This is to test the system
Recently, it is fascinating to hear that the South Korea president Moon-Jae-in fulfil his pledge through providing more Cabinet positions for women ( Jiyeun Lee: 2017). In fact, more feminists concern about the women in development(WID) and the role in international political economy(Jan Jindy Pettman,1996), however, according to the statistics from ISS Corporation Solutions, it indicates that even in France, no more than 35% of women in Asia Boardrooms. The enhancement of women political power does not definitely imply the equality of power between men and women worldwide. All of these statistic remind us gender balance in decision of policies and political participation should not be ignored if we want to demonstrate the world with no discrimination.
Photograph: Alamy Stock Photo
For the formation of gender inequality, some feminists indicates that one of the reasons attributes to a stratification system. Its system makes gender ranks women below men of the same class and race and thus oppress the power of women(Judith Lorber, 1994) For instance, some feminists argue that the human right between men and women is different, such as manifestation in the formulation of moral judgements and moral arguments and further critized that the government should take the responsibilities of international human rights they have signed up to .(Jill Steans, 2013)
Take women in Afghanistan as an example, they would be sent to moral jail if they have sex before marriage, being raped or fleeing abuse. (Ritu Mahendru, 2017) Under this situation, men could be viewed as patriarchy. In their views, women are viewed as commodities and could be controlled. Their life freedom are so restricted, let alone gaining the reasonable political, social and political resources. Importantly, according to United Nations Human Right, it states that in regardless of our nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status, human rights could be gained without discrimination. It is definitely unbearable to see women emotionally, physically, economically, socially being hurt by violence as the exploitation of women right violates the universal value.
The protection of universal human right is the cornerstone of social stability. In 2010, Arab Spring began and involved six countries: Tunisia,Libya, Egypt, Yemen, Syria and Bahrain. Not only men, but also women stood out on the frontlines of protests for demarcation and more vital things: their human right. Although the local government intentionally haunted them to join the protest, they still fought for their justice. (Ishaan Tharoor: 2012) Those voices just shouted to the world that women needed freedom to strive for what they want.
Apart from the political side, in accordance with Pew Research Center, the pay gap between women and man still exist, take women in US as an example. In spite of working for the same hours, the income of women was 16% less than men. (Megan Friedam:2015) . With the same effort, both include physical and intelligent ability, women should not be discriminated due to gender. For the global economic side, according to United Nation survey, on average, women in the labor market overall still earn 24% income less than man. In fact, our society is not farming society anymore so that the physical advantages are not the reasons for male gaining more power than female. The communication skills, leadership skills, professions of women talents are also needed to be taken considerations.
Human right is fundamental element in order to build up the society with justice. According to World Bank, there are nearly 49.7% of women constitute the world. They also need to be respected and strive for the right equal to man, including the protection of law, opportunities of education, freedom of marriage and so forth.
By On Chun Koon
1)Jiyeun Lee, (2017). Korea Beats Japan and China to Get Women into Power. [Online] Available at: https://www.bloomberg.com/news/articles/2017-09-28/corporate-korea-is-far-behind-moon-s-push-for-gender-equality [Accessed 9 Oct. 2017].
2) Jan Jindy Pettman, (1996). ‘Working Women: a ferminist international politics, international’, Thomson Publishing company, pp.157
3.Tracy E.Ore, ( 2013). ‘The Social construction of difference and inequality : Race,class, gender and sexuality’, Saint Cloud State University, pp.115
4) Steans, Jill. (2013). ‘Gender and international relations: an introduction’, Oxford,pp. 82-84.
5) Ritu Mahendru, (2017). The Women in Afghanistan’s Moral Prisons. [Online]Available at : https://thediplomat.com/2017/03/the-women-in-afghanistans-moral-prisons/
[Accessed 9 Oct. 2017].
6) United Nation Human Rights, (2017). Your Human Rights. [Online]Available at : http://www.ohchr.org/EN/Issues/Pages/WhatareHumanRights.aspx [Accessed 9 Oct.2017].
