The year 2009 and its results: Version of the Institute of Stock Market Development

The outgoing year has turned out to be one of the most unfavorable for the global economy since the Great Depression of 1929. The main cause is the current global economic crisis, which has continued to prevail in a number of industries. But the current year has also equally turned out to be one of the most critically decisive, as its results have highlighted the real extent of the damage inflicted by the global crisis.

Consequently, the economic forecasts, being compiled today on the basis of 2009’s economic performance statistics, would be more credible than those prepared a few months ago. And, although those predictions are mostly of a somber nature, evident in the UN’s  global outlook report released earlier this year, where the already gloomy forecast on the probable exit from the current meltdown was further downgraded — both in its depth and scope of negative implications — hope, however, is no long as elusive as it was six months ago.

Key crisis implications for the world

The current year will also go down in history as the time that the emerging frameworks of the new global financial system became really discernible. The last G20 summits and the consultations among the G20 finance ministers have demonstrated the growing discontent with the existing status quo among the leaders of global economies. It seems that we have all become living eyewitnesses to a historic event, the looming end of the U.S. dollar’s hegemony in global trade. This is evident in the fact that this year alone has seen more than a dozen countries launching the use of their national currencies in foreign trade transactions.

“The outgoing year has turned to be a painful one for all the CIS countries. This is because these countries’ lopsided dependence on Russia prompted much sharper declines in their economies, following the drastic downturn in the Russian economy.”

Consequently, experts have seen in such trends clear signs of imminent decentralization, or ‘regionalization’ of the global economy and its subsequent confinement to the borders of regional trade units with their own internal currencies. Specifically, such regionalization trends can be seen in the Persian Gulf states, Southeast Asian countries and Latin America nations, where such projects are currently under discussions. If this list is further enriched by the already existing projects, such as the “Euro” in the European Union, the currently illusive “Amero” in North America and Euroasian “Euras,” that was proposed by the Kazakh President, the coming decade will constitute an ignominious end to the ongoing globalization project.

Another negative trend that surfaced at the height of the current crisis was the fact that some of the basics of the free market doctrines, which were previously seen as the bedrock foundation of modern democratic societies, are now being subject to revision. Although much has been said about the necessity to fight corruption, unfairness in the assessment of the top managements’ performances in the world’s largest corporations, however, little or nothing in reality has been done or achieved in this aspect.

A classical example of this trend can be seen in the behavior of the management of General Motors Co.,  one of the pivotal pillars of the U.S. economy, which in essence ‘personifies’ the American lifestyle and corporate culture, in its handling the aborted sale of its Opel brand to the consortium of  Russia’s Sberbank and Canada’s Magna International. If to call a spade a spade, this GM’s action is tantamount to what is traditionally referred to in the organized crime’s lexicon as “jilting or scamming.” By the way, it seems this practice of aborting deals at the ‘eleventh hour’ is a traditional signature trademark policy at GM, which, according to several media reports, is currently contemplating on backing down on its agreement to sell its Hammer brand to a China-based company, just as it did with the Opel deal.

It looks like the young Russian democracy still has a lot to learn, including the business management issues, alias the GM-styled modus operandi, from its “older” colleagues. And, these are also the some of the results of this outgoing crisis-ridden year. There is a proverb in Russia, which says, ‘when in Rome do as the Romans do.’ It’s a real pity that this situation happened after the much proclaimed ‘rebooting’ of our relations. But it now seems that this rebooted system has once again been infected by a certain virus, which had infiltrated the brains of our politicians.

Another equally serious problem that occurred on the international level in the outgoing year was the growth in number of viral epidemics caused by previously unknown viral pathogens. If several years ago, the global media were obsessed with the outbreaks of the bovine flu, the so-called ‘mad cow disease,’ and later with the SARS and then most recently, the avian flu, 2009 will similarly go down in history as the year of the outbreak of the deadly A/H1N1 viral infection, which is more popularly known as the ‘swine flu.’ Obviously, today’s global media have reached an unprecedented level of influence over the consciousness of the majority of the world population. In this respect, the globalization theory has won a total and absolute victory, though this is not applicable to the global economy, which has now been in convulsions for the third year in a row.

