Key Messages
Understand The Global Economic System With Dambisa Moyo: A Guide To What’s Going Wrong And How To Fix It
Dambisa Moyo’s book Edge of Chaos gives readers an insight into the current state of the world economy, and how local and global political forces are impacting it.
Not only does she explain why the current system is failing us all, she also provides guidance on what we can do to make things better.
Her sections shed light on why Chinese economic growth isn’t always a good thing, how American math proficiency stacks up against other countries, and even how much was raised in contributions for various 2016 US presidential candidates.
In addition, Moyo shares her insights on how to create healthier economies that work for everyone instead of just a few elites.
She urges readers to research their own country’s politics and economics, considering how their decisions will affect them and their society in the long-term.
Essentially, Moyo helps us understand just how important it is for us to take responsibility for our government and our economy by using our knowledge to make lasting change for our future.
Growth Matters: Examining The Two Sides To Economic Growth And Its Impact
It’s been well demonstrated that economic growth is crucial for a country to reap benefits such as increased opportunity, improved standards of living, and greater mobility.
We all know the example of China, whose tremendous growth of the last 40 years has made it a global superpower and allowed over 300 million Chinese to be lifted out of poverty.
On the flipside, political instability and short-term policies can have severe negative consequences on an economy.
Argentina has provided many cautionary tales – between 1930 and the mid-1970s the country experienced six military coups accompanied by three bouts of hyperinflation that exceeded 500%.
All these distractions led them to neglect investing in education which has ultimately caused a lack of innovation and competitiveness.
This lead to their 1998-2002 crisis where unemployment peaked at 25%, currency devalued by 75%, and poverty skyrocketed from 35% in 2001 to 54.3% in 2002.
Ultimately, growth brings prosperity while political instability and lack of long-term thinking harms economies.
For countries looking to ensure growing economies, focusing on increasing investment in education is key for driving innovation that will benefit industry and society alike.
The Pros And Cons Of Debt On Economic Growth: How Debt Can Stimulate Or Stifle An Economy
When it comes to government debt, some types can be beneficial to economic growth.
Following the Second World War, the US accumulated massive amounts of debt in order to fund education and infrastructure.
These investments had a lasting impact on the economy, as demonstrated by the expansion of an interstate highway system and improved quality of the US workforce through programs like the G.I.
Bill that offered business loans to war veterans.
However, too much debt can lead to trouble and that was certainly evident in 2007 global financial crisis.
Countries like Greece, Italy and Ireland all experienced a decline in economic growth due to high levels of public debt that increased interest payments up to 10 percent of tax revenue.
Funds were redirected away from measures such as improving education or investing in technology which further hindered economic growth opportunities.
Moreover, resources are finite meaning demand will outstrip supply at some point and this is already happening with water shortages that threaten food cultivation and hydroelectricity production around world leading directly to economic downturns for those countries affected by its low availability.
Limited resources also include population growth which has risen from 2.5 billion in 1950 to 7 billion in 2011 with projections estimating 9 billion by 2050; putting immense pressure on resources such as food but also calling into question living standards worldwide since inflation tends to rise as more people vie for limited supplies commodity prices increase accordingly leading us back full circle concerning global economics hurt by debts, limited resources and population growth.
The Looming Threat Of An Aging Workforce And Automation To The Economy
The onset of automation has posed a major challenge to many countries’ economies.
With technology replacing an increasing number of jobs, nations face the prospect of a declining workforce and decreasing productivity.
As aging populations become more common, developed countries are seeing a decrease in the quantity and quality of their workforces, which leads to decreased productivity and stagnant economic growth rates.
In particular, the arrival of driverless vehicles is seen as particularly problematic, with an estimated 47% of jobs in the United States at risk from automation.
This threatens to further reduce employment opportunities while also leading to greater income disparities.
These dramatically increasing inequalities can have serious long-term consequences, creating social and political instability that threatens global economic stability.
Protectionism Harms Global And National Economies Alike
In recent years, there has been a notable shift from globalization towards protectionism.
Described as the “Edge of Chaos”, this trend has been reflected in events like the Brexit referendum and the election of Donald Trump as president of the United States.
It’s understandable why countries want to protect their own interests.
