Ebook The Great Financial Crisis, Commodity Prices and Environmental Limits
This paper examines how certain new structural factors have affected the emergence and nature of the latest great financial crisis and world recession of 2008-09. We focus on three of these structural factors: the growing importance of highly populated countries, most prominently China and India awakening from centuries of economic lethargy, as engines of world growth and massive providers of industrial goods; The increasing scarcity of the environment and certain natural resources which for the first time in history is beginning to be reckoned with in rich and even some poor countries; the unprecedented concentration of wealth and income in the advanced economies that has taken place over the last three decades.
These structural changes have significantly tightened the links between world growth and commodity prices due to the fact that growth has become more commodity-intensive and that the world commodity supply curve is finally becoming increasingly less elastic. In addition, they have caused an increasing dependence of economic growth on lax monetary policies as an instrument to allow consumers easy access to credit at low interest rates. These two features, closer growth-commodity price linkages and higher dependence of growth on lax monetary policies, are likely to make fast economic growth with price stability much harder to achieve in the future. In addition, we show that they will make the economic recovery from the current crisis much more difficult, which may imply a crisis that is deeper and more protracted than most previous crises with the exception perhaps of the 1930s depression.
With this framework in mind we analyze various conditions which are likely to affect the impact of the financial crisis on the developing world particularly focusing on the impact upon the natural resources. Given the great heterogeneity of developing countries in many respects, the impacts of the crisis are likely to vary dramatically across countries and across different types of environmental resources.
Naturally it is impossible to capture even a small fraction of the variety of potential effects of the crisis on developing countries. We thus choose to provide a taxonomical approach based on a number of key distinguishing conditions in terms of policies, natural resources and other country characteristics, which allow us to provide in principle testable hypotheses about the direction and potential gravity of the environmental impacts of the crisis under a limited number of possible situations. Given that it is of course too early to have empirical evidence about the impact of the current crisis, we instead examine certain effects of two previous crises episodes, the 1995 Mexico-originated Peso crisis and the 1998-99 Asia crisis, which have been evaluated in the literature.
Part II below provides an in depth analysis of the emergence of the great recession within the context of the new economic order that the three structural factors listed in the first paragraph above have given rise to. This analysis encompasses a retrospective historical analysis of the articulation of the rich country-poor country world emphasizing how the role of the traditionally poor countries has evolved making economic growth increasingly less exclusive over time. Next we briefly examine the consequences of radical new policies in the advanced economies forcefully implemented by a series of conservative governments supported by a reinvented intellectual lazes-faire market ideology.
This part concludes by showing how the nature and depth of the current crisis has been conditioned by these developments. In Part III we provide the taxonomic analysis regarding the possible impact of the crisis on the environmental resources in the developing countries. We focus mainly on the potential impacts of the crisis on pollution, deforestation and on the extraction of natural resources especially of those situated in fragile environments. Part IV concludes.
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