ECONOMIC GROWTH A “MIRAGE” OF BUBBLE ECONOMIES

NEW ANALYSIS SHOWS REAL ECONOMY HAS CONTRACTED OVER THIRTY YEARS OF GLOBALISATION; PRODUCTIVITY AND EFFICIENCY HAVE DECLINED

High growth under globalisation is just a sign of a "mirage economy", says a new report published today by nef.   The consensus shared by orthodox economists that globalisation has led to higher overall growth rates is based on flawed analysis of a “mirage economy”, propped up by a massive credit bubble. 

The report by nef, the “Real World Economic Outlook (RWEO)”, which is edited by Ann Pettifor, and provides an alternative to the IMF’s world economic outlook, demonstrates that:

• By 2000, financial assets in five major economies were worth about three times the value of the real assets underlying them 

• These financial assets have been channelled into existing assets (like property, stocks or bonds) or else into speculation (on currencies, future asset prices etc.) and other forms of betting – rather than into the creation of new assets

• As a result of this misallocation of financial assets, real investment rates have been falling. As a share of GDP, investment was lower in the 1990s than the 1980s in all G7 countries, except Germany. Moreover, despite the stock market boom of the late 1990s, investment rates fell between the first and second half of the decade in all G7 countries except the US, (where figures were inflated by some 10% because of an exaggerated way of calculating the quality of computers)  
   
• Productivity growth has, as a consequence, shrunk, from an annual rate of 2.5% in 1945 and 1973, to 1.2% in the 1990s. This fall has occurred despite the so-called “productivity miracle” brought about by new technology.

• At the same time unemployment rates in major economies have been steadily increasing since the 1970s.

The share of GDP going to employees in the form of wages and other compensation has fallen over the past three decades. In almost every country the growth rate of real wages has been falling lower and lower. 

“The finance economy has been massively inflated by central bank and governmental action, and has become divorced from the real economy. Instead of investing in real productive economic activity  – the finance sector has created “bubbles”” - pouring funds into existing assets like property, and into speculation and gambling.” said Ann Pettifor, Head of Jubilee Research at nef and editor of the report. 

“These activities helped create the stock market bubble, the telecoms bubble, the dot.coms bubble, the dollar bubble and the housing bubble. But as investors have already learnt, these bubbles are phantoms of the global economy – not the real economy. There are more bubbles still to burst – and many more people besides investors will be hurt when reality dawns “

Romilly Greenhill, senior economist at nef said:

 “While we must beware of treating economic growth as the “holy grail” of economic policy-making – it’s still telling to look at how market liberalism and free-market policies have damped-down economic growth, not stimulated it. Both economists and anti-globalisation campaigners have got it wrong when they’ve accused neo-liberals of being obsessed by economic growth. The truth is they’re not. They’re obsessed with enriching the already rich.

“Economists from the IMF and other G7 treasuries, that have forced these slow-growth policies on indebted countries have a lot to answer for. And in the rich countries we need to hold our politicians and economists to account - both for the decline in investment and economic growth rates, but also for the consistent fall in the growth rates of real wages and employment.“

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