7) Ishaan Tharoo (2012). After the Spring: Women of the Arab Revolution[Online]Available at :
http://time.com/3790123/after-the-spring-women-of-the-revolution/ [Accessed 9 Oct.2017].
8) Megan Friedam (2015). 14 Ways Women Still Aren’t Equal to Men[Online]Available at :
[Accessed 9 Oct.2017].
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https://data.worldbank.org/indicator/SP.POP.TOTL.FE.ZS [Accessed 9 Oct.2017].
The human beings have moved from agriculture to working in the industries, over the years and they call it development. When the technology was limited and people used their hands as tools, the productivity was lower and with the improvements in technology, industries came up. They converted the raw materials into finished goods at a much faster rate and the levels of production increased. Some people, mostly the business owners and those in the higher job levels, started making huge amounts of money and those in the lower job levels did not have a great life.
The economic development has created several differences between the people from different parts of the world (UKEssays, 2017). The countries that have industrialized to a great extent and have minimal dependence on agriculture or primary activities are considered to be developed economies while those which are trying to move from primary to secondary and tertiary activities are considered as developing countries.
This differentiation itself talks about the negative impact of industrialization on the world i.e. the world has now been divided based on the development in the economies of the countries. This is not a great sign, especially for the countries that are in their developing stage or need support to develop. The decisions in the global environment are biased towards the developed countries, just like the availability of the resources to the rich.
The economic development has improved the infrastructure and responded to the needs of the people (Danev, 2017). Agriculture has provided adequate support to various industries and they could not have developed without the inputs received from the primary activities. There are economies which have done extremely well in past with the help of their well-developed agricultural systems but the industrialization has had a negative effect on them as well. Certain countries, in the need of industrialization, exploited the resources of these economies and destroyed the system. As it is said, the planet has enough for every person’s needs but not enough for his greed.
Development based on industrialization is not wrong but when one looks at the negative effects on the environment like air, water and land pollution (Mike, 2017), it can be said that industrialization does not mean development. If an activity leads to poor health for the people, differences in the economy and environmental degradation, it must be controlled to safeguard the society.
Development, like in Bhutan, means happiness of people (Wood, 2017). When the people of a country are happy, have the resources to take care of their basic needs and can interact freely with each other, then that country would be called a developed economy in its true sense. If the development comes from being happy, let it be like that. It is not just a matter of chance that a small country like Bhutan, from a continent which is said to be inferior to Europe or North America, measures its economic growth in Gross National Happiness (Canan, 2017) and not in Gross Domestic Product.
- Canan, L. (2017). Bhutan: The World’s Happiest Country | One World Education, Inc. [online] Oneworldeducation.org. Available at: https://www.oneworldeducation.org/bhutan-worlds-happiest-country
- Danev, N. (2017). Positive and negative effects of urban development. [online] Available at: http://peopleof.oureverydaylife.com/positive-negative-effects-urban-development-9619.html
- Mike, U. (2017). Negative Impacts of Technological Development. [online] HubPages. Available at: https://hubpages.com/education/Negative-Impacts-of-Technological-Development
- (2017). Positive and Negative impacts of Economic Growth. [online] Available at: https://www.ukessays.com/essays/economics/positive-and-negative-impacts-of-economic-growth-economics-essay.php
- Wood, P. (2017). What happens when a country strives for happiness — at any cost? [online] ABC News. Available at: http://www.abc.net.au/news/2017-06-23/bhutan-strives-for-happiness-but-at-what-cost/8633424
Inequality refers to the differential treatment of people based on their caste, color, race, income, religion or gender (Merriam-webster.com, 2017). In a global environment, people from different cultures and countries interact with each other. Some of the people feel that they are superior to others and often treat them with low or no respect. For example, black people are treated with less respect in some countries like the USA (Crossman, 2017).
