Political and Economic Differences Consider Effects of Essay

  • Length: 4 pages
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  • Subject: Economics
  • Type: Essay
  • Paper: #70791231

Excerpt from Essay :

Political and Economic Differences


Effects of the financial crisis on the developing world vs. The developed world

The 2008 financial crisis began in the American banking sector but its impact was soon felt around the world. Both the developed and the developing world were affected. However, not all nations were crippled by the drying-up of credit and consumer demand to an equal degree. Some nations were derailed in their attempts to progress economically and politically; other nations, particularly in the Far East, emerged relatively unscathed.

The populations affected in different areas of the world economy also varied from nation to nation. For example, in many regions of the developing world, women often have the status of 'second class citizens' for cultural and political reasons. But the crisis in the U.S. was often called a 'male' recession, because the hardest-hit sectors were traditionally male-dominated fields, in the form of the construction industry and the financial sector. In the developing world, women dominate employment in export manufacturing industries in Nicaragua, Bangladesh, and the Philippines and export-driven agriculture in Uganda, Thailand, and Ecuador. These nations suffered heavy economic losses due to a drop in demand for exports. Although men tend to be greater consumers of financial services women are actually the majority users of micro-finance institutions. "As credit dries out their earnings from micro-businesses will drop -- this should be especially true in Latin America and ECA, where micro finance institutions obtain a significant portion of their lending from commercial rather than concessional (grant) sources" (The global financial crisis: Assessing the vulnerability of women and children, 2011, World Bank).

Developing nations without substantial social services, underdeveloped political structures and poorly-developed monetary governance have seen their populations take a notable 'hit.' But not all developing world economies have felt a negative impact. Because of the Asian financial crisis of the 1990s and the reforms that crisis generated "Asian banking systems were better positioned to handle the more recent turmoil" (Bernanke 2009). Regarding the small economic powerhouse of Singapore, for example: "the exposure of Singaporean financial institutions to failed and distressed institutions in the U.S. And Europe was not significant and did not pose any systemic risks to Singapore's economy, as local financial institutions were well capitalized and remained resilient" (2009). Singapore, unlike the U.S., has retained its AAA credit rating. Singapore has long been famed for its highly regimented society -- caning is still used as a form of punishment for relatively minor infractions -- but its high level of state involvement in citizen's personal lives and behaviors is paralleled with a capitalist system that mixes healthy private enterprise with a strong emphasis on supporting export-driven industries as a means of growth.

Virtually all of the nations of the developing world are highly export-dependent, and in this respect even Singapore suffered, despite its conservative financial policies: "Non-oil domestic exports declined 7.9 per cent in 2008…This severe export decline has raised concerns over Singapore's reliance on external demand" (Chia 2009). Export-driven China has been similarly hard-hit by the decline in demand for exports. "The turmoil in credit markets doubtless exacerbated the sharp decline in demand for durable goods, and thus in trade volumes, as purchases of durable goods typically involve some extension of credit. Manufacturing production, a major component of trade flows, may have been cut back more sharply than would otherwise have been the case as producers, concerned about credit availability, attempted to preserve working capital" (Bernanke 2009). The developing world nations of East Asia had set up their economies to be export-driven to fuel growth and thus experienced a sharp decline in one of the pillars of their economic growth.

The Chinese government, much like Singapore, has maintained a system whereby there is a strong, accepted level of interference in people's personal lives, yet also strong support for capitalism (with some areas of heavy interference by the government, to ensure, for example, that the Chinese currency remains undervalued). And unlike the U.S., the Chinese government passed a truly significant economic stimulus package to reinvigorate the flagging economy. "In November 10, 2008, China announced a historic $586 billion stimulus package aimed at encouraging growth and domestic consumption in ten areas of Chinese society ranging from infrastructure investment to environmental protection and disaster rebuilding" (Chiu 2010). Housing prices in…

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