CURRENT EVENTS

New World Order (next decade)

15.09.2009

The crisis has changed the generally accepted views concerning the global economy. During the next decade significant changes can be expected with respect to governing political powers, cash flow and its points of concentration. The power will follow with the money. The USA will not be the leading financial world power on the global scale - one can already see that there are publications saying that Europe is already wealthier than USA. The influence of the USA has begun to decline, but it will remain amongst the leading financial powers in the world. The influence of China, Brazil, and Russia will increase.

Financial expert Med Yones, who was among the few economists predicting the global crisis already in the beginning of 2007, emphasises that it is necessary to start thinking in the long-term. Short-term thinking was the main reason why the world is facing such a profound financial crisis at the moment. There is a need for educational programmes which would teach people to think like investors instead of consumers who buy things they are unable to afford.

Med Yones, President of the American International Institute of Management thinks that overcoming the crisis requires the government to use one of three options: devaluation of national currency, increase of taxes, or investments in innovation. “The first option is currency devaluation, which would affect investors and creditors. It would cause pressure and undermine the confidence of potential future investors in the local economy. Devaluation would also cause a new wave of inflation. Basically, devaluation can be considered as inflation “tax” imposed by the government. An increase in taxes is another option, but it would be bad news for business. This kind of step in no way encourages development of entrepreneurship on which the economy is actually based. The third and best option is development of innovations, but unfortunately very few countries are able to implement this successfully, and the USA is currently amongst the failing countries. This is the only way for the economy to grow without excessive crediting. Looking back into history, after World War II, the automobile industry was the only industry enhancing the rebirth of the American economy. After the financial crisis in the 1970s, it was the IT companies. And now a new industry is necessary both in the USA and Latvia. It is the only ‘healthy’ path for a recovering economy”, says Yones. Development of such new industries as alternative energy, nanotechnologies, stem cell research, and biotechnology will be able to generate sufficiently high income for paying taxes, recovering debts, and employing people.

The financial expert believes that the Russian market headed for a very good future because Russia has comparatively low national debt (only 7%). Also, at the moment investors are more interested in material assets, commodities for basic needs, basic raw materials and oil, steel and iron. From Yones’s point of view, the Russian market has a good future. However, the only problem there is corporate management and the degree of trust of foreign investors in business unaffected by corruption.

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