Some people think that men are superior to women and that women cannot take the responsibility of the important jobs and unfortunately, the history of the world is the best example of inequality based on gender as in most countries, until the 20th century, women were not allowed to hold important job positions in the society as they were thought to be less knowledgeable than men (McCune, 2017).
The industrialization and capitalism have increased the differences between the people as some people have gained immense amounts of wealth while others are still finding it difficult of have shelter in bad weather. The increasing differences in wealth have led to discrimination based on income as the rich get access to most of the resources and the poor are denied access to certain resources. For example, certain restaurants may not allow people with inappropriate clothing to enter the place which is nothing but humiliation for the people who cannot afford expensive clothes.
When people work or interact with each other in a global environment, they come across people from different religions and not all religions are treated with same respect by everybody (Equalityhumanrights.com, 2017). For example, after the terrorist attack on the World Trade Center, some people do not think that the Muslims deserve to be treated with respect as they are all terrorists, which is incorrect and also humiliating for the people of that religion. Inequality is one issue which can be adequately resolved if the people living in different economies take the responsibility and in case of inequality based on religion, the common people of the society can easily address the issue of they understand the gravity of the situation and decide to take the actions to prevent unfair treatment of certain people or religions.
Sustainable Development is one concept that has gained the attention of the masses and deals with the growth and development of the businesses and the countries while adequately catering to the needs of the people and the environment. It promotes ethical and equitable treatment of all the resources, including the human resources. Therefore, it can be said that Sustainable Development is an aspect that, if implemented effectively and efficiently, can improve the condition of the people from different sections of the society and address the issue of inequality (United Nations Sustainable Development, 2017).
Some businesses now, not only aim to generate higher revenues or profits but also aim to support the society and the environment. They respect all the stakeholders and the consumers and promote equitable treatment of all.
- Crossman, A. (2017). Learn About the Sociology of Social Inequality with This Overview. [online] ThoughtCo. Available at: https://www.thoughtco.com/sociology-of-social-inequality-3026287
- com. (2017). Religion or Belief discrimination | Equality and Human Rights Commission. [online] Available at: https://www.equalityhumanrights.com/en/advice-and-guidance/religion-or-belief-discrimination
- McCune, E. (2017). 10 Examples of Gender Inequality in the World – BORGEN. [online] BORGEN. Available at: http://www.borgenmagazine.com/10-examples-gender-inequality-world/ [Accessed 25 Aug. 2017].
- Merriam-webster.com. (2017). Definition of INEQUALITY. [online] Available at: https://www.merriam-webster.com/dictionary/inequality
- United Nations Sustainable Development. (2017). Reduce inequality within and among countries – United Nations Sustainable Development. [online] Available at: http://www.un.org/sustainabledevelopment/inequality/
The world has seen rapid growth and development over the last few centuries and the people have different cultures and nationalities have come together and started interacting with each other using different media. Businesses around the world are now not limited to a single state or a country but operate from several countries in order to make larger revenues and profits due to globalization (Kuepper, 2017).
Technology has brought about a situation where people are now closer than ever but still far from each other. It’s an era where some people are so poor that they cannot even feed their families and at the same time, there are people who do not even have time to think about the destitute.
Welcome to the age of Globalization, where one man’s fortune is another man’s misfortune, where some people sleep hungry while others waste food; some live in lavish villas while others sleep on the footpaths; some have the best jobs without adequate qualifications while some highly qualified professionals still remain unemployed and inequality is a routine activity.
The global economy is a boon or a bane, still remains a question unanswered. The growth and development across the countries has created huge differences between the people (S, 2017). The developed economies stay at the top of the table with maximum wealth and highest standards of living while the developing countries are struggling to prove that they are second to none and are good enough to compete with developed countries. But the global debate is about the issues facing the people and not the countries which are usually represented by the governments or the businessmen.
Everyone forgets about the underprivileged economies of some African, Asian or South American countries as the debate and competition between the developed and developing economies doesn’t come to a halt. The economies grow but the people suffer. Some call themselves rich but have poor hearts to have the least of sympathy for the weaker sections of the society.
