Over a period of time, countries have learned to improve the fiscal and monetary policies of the governments across the world. Countries have recovered from early 20th century syndrome of no national policy makers have the necessary tools to control their capital requirements; with the help of globalization. The great global economic depressions were encountered in 1929-30 and 2008-09. The great depression has effected several banks and the international trade. This specific speech insight presents the lessons earned from the history of global economy which has undergone several peaks and valleys at different times. It is based on the experts panel discussion on Global Financial Crisis and the Lessons Learned from History held at the Brookings Institute.
Need to Study the History of Global Economy: Learning from global economy is very much required now that global economy hit $85 trillion in 2021. Out of it $20 trillion is world trade or international business; $20 trillion is global project investments; and rest is the domestic economies of the world countries. The lessons learned from the economic history is very much required because each global industry size is worth a size of a country’s economy. That is, for example, take global IT industry, it is worth $3 trillion; which is almost equal to Indian Economy. Hence, each industry is growing across the world because of the infrastructure developments, technological developments, interconnectedness, cooperation and globalization. Further, global banks have the assets and operations across the world.
Measures Helped the Economic Recovery: In the past, several global leaders tried economic depressions not to convert into economic crisis, with several measures such as:
- Fiscal measures, financial leveraging, central bank capital controlling, currency control, optimized public spending, stabilizing money supply.
- Policy makers tried to put the emergency liquidity and opened up the equity.
- Central banks have cut the interest rates and expanded the central bank balances.
- Inflation rates and unemployment rates were controlled across the world.
- Several dramatic improvements such as raising capital standards took place.
- Enhanced standards for credit rating agencies were emerged.
- Governments encouraged investors to invest in equity with optimistic market growth.
- Many reforms came to Regulate Currency and Regulate Markets.
- Fiscal policies and monetary policies were brought into sync.
- Market efficiencies and financial liberalization were the dominant policies of the time.
- Modern policy makers and learned central banks have controlled the imbalances over a period of time.
- Regulatory reforms guided to come out of the depression.
- Financial and regulatory reforms take time to implement. They have objective to make banks more cautious; and indeed, they did succeed in it.
During economic depression, there is need to act on the above specified measures. Better policies everted the economic unhappiness into great opportunity by handling the depressions. Monetary Union, Fiscal Union, and Political union can grow the global economy, increase international trade; based on the lessons of economic history. IMF (International Monetary Fund) played major role in the past two decades; however, it needs information and the tools necessary from the member nations for taking effective measures.
More Standardization Post 2008: Banks have been standardizing their Capital Requirements. Credit Rating Agencies reforms are entering into global financial systems. With the global trade, new phenomena is entered into different countries that leaders are trying to provide the resources to people in their countries using the frameworks available across the world. To achieve this, international co-operation and collaboration are very much required. Across the world, Central Bank governors and finance ministers are relying on the Institutions such as The Brookings Institute, The World Economic Forum, The World Bank, and IMF for the research inputs in order to increase the finances for their nations. The world is looking for huge benefits from the global integration and connectedness. If inter-connectedness is maintained, there is huge opportunity for emerging markets and developed nations to maintain the higher economic growth rates. Overall, the global leaders have to capitalize on the opportunities coming with inter-connectedness and handling the risks also coming with inter-connectedness. International standards entered into several regulatory bodies as well.
The need for data to policy makers, finance ministries, central banks, regulatory bodies, IMF, The World Bank, Credit Rating Agencies, and global banks keeps growing day by day with the growth of the economy and the international trade. Overall, the benefits of the economic recovery measures across the world, comprises the economic welfare, stronger institutions, and social security.
Being an Economic Optimist, I Thought of Sharing This. Hope you enjoyed reading it.
Dr. Goparaju Purna Sudhakar
Reference: Brookings Institute (2015), “The Global Financial Crisis: Lessons from History”, https://www.youtube.com/watch?v=HPwzr1ueFZM, Hutchins Center on Fiscal & Monetary Policy at Brookings Institute, January 15, 2015.