Eckhard Hein

The world economy is still struggling with its most severe crisis since the Great Depression of the late 1920s and 1930s. On the one hand, the present crisis began as a financial crisis which started with the collapse of the subprime mortgage market in the US in summer 2007, which then gained momentum with the breakdown of Lehman Brothers in September 2008 and reached another climax with the Euro crisis in early to mid 2010. On the other hand, the present crisis began as a real crisis well before the financial crisis, with an economic downswing in the US. The financial crisis and the real crisis reinforced each other, and the world economy was hit by a decline in real GDP in 2009 – something not seen for generations. Major regions in the world are only slowly recovering from this decline, in particular the Euro area, the UK and Japan. Furthermore, none of the economies which have been hit severely will have returned to the pre-crisis growth path by the end of 2010. Therefore, massive underutilisation of productive capacity, high unemployment and a downward pressure on wages will have to be tackled in the future.

Stefan Beck

Christoph Scherrer

For years, the business press has portrayed the German economic model as hopelessly atavistic in the face of dynamic Anglo-Saxon financial innovation and comparatively high growth rates. Recently, however, the economic historian Werner Abelshauser argued that the financial crisis would vindicate the German model of capitalism. In his view, the fading lustre of Anglo-Saxon capitalism, in particular its model of corporate governance and dominance of shareholder value, should again lead to the German or “Rhenish” model of diversified quality production and its institutions becoming more attractive.

We argue here that Germany’s response to the crisis has reinforced the central strategies and core institutions of the German economy. At the same time, the model has become more and more exclusive and has begun to foster European and international economic imbalances.

Esther Busser

Trade has been one of the main transmission channels of the financial and economic crisis to developing countries where many jobs were lost in export sectors. This was largely due to a reduced demand for goods in industrialised economies as well as to a lack of access to credit for the financing of exports.

At the international level, calls against protectionism (that is, increasing barriers to trade) have been manifold. These calls have been made in the International Labour Organisation (ILO) Global Jobs Pact, G-20 Declarations and government declarations in organisations such as the World Trade Organisation (WTO) and the Organisation for Economic Co-operation and Development (OECD). Despite these calls and the common understanding that closing off markets would have negative effects and risk a further deepening of the crisis, several countries have resorted to protectionist measures.

Peter Scherrer

The term ‘Industrial Policy’ refers to various concepts ranging from providing an environment conducive for private business to targeted state intervention on industrial sectors, with numerous dimensions. This article focuses on what the European Metalworkers’ Federation (EMF) is demanding with regard to the issue of development skills, training and qualification. The European metalworking industries and the jobs these industries provide will be sustainable only when a well-trained and highly qualified workforce is able to produce competitive goods for a global market. On a long term perspective the production of “greener”(1) products will be the base for successful participation in the global economy.

It should be noted from the outset that the recent past has shown that many industrialised EU Member States have tended to search for solutions at national level rather than through increased European co-operation. This trend can also be seen in the abandonment of large projects involving high cross-border cooperation such as the Airbus project. This reduction in co-operation between EU Member States has serious implications for the development of skills as the huge financial investments required for big industrial projects, in particular for the R&D costs, can no longer be provided by a single Government budget, especially not during a far-reaching financial and economic crisis.

Francie Lund

South Africa faces a severe and seemingly intractable unemployment problem. The narrow or strictest definition of unemployment produces a rate of approximately 25 percent. This problem existed before the global financial crisis, and has been made worse by it. The government makes unrealistic promises about the numbers of jobs that it will create each year; each year these hopes are dashed.

Unemployment rates are highest amongst the poor and unskilled, higher for women, and higher in rural areas – and in all cases, the situation is worst for African and Coloured people. A 2008 survey showed that the relationship between unemployment and poverty is strong: 31 percent of households have no-one in employment, and the poverty incidence in these households is 81 percent (Leibbrandt et al 2010: 48, using data from the National Income Dynamics Survey – NIDS). Shockingly, more than half of the unemployed said that they had never worked before.

Till van Treeck

The current crisis of the Eurozone clearly shows that the European Stability and Growth Pact (SGP) does not work. A European “rescue plan” was finally agreed upon by the member states on May 9th 2010 after a long period of hesitation, especially in Germany. It has, for the time being, prevented the breakdown of the monetary union, as it could potentially grant up to €750 billion of credit to Euro countries with financing problems. But this rescue plan has merely bought time. The structural flaws of the SGP are still to be addressed.

The main problem with the SGP is that it focuses on the financial position of only one sector of the economy, namely the state. According to the SGP, no state should ever run a government deficit of more than 3% of GDP, with the further stipulation being a balanced budget over the medium term. Moreover, public debt shall not exceed 60% of GDP. The only legally binding constraint for any government is the excessive deficit procedure which will set in as the government deficit exceeds 3% of GDP. The two other important sectors of the economy, that is, the private and the foreign sectors, are ignored by the SGP.

Paulo Eduardo de Andrade Baltar

So far, the 21st century has been good to many Brazilians. Formal employment and the minimum wage have risen, the purchasing power of those earning average pay has recovered, open unemployment has fallen, and undocumented subcontracting has been curbed. Average household incomes have risen and poverty has declined. Positive macroeconomic developments, a range of progressive government policies and improved collective bargaining outcomes have all played a part in this.1

Purchasing power regained

Under the two successive presidencies of Luiz Inácio Lula da Silva (“Lula”), income inequality in Brazil has shown just a small decrease, from a Gini index of 0.58 in 2002 to 0.55 in 2008. Much more significant is the marked change in the labour market configuration, which has had a very positive impact on poverty levels. From 61.4 million people in 2003, the number living in poverty dropped to 41.5 million in 2008 (a cut from 34.3% to 21.9% of the total population). Those in absolute poverty fell from 26.1 million in 2003 to 13.9 million in 2008 (from 14.6% to 7.3%).