The world is going through a phase where the limited resources of the planet are under the immense pressure from the population that is growing at a fast pace (Prb.org, 2017). The poverty percentages are high for many countries, despite the technological advancements, which claim that people now have better standards of living than ever before. Some countries have developed at the cost of other countries by exploiting their resources (Rinat, 2013), not only the natural resources but the most important ones – the Human Resources. Racism and inequality have become activities which one can see in almost all the domains.
The increasing population pressure on our available resources in increasing the unemployment and crime rates in several countries across the world (Pettinger, 2016). All these issues are important but the most important issue that must be addresses at the earliest is Poverty as it leads to not just poor health of the people but also promotes crimes and inequality in various parts of the world.
- Kuepper, J. (2017). Globalization and Its Impact on Economic Growth. [online] The Balance. Available at: https://www.thebalance.com/globalization-and-its-impact-on-economic-growth-1978843
- Pettinger, T. (2016). Examples of economic problems | Economics Help. [online] Economicshelp.org. Available at: http://www.economicshelp.org/blog/15276/economics/examples-of-economic-problems/
- org. (2017). Human Population: Population Growth. [online] Available at: http://www.prb.org/Publications/Lesson-Plans/HumanPopulation/PopulationGrowth.aspx
- Rinat, Z. (2013). Food for thought: How rich countries exploit the resources of poorer ones – and get away with it. [online] haaretz.com. Available at: http://www.haaretz.com/world-news/1.546450
- S, S. (2017). Difference between Developed Countries and Developing Countries (with Comparison Chart) – Key Differences. [online] Key Differences. Available at: http://keydifferences.com/difference-between-developed-countries-and-developing-countries.html
Poverty can be defined as a state in which people do not have adequate resources to take care of their basic needs like food, shelter and healthcare (Merriam-webster.com, 2017). Poverty in an economy reflects the inability of the economy to cater to the basic needs of the people and there are several factors that are responsible for it. The increasing difference between the rich and the poor, political instability and discrimination and inequality are some of the factors that lead to poverty (The Borgen Project, 2017). The ever increasing population makes the conditions worse (Conserve Energy Future, 2017).
There are several countries around the world that try to address the issue of poverty by defining a certain level of income, below which the people can be called poor, and they call it the poverty level of income. The people earning lower than this amount are said to be living below the poverty line while those earning more than this level are said to living above the poverty line. But, by living just above the poverty line, people cannot meet the important needs of their families like healthcare, higher education and personal growth. If a member of the family falls sick, even the people living just above the poverty line struggle to survive as it becomes difficult for them to decide whether to provide adequate healthcare and medical attention to one member of the family or to feed the other members of the family (Who.int, 2017).
The governments of a few countries have taken certain measures to support the people living below the poverty line or just above it by providing them with resources at subsidized prices. Some countries provide the people with nutritious food at very low prices so that nobody sleeps hungry but these measures have failed in many economies due to corruption and poor strategic planning. The governments also try to generate jobs for the people and promote primary and secondary education for children to control the situation in the future but poverty is one issue that needs the attention of the authorities today as it is the reason for most of the crimes that we observe today.
Dealing with poverty is not just the responsibility of the government. Every person should contribute his bit to the economy by supporting the underprivileged classes, for example, sponsoring the education of some children from the less privileged families, donating medicines or clothes. Poverty is a problem that has been created by the people of different sections of the society and therefore, it is the responsibility of the people to deal with this issue.
Generation of job opportunities and providing quality education to the children can help them become self-sufficient in the future. The governments of the countries need to make effective plans and strategies to fight the situation and then implement these plans in order to improve the standards of living of those living below the poverty line and Sustainable Development can help the cause (Ilo.org, 2017).
