Economics of G20. Группа авторов
(b)Gross fixed capital formation: Despite the decrease in the growth rates, the share of gross fixed capital formation (GFCF) in GDP increased in the developing countries and only decreased marginally in the developed countries. Maintenance of GFCF while the growth rate has decreased has meant that the incremental capital output ratio (ICOR) has increased considerably. The average for the developed countries increased from 12.5 to over 16. For developing countries, it almost doubled from 4.6 to 8. Only for Saudi Arabia the ICOR decreased from 24.7 to 13.8; for Turkey, it decreased from 6 to 5.9. The increase in the share of GFCF is not only because of actions by governments to help cushion the impact of the crisis on their economies but also GFCF by the private sector increased in all five developing countries for which data were available in the World Bank’s Development Indicators.
Table 3. External Balance (% of GDP)
Source: World Bank World Development Indicators.
(c)The external sector: Developing countries were particularly hard hit by the recession following the 2008 crisis, as the external balance (EB) of all developing regions and income groups deteriorated (Table 3).
The worst affected were the poorest, i.e. the least developed and the low- income countries. Since growth rates tend to decline when the current account worsens, the future prospects for these economies are not very good. The world economy is continued to be far from providing SSB. The experience of the developed countries was more mixed. The current account balance (CAB) improved for four of them and worsened for the other four. Even for the four for which it worsened, it was high only for the US.1 The surplus for Germany increased to a very high level, almost that of oil exporters such as Saudi Arabia. It is also important to note that China’s surplus decreased and was much smaller than Germany’s (Table 4).
The CAB deteriorated much more substantially for developing countries (Table 5). For no developing country did it improve. It improved for Korea, but Korea is hardly a developing country anymore.
Table 4. Current Account Balance (% of GDP)
Table 5. Current Account Balance (% of GDP)
Furthermore, the CAB was still deteriorating in 2015 and 2016. For a few countries, the size of the deficit as a percentage of GDP was stabilising. It was only for India that the deficit was the largest in 2012 at 5% of GDP. Since then it improved so that it was only 0.5% of GDP in 2016.
The different behaviour of the CAB in the developed countries against that in the developing countries can be partly explained by the difference in their export performance.
Table 6. Exports of Goods and Services (% of GDP)
Table 7. Share of XGS in GDP
Share of exports of goods and services in GDP (XGS) increased for the developed countries; only for Canada the share decreased (Table 6). However, for the developing countries as a whole it decreased (Table 7). The share increased for only two countries, India and South Africa.
In brief, the growth recovery has been very limited. The poorer countries have fared worse. Furthermore, the worsening of the CAB because of poor export performance does not augur well for the future.
The World Economy During the Inter-War Years
Problems for Recovery after the War
The world economy was turbulent through much of the inter-war period. Rates of unemployment were high for sustained periods of time. Unemployment in the UK was over 20% in 1933 (Laybourn, 1999). Between 1920 and 1939, in only 2 years was it less than 10%.2 In the US, it was over 10% in 1921, 1922 and 1930–1938, at times reaching almost a third (Eichengreen and Hatton, 1988). It the case of Germany, it averaged almost 19% between 1923 and 1936.
There was monetary instability. There was inadequate liquidity as the US which held the majority of the world’s gold ran surpluses and continued to add to these holdings. The shortage of gold in other countries meant that their currencies were not convertible into other currencies or into reserve assets. There were also persistent imbalances in the balance of payments (BOP). These problems were further complicated by the issue of war debts. These included reparations to be paid mainly by Germany and the debts of many of the victorious allies to the UK and of the UK and some of the allied to the US. Furthermore, there was the issue of establishing central banks and systems of monetary management in the countries newly established after the breakup of the Austro-Hungarian Empire.
Policymakers desired to fix exchange rates (ERs) to stabilise expectations and encourage investments that would increase output and preferably exports. But countries were reluctant to fix their ERs as it was not clear what they should be given the inflation that had occurred during the war and its immediate aftermath. As a consequence, ERs fluctuated considerably, which created uncertainties in the minds of exporters and investors. Countries moved on to the gold standard (GS) as soon as they could in the expectation that this would improve the situation. But this required governments to manage the public accounts responsibly, i.e. not run large deficits. But cutbacks in public expenditures had a recessionary effect on the economy.
The countries cooperated at various levels to resolve these issues. The major areas where cooperation was attempted were as follows: (i) establishment of central banks in the newly independent countries, (ii) reparations and (iii) economic recovery, fundamentally centred around ER stability. As we shall see in the subsequent sections, some of these attempts succeeded. Cooperation was most successful in tackling the problems of establishing central banks in the newly independent countries and in tackling the problem of reparations. It was much less successful in tackling the broader macroeconomic issues.
Cooperation in Setting Up of Central Banks
Many of the newly independent countries formed after the collapse of the Austro-Hungarian Empire needed to set up central banks. These central banks needed a stock of gold as reserves and these could only be provided through loans which could only be raised with the help of the older central banks, mainly the English and French central banks. Furthermore, they needed technical advice on the role of central banks and their mode of operation. There were differences of opinion as to who would provide the technical advice and the loans and a struggle for power also ensued among the central banks of the three major countries. To circumvent this competition, the assistance was provided under the aegis of the League of Nations. The League came up with an almost standard formula through its Economic and Financial Organization of the League of Nations set up in 1920 (Decorzant and Flores, 2012).3 A new bank of issue was established with the help of a foreign loan which was secured on the basis of certain revenues. A programme of financial reforms was implemented, and a neutral controller general was appointed by the League Council. Usually, the loan was raised in England and France, mainly the former. Advice was provided by a controller general appointed by the League, often from England. In the case of Austria, a government guarantee for the loan was necessary.4 But this was thought to be unnecessary in the other cases.