Today, there is not a single Internet resource that currently does not contain a forum discussion on swine flu issue. Nevertheless, there is a ‘big question’ on the reality of events relating to this so-called breakout, because even a simple examination of the comparative seasonal statistical data on the incidences of both ‘traditional” and “swine ” flu are not in favor of a pandemic that was mainly blown out of proportions by the mass media. It goes without saying that pharmaceutical companies have already made their profits from this flu windfall, and this is just at the beginning of the traditional seasonal flu epidemic.

Key crisis implications for Russia

The current crisis, which has been going now globally for the third successive year, and the second year in Russia, has put the issue of restructuring the economy on the agenda, as whole segments of industrial sectors, such as the automobile industry, have now completely lost their strategic importance. These processes have clearly demonstrated the changes in the modern social and economic structures, the increasing role of other, hi-tech sectors of the future, post-crisis economy that are inherent to an information society.

Besides, the major shifts in the structure of the global economy have made the labor resources migration issue an acute problem today. This is because certain specific approaches are required to solve the employment problems for millions of highly qualified workers that are being laid off from the auto industry, banking sector, etc. For instance, such problems in the Russian auto sector have turned out to be one of the most destabilizing factors, as the challenges currently facing AvtoVAZ will continue to remain a long-term burden on the entire economy.

The question of ensuring the sustainability of the so-called ‘mono-industry towns,’ the official term for large cities that are completely dependent on the sound functioning of the only enterprise in their communities, has now become an issue of extreme importance in Russia because of its threatening social consequences. This is also a legacy of the industrial epoch that requires urgent measures for its resolution. As an extreme measure, the Russian government is considering even such radical steps as mass resettlements of the residents of such municipalities, but the economic consequences of such policy could be catastrophic. However, this issue cannot be left unattended or conserved till better times, as the residents of such municipalities are currently living in extremely difficult conditions that call for taking urgent solutions now.

The Russian economy in 2009 was also rocked by a large scale technogenic catastrophe, the destruction of the hydraulic unit of the Sayano-Shushenskaya Hydropower Station. Judging by the scale of destructions, this tragedy has no parallels in the history of an industrial society. According to various estimates, the overall damage inflicted by this accident on the national economy is around 1.5%-2% of Russia’s GDP. The tragedy itself, much to our regret, was nothing out of ordinary. It is not a secret that the depreciation of production facilities in the majority of the Russian industries has exceeded 80%, and therefore, such tragedies could have happened anywhere and at any time. It is this dire situation in the key industries that is forcing the Russian government to undertake a series of radical measures directed at modernizing the local economy, increasing investments into overhauling the production facilities and their re-equipment.

Key crisis implications for the CIS region

The outgoing year has turned to be rather painful one for almost all the CIS states. This is because these countries’ lopsided dependence on their relations with Russia prompted much sharper declines in their economies, following the drastic downturn in the Russian economy.

For instance, the decrease in the volume of cash transfers from the CIS migrants working in Russia, according to several experts’ data, led to an over 30% fall in the economies of several CIS states. And, this reality has once again raised the necessity for radical changes in the cooperation formats among governments within the CIS framework because the current crisis will probably not be the last and, it, therefore, will be entirely unwise not to learn some lessons from it in order to avoid the repetitions of similar situations in future.

Forecasts for the coming year

On the whole, one can say that 2009, in many respects, represents a watershed, a critical point, in modern economy. Actually, it is only now, at the end of the first decade of the 21st century that one can really talk about the replacement of one millennium by another, and this process has been accompanied with dramatic and deep changes in society.

In conclusion, I would like to believe that the new economic foundation being laid down today will be more resistant to future crises and shocks, while the new economy itself will be based on true partnership and cooperation built on the new conditions of equality and justice for all members of the global community.

* The author is the CEO of the Russian Institute of Stock Market Development