But what needs to be understood is that these measures do more harm than good for global economies.
Protectionist tariffs, import quotas, and subsidies such as the EU and US farm subsidies all limit trade and reduce capital flows across borders.
America’s GDP is just one example –it plummeted by nearly 50 percent after enacting the Smoot-Hawley Tariff Act in 1930!
Protectionism also disproportionately disadvantages people living in developing countries since they are unable to compete in developed markets, resulting in job losses and decreased living standards.
This hurts wages and reduces access to infrastructure that could help lift citizens out of poverty.
Moreover, protectionist policies can lead to labor shortages in some countries while exacerbating unemployment issues in others – creating an imbalanced market globally that is too often overlooked when discussing protectionism’s consequences.
Clearly then, trends toward protectionism negatively affect the global economy – and unfortunately those in poorer parts of the world bear the brunt of this economic damage.
State Capitalism Can Bring Rapid Economic Growth, But It May Have Long-Term Consequences
China has developed an impressive state-regulated economy that has helped to drive record economic growth and reduce poverty in the country.
Through increasing spending on affordable housing and education, secondary school attendance which was once at just 28 percent in 1970 is now exceeding 94 percent.
Additionally, infrastructure initiatives such as newly built highways have added to China’s economic edge and made it a model for developing countries.
However, state-controlled economies can come with long-term risks if not regulated properly.
The US government ran into problems with its “Housing for All” policy which offered affordable mortgages through two government-sponsored enterprises, Fannie Mae and Freddie Mac.
In the end, many people found themselves burdened by crippling debt leading to the 2008 financial crisis.
This goes to show that emerging economies should be mindful of the weaknesses of an economic system built on control and state intervention – relying on this type of system won’t always reap rewards forever.
Radical Reforms Needed To Ensure Good Policymaking Remains A Pillar Of Western Democracies
In today’s volatile political climate, it is increasingly important to adopt radical reforms that will provide economic stability.
Such reforms include the implementation of long-term policies decisions by governments, the limiting of campaign donations and higher wages for public sector workers.
Long-term adhesion to policy decisions is key in securing economic success – current situations whereby certain decision can be easily reversed by successors discourage investments in the long term.
Therefore it is essential that international agreements such as those proposed by the World Trade Organisation or NATO are carried out in order to guarantee continued sustainability.
Campaign contributions should also remain strictly limited – with an estimated two billion dollars raised during the 2016 US presidential election, it is clear that wealth plays a major role in modern day politics.
To avoid this pattern of inequality, income donation limits should be set to level out opportunities amongst candidates.
Three Measures To Strengthen Democracies: Extended Terms Of Office, Real-World Experience Requirements, And Mandatory Voting
The Edge of Chaos Book Summary argues that reforming the political system is best achieved by extending politicians’ terms of office but imposing term limits, mandating real-world experience before candidates can run for office and making voting compulsory.
The extended terms give the elected leader more time to devote to long-term solutions, with increased accountability.
Mexico provides an example: since 1910, all presidents have held a single six-year term, resulting in a stable political environment and high rates of economic growth when compared to its Latin American neighbors.
Stipulating real-world experience ensures that candidates understand and empathize with people facing real economic challenges.
The British House of Commons has seen the percentage of representatives with backgrounds in manual labor drop from over 70 percent in 1983 to 25 percent in 2010 – demonstrating a lack of understanding for the needs of everyday voters.
The final key element is mandatory voting; Australia, Singapore and Belgium all enforce fines for those who fail to vote on election days, allowing them to achieve turnout rates above 90 percent.
Ultimately, longer terms combined with real world experience requirements and compulsory voting leads to better politics and more suitable leaders who are truly accountable to the people they serve.
Wrap Up
The Edge of Chaos: How Democracy Can Still Save the World is a deeply thought-provoking book that offers an important reminder: if we want long-term economic growth to ensure higher living standards, including improved wages, better access to education, reduced inequality and health care, then it’s essential that we steer clear of short-term policies and protectionism.
Otherwise, stagnation and lower standards of living will surely follow.
All in all, this book provides us with invaluable insights into the future of our democracies and what we must do if we are to succeed as social societies.
