late David de Pury, a man of great vision, board member of Nestlé and Chairman of the Evian Group, entitled the last article he wrote before his untimely death, “Let us not repeat the mistakes of the past”. We are in serious danger of doing so. Business leaders must consider not repeating the mistakes of omission they made in the 1930s.
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