- Conserve Energy Future. (2017). Overpopulation: Causes, Effects and Solutions – Conserve Energy Future. [online] Available at: http://www.conserve-energy-future.com/causes-effects-solutions-of-overpopulation.php
- org. (2017). Poverty. [online] Available at: http://www.ilo.org/global/topics/poverty/lang–en/index.htm
- Merriam-webster.com. (2017). Definition of POVERTY. [online] Available at: https://www.merriam-webster.com/dictionary/poverty
- The Borgen Project. (2017). What are the Causes of Poverty? – The Borgen Project. [online] Available at: https://borgenproject.org/what-causes-global-poverty/
- Who.int. (2017). WHO | Poverty. [online] Available at: http://who.int/topics/poverty/en/
A few decades ago, most of the people across the globe were not aware about the technologies but today, technology has reached a stage where people cannot ignore it. The people have not only started using the latest technology but have also become dependent on them (Ramey, 2012). They can now interact with each other even when they are sitting thousands of miles away from each other. The businesses can operate with ease as the market research process has become simple as all the information about the different markets and countries are available in a matter of minutes (Parker, 2015).
If a businessman living in London wants to expand his business to New York, he doesn’t have to visit the country to research about the political, economic, social, environmental, cultural or technological factors. He can simply use the internet to search for the information or directly contact some sitting in New York to get the relevant information. The world has become a small place, thanks to technology, but has it become a little too small?
The governments and other authorities can now track people at will and that is a big safety concern (Police Technology, 2017). Technological advancements aren’t always useful and can be misused by certain people. The human beings are not criminals that need to be tracked and the technological advancements have created a negative effect on the society and the trust of people on certain authorities is now deteriorating. It is important that the technology is used in the right manner and only to support mankind, not to interfere with their personal lives or to threaten their personal security (Shameem, 2016). Surveillance should be limited to the situations that are serious and threatening and not for general purpose or activities.
The people have become so heavily dependent on technology that they cannot live without their televisions or smart phones. Internet has become a necessity and even children have started using social media platforms like Facebook or Twitter. Technology has become an addiction and people can be found wasting their time on their smartphones or the laptops (Walton, 2017).
The result is not just negative for the individuals but also for the society and the economy. These activities make the employees in the organizations less productive as they find it difficult to concentrate on their work. If such an environment prevails in the important federal government jobs and duties, the society and the countries might be at a huge risk.
Some people are more interested in making friends online as they can hide their identities and talk whatever they feel like as there is hardly any probability of meeting those people. This kind of an environment has a negative effect on the health of people as they slowly move away from the real society and enter an area where everything is fake, even the identities of people. Technological advancements are therefore important, but must be controlled so that they do not have a negative impact on the society and its people.
- Parker, C. (2015). [online] Available at: https://www.linkedin.com/pulse/advancement-new-technology-positive-negative-colette-parker
- Police Technology. (2017). The Positive and Negative effects of Technology in Law Enforcement. [online] Available at: https://policetechnology.wordpress.com/the-postive-and-negative-effects-of-technology-in-law-enforcement/
- Ramey, K. (2012). Technological Advancements and Their Effects on Humanity – Use of Technology. [online] Use of Technology. Available at: https://www.useoftechnology.com/technological-advancements-effects-humanity/
- Shameem (2016). Technology Advancement And Its Effect On The Current Lifestyle. [online] Techclickr. Available at: http://www.techclickr.com/technology-advancement-and-its-effect-on-the-current-lifestyle
- Walton, A. (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/alicegwalton/2017/06/30/a-run-down-of-social-medias-effects-on-our-mental-health/
The global world has seen several major issues like poverty and inequality but the reason for this is unemployment. A person commits a crime when he does not have enough resources and fails to take care of the needs of his family. How can an unemployed person take care of his daily needs, by committing crime, by killing people or by theft? Unemployment is the major cause of poverty and is defined as a situation in which a person does not have a paying job that helps him support his daily needs like food and healthcare (Boundless, 2017). The probability of an unemployed person committing a crime is far higher than the probability of an employed person committing a crime.
