Economy

The Double-Edged Sword Of Globalization And The Case For Keynes

Op-Ed: Emerging countries are wobbling, Italy is paying record interest rates, and the Germans are on alert. With the next economic crisis gathering like a winter storm, politicians must act quickly – never forgetting the lessons of a certain 20th-century

Stormy times (Ed Yourdon)
Stormy times (Ed Yourdon)
Alexander Hagelüken

MUNICH -- One advantage of globalization is that Germany is now dependent on many other countries and their growth reduces Germany's own problems. Flip it around, however, and that's also what is bad about globalization: because Germany depends on many other countries, their problems cut into German growth.

Right now, with economic profit warnings emanating from all over the globe, the crucial question is: how well – or how badly – are governments reacting to the impending economic crisis? And what does that mean for Germany's growth, and for its problems?

On Wednesday, the Munich-based IFO Institute gave pessimists an opportunity to become even more pessimistic. Their forecast has the German economy slowing down to 0.4% growth in 2012, or about a tenth of what it was this year. That's a shock. As late as October, all research pointed to growth of at least double the figure just released by the IFO.

The reasons underlying the forecast are clear: the European debt crisis; recessions sharpened by savings packages in afflicted euro-countries; and the global downturn. Equally clear is what Europe's governments must do to face the situation: they must solve the debt crisis that has become a crisis of confidence inhibiting businesses and consumers around the world.

Impressive promises for stability were issued at the most recent E.U. summit. But there was no real rescue -- the debt crisis was most certainly not solved, as Italy's record interest rates on Wednesday showed.

Because we live with the double-edged sword of globalization, this euro strategy is quite simply not enough. After the 2008 financial crisis, Germany freed itself quickly from recession thanks to the boom in emerging countries. This time too, Germany depends on China, India and Brazil. Except that now they're wobbling too. Just how bad the global downturn gets will depend on the governments – all of them. There is no such thing as a national economic policy without international effects.

The case for a Keynsian approach

First: the international community must avoid falling back on protectionism. In this sense, China's imposition of tariffs on U.S. cars sets a bad example. During the early days of the last crisis, discrimination against foreign companies just made things worse.

Second: industrialized and emerging nations alike need to work on systemic weaknesses that are exacerbating the crisis. Brazil, for example, has low rates of savings, and a benchmark interest rate of 11% that puts the brakes on business. India is sealing sectors like retail off from foreign investors, which is why it's short of the capital needed to develop into a modern economy. Because the aversion to foreigners still runs deep after the East India Company's 17th century exploits, the government had to put on hold its plan to open the country up to investors like Walmart.

Third: it will be important for the West and boom countries to work actively together to prevent sharp decline. Since the financial crisis – when swift reaction from the United States, China and Europe, economic programs and cheap money from the central banks prevented a 1930s-style depression -- it has been manifestly clear that the state cannot stay out of it.

John Maynard Keynes is not dead: in fact, his ideas are the most pertinent ones out there right now. The problem is that governments don't have enough money: they are pressured by higher debts than they were before the financial crisis. Let's just hope the IFO prognosis is right and that the downturn will be milder than it was in 2009.

Read the original article in German

Photo - Ed Yourdon

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Green

In Argentina, A Visit To World's Highest Solar Energy Park

With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.

960,000 solar panels have been installed at the Cauchari park

Silvia Naishtat

CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.

Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.


It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.

Abundant sunshine, low temperatures

The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.

Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.

It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.

Chinese engineers working in an office at the Cauchari park

Xinhua/ZUMA

Chinese want to expand

The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.

The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.

The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.

The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.

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