The major factors that lead to unemployment are increasing population, specialized jobs and technological advancements (Economicsonline.co.uk, 2017). The increasing population not just burdens the limited resources available with the human beings but also leads to unemployment. Just like the natural resources on this planet, the jobs are limited and with an increasing population, those jobs will not increase.
This means that some part of the population will remain unemployed in case the job requirements do not match the population level. The governments and the people should be aware about the situation and promote adequate population control measures like family planning.
Some people remain unemployed due to technological advancements (Reddy, 2017). With the improvements in technology, people and organizations have started depending on machines as they can complete the jobs with higher accuracy and at a much faster rate. This means that the work that was earlier being done by the human beings is now being done by the machines. People are required to run the machines, but overall number of jobs still decreases, leading to loss of jobs in certain sectors like manufacturing and banking and financial services.
Some technical jobs require highly skilled employees and the number of such employees is limited (Amadeo, 2017). There are also cases where people do not get the jobs as per their qualifications and prefer to stay unemployed as compared to doing survival jobs, contributing to unemployment.
The governments should take adequate measures to keep the unemployment rate under control and should try to create maximum jobs (Addington, 2017). There are always opportunities for people to grow and a person who starts from the bottom level and grow with the help of his efforts and reach a higher designation or job level in the future. The unemployment rates across the world can be addressed with the support of the governments and non-profit organizations.
Nothing is impossible and if the people are determined enough to remove an issue from the society and the economy, they will definitely succeed and create a better society in the future that is happy and self-sufficient.
There are several global political economic issues that the societies are facing today and every person, from every religion, caste, income group or country should make his contribution to make this world a better place for living, a place where everyone is happy and nobody sleeps hungry, a place where no child dies because his family could not afford healthcare and a place where no qualified person remains jobless because there are no jobs in the market.
- Addington, D. (2017). Government’s Proper Role in Creating Jobs: Top Five Actions to Take. [online] The Heritage Foundation. Available at: http://www.heritage.org/jobs-and-labor/report/governments-proper-role-creating-jobs-top-five-actions-take
- Amadeo, K. (2017). 9 Types of Unemployment: Which Is the Worst?. [online] The Balance. Available at: https://www.thebalance.com/types-of-unemployment-3305522
- (2017). Defining Unemployment. [online] Available at: https://www.boundless.com/economics/textbooks/boundless-economics-textbook/unemployment-22/introduction-to-unemployment-102/defining-unemployment-388-12485/
- co.uk. (2017). Unemployment types. [online] Available at: http://www.economicsonline.co.uk/Managing_the_economy/Unemployment_types_and_causes.html
- Reddy, C. (2017). What is Unemployment? Its Main Causes, Effects and Solutions – WiseStep. [online] WiseStep. Available at: https://content.wisestep.com/unemployment-causes-effects-solutions
Almost 10 years after the crisis I think it is important to remember the causes of it in order not to repeat the same mistakes.
The globalisation of financial market began in the early 19th century and quickly some fundamental questions rose up such as the vulnerability of this globalisation to crises or the policies that must be took by governments. Because globalisation means that various financial actors are connected in different countries, this connection creates a sort of dependance.
As communication technologies became more and more sophisticated and powerful it increased this globalisation permiting financial flows to cross the entire world almost instentaneously. With these technologies banks and investors trade with the world beyond national borders exchanging large amount of secured data. This context saw a new type of financial product created : the derivate instruments, these products take into account the risk of a loan, so it allows banks, borrowers, investor, lenders, speculators, etc to play on the inequal repartition of informations. Idealy, in a totaly globalized markets the prices should be the same everywhere, it is not depending on the location, but financial markets aren’t truly global. If someone in China don’t know the risk of your product you can sell him a higher price than its real price for example. Consequently this system is based on trust.
We can say that the globalisation of financial markets is a new playground for financial actors seeking for profit, that is why it needs to be regulated.
After the Great Depression of the 1930’s the US government took mesures in order to prevent from another crisis, banks are prohibited from using the money of their customers to invest. Follows a 40 years period of gross without any crisis.
Gradually some bankers and economists having a position in the government will start to deregulate the financial market: the 1934 law prohibiting investments is repeal, attempts to regulate the new derivates product are blocked.
Using this favorable context and the globalized financial markets a Ponzi pyramide is set up with the securitization. The lender provide a loan to home buyer materialized by a financial security, the lender sells this security to investments bank which aggregate various securities to create a CDO, the bank sells this CDO at investors allover the world.
- CDO is a way to hide dodgy securities
- CDOs are rated based on their repayment capacity by notation agencies, this agencies are payed by the bank, the better the rate is the more they earn
- Due to high rates subprimes (dodgy securities) are interesting for banks
- All these things encourage the financial actors to take higher risks
- Leverage: Banks borrow to buy CDOs
Another process to increase even more these profits is to take out insurance at the AIG, an institution which pay the investor at the amount of its losses if the CDO goes wrong. Investment banks such as Goldman Sachs, Lehman Brothers, etc used this to take out an insurance against there own CDOs, knowing that they were full of dodgy securities.
Even if the crisis started in the US the impact on the rest of the world was significant because of the globalisation, the american investments banks couldn’t have played alone, CDOs travelled abroad and european banks used the same mechanism to make profit. The non-regulation of the financial market was generalized and governments of different countries didn’t do anything. The IMF warned of the danger but due to the power of the lobbyists nobody listened.
The day Lehman Brothers was declared in bankruptcy banks around the world became suspicious about others and the financial markets seems to stop. One by one banks of different countries went bankrupt squeezed by the weight of their huge debts and possessing CDOs that is worth nothing. And then you know what happened …
– Théo Quint
– Inside Job, Charles Ferguson, 2010
– Economist.com. (2017). [online] Available at: https://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article [Accessed 17 Jul. 2017].
– Globalissues.org. (2017). Global Financial Crisis — Printer friendly version — Global Issues. [online] Available at: http://www.globalissues.org/print/article/768#Africaandthefinancialcrisis [Accessed 17 Jul. 2017].
– Bank, E. (2017). The globalisation of financial markets. [online] European Central Bank. Available at: https://www.ecb.europa.eu/press/key/date/2000/html/sp000912_2.en.html [Accessed 17 Jul. 2017].
We are 8 years after the fall of Lehman Brothers. The all West is in crisis … All? No! A small island of irreducible Icelanders still resists to the finance. And life is not easy for banks and other bankers.
I think that we all eared about Iceland letting its banks fail and putting bankers in prison. Every time you read an article about Iceland recovery after the 2007 crisis it is polarized. The reason is that Iceland dealt with this crisis in an unconventional way which, depending on the arguments you keep, is in favour or against the EU policies, that is to say austerity. Some people will tell you that Iceland is the paradise on Earth, the land of justice when other will explain that the success of the country is all about luck, austerity and help from other countries. As you can imagine the reality is just between these two points of view. That is why we will divide what permitted Iceland to become one of the countries recovering the fastest and the better after the crisis in two parts: the external factors and the internal factors. And this in order to determine what is due to the action of the government and what is not.
The crisis was a wave coming from the United-States but the sensibility of each country to this wave was linked to its own financial system. In Iceland the financial sector was deregulated in the 90’s with low-tax policy, the goal was to attract foreign investments and companies. The banks of the country – especially the tree biggest Landsbanki, Glitnir, and Kaupthing – began raising their interest rates on the loans encouraging people to borrow and making the island an international financial centre. Traders and individuals from all over the world borrowed in foreign currencies to the banks, especially in the United-Kingdom and Netherlands. In 2007 banks’ debts were worth 900% of Iceland GDP. “Iceland, in the decade and a half leading up to the crisis, was an example of collective madness”, said Willem Buiter, chief economist at Citigroup. When the crisis hit the island the consequences were disastrous. “Over 80 percent of the financial system buckled and almost all businesses on the island were bankrupted. The stock market fell by around 95 percent and interest payments on loans soared to over 300 percent. Over 60 percent of bank assets were written off within a few months after the banks collapsed and interest rates were hiked up to 18 percent in order to curb inflation rates”, according to World Finance. But Iceland managed to recover from the crisis.
Firstly the two external factors we will speak about are linked to the geographical position of the island. The Eyjafjöll volcano that paralyzed the air traffic in 2010 contributed to attract tourism by leading people to know about this particular country located on an oceanic breach. In 2010 the country welcomed 486,000 tourists for only 320,000 inhabitants. Tourism represents now almost one third of the exportations. Another external factor is an increase of mackerel in the Icelandic seas. This is linked to global warming, the Atlantic Ocean is becoming hotter and the mackerel migrated to the North. “Fishing is more important for Iceland than the car industry for Germany or the oil industry for Norway,” according to Sigurgeir Thorgeirsson, Iceland’s chief fisheries negotiator. It represents 23% of the exportations.
The other external factors are the drop of the krona and the loans from the IMF and the neighbouring countries. The IMF accorded a $2.1bn loan to Iceland in November 2008 – which is 50 times less than the one to Greece in 2010 – and the neighbouring countries $2.5. These loans helped the country to protect domestic deposits and reduce the devaluation of the krona in value. But at the same time this devaluation was helpful for the country because it regained competitiveness. Inside the country there was no difference for the people, they kept the same purchasing power but at an international level their work and production was worth less.
Now that we have seen the external factors on which Iceland did not have the control we will focus on the internal factors, e.g. the decision making of the government. One of the first and most original action was to decide not to save the banks. Because the banks were “to big to save” Iceland decided to let the banks fail. In fact the banks were not “to big to save” in a sense that you can save the banks even if they were worth 10 times your GDP, but then you have a gigantic debt, like Ireland. The Icelandic government just chose not to impose this burden to future generations. And it is understandable. Why does a State would have to pay for the bad behaviour of private banks? So Iceland let its banks fail but at the same time guaranteed the deposits of its citizens, the ones that lost money were the foreign creditors (in majority in the United-Kingdom and the Netherland). These two countries in response asked Iceland to give back the money, the IMF and the European Commission sided with them. In the end the European Free-Trade Association decided that Iceland did not have to pay for the actions of its banks. “The ruling made it clear that the country where a banking company has its headquarters is not responsible for guaranteeing that company’s foreign liabilities” says Eva Joly, who advised Iceland Special Prosecutor in the criminal investigation after the crisis.
Then the bank CEOs, finance managers, banks’ lawyers, major shareholders and high-ranking civil servants responsible were condemned or at least put under investigation. The central bank of Iceland took the control of the banks to reform the financial sector. “After the crash, the government cleaned house in all the three banks, establishing new boards and management. Banks in Iceland are well capitalised with high equity levels and financial supervision has been strengthened immensely”, said Gudrun Johnsen, Assistant Professor of Finance at the University of Iceland, told World Finance.
However Iceland also applied austerity and budget cutting, and it is a key of its recovery. But austerity alone increases inequalities, the reason why Iceland was able to show good economical and social results at the same time is because it kept a strong welfare state. The role of these spending in social protection is to be an automatic stabiliser, as Joseph Stiglitz calls it, which permitted to sustain household demand. Benefits were redirected to lower income groups, according to Stefán Ólafsson from the University of Iceland.
As you can see on the following charts created from Eurostat’s database Iceland is performing very well. The country has the lowest unemployment and inequality rate compared to Germany, Greece, France, Italy, Sweden and the United-Kingdom.
The question raised is: do another country applying the same methods than Iceland would have been able to reach the same results? And the answer is obviously: no. For several reasons the case of Iceland is unique: it is a country with a small population living for the most part in a city, tourism due to the volcano and the rise of fishing is specific to the island and the country is not in the European Union. However the political courage of refusing to bail out the banks, searching for the culprits, judging them and regulating the banks must be an example for other countries.
– Théo Quint
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