Editorial
Together in turbulence
While western banks hunker down against a tsunami of bad debt and governments turn capitalism on its head in exotic bail-out schemes, the real, long-term story of the current world economic turmoil is being written elsewhere. Governments can now clearly be relied upon to bail out the champions of financial world if they are big enough and powerful enough to threaten national reputations but this crisis, like so many before it, seems set fair to hit the poor much the hardest. Although we hear the most about what happens in the wealthiest countries as a result of oil at $140 a barrel, and more, the almost immediate increase in the cost of foodstuffs across the world can have a devastating effect on livelihoods.
India is a case in point with inflation jumping to a 13-year high at 11.05 per cent, sharply exceeding expectations and compelling the government to warn of tough action on the basis of an inflation figure which is twice Delhi's comfort level. The jump in India was mainly as a result of an increase in fuel prices which have averaged 10 per cent as a means of reducing the level of the government's subsidies for fuel. But the resulting size of the jump in inflation surprised even local economists. The stark impact of food price increases on lower level economies can be gauged from the relative proportion of family budgets which is spent on food – in the United States some 10 per cent of family budgets go on food while in Bangladesh the figure is 65 per cent. And the countries suffering a relatively high impact from increased oil and food prices make up a swath of the African nations while the major 'winners' are in Central Asia and Latin America.
The potential for severe social pressures is obvious but the solutions for what will be an accelerating problem are far less so. Certainly the world increase in the price of crude will have the effect of lessening consumption as will the savvy policies of Asian governments from Delhi to Beijing in cutting back on subsidies for fuel thereby helping to ease upward pressures on demand. Saudi Arabia is once again helping out by increasing the volumes of crude it pumps but this will have only a limited effect. The kingdom has an inherent interest in keeping prices where they are for as long as possible given the finite nature of the kingdom's major resource. Bizarrely, western leaders visiting Riyadh have failed to realise the importance of taking along a goodwill gift for the kingdom though, admittedly, the al-Saud clan holds more than its fair share of the cards at the moment given western dependence on its help with stabilising Iraq, the Palestinian problem and even balancing out Iran.
Equally, the sight of Gordon Brown suddenly taking an interest in the security situation in the oil-producing region of the Niger delta speaks of the poverty of the rich nations' response to a situation that has been developing for decades. Surely he should be hard at work at home educating his profligate fellow consumers about the new realities of the world economy and reversing policies which have favoured road over rail transport. Several countries have already experienced food riots but sadly the recent Group of Eight summit failed to offer anything to deal with the burgeoning problem of rice supplies. The emphasis, particularly in North and South America, on producing vegetation for the production of bio-fuels needs to be reversed while the European Union has moved quickly to lift restrictions on wheat production. But the resulting product must not be allowed solely to reduce food supply pressures in Europe but to ease shortages in less well off parts of the world. Top of the list of recipients must be the nations of Africa but aid must be apportioned on the basis of need and responsible government handling of the assistance provided. If there is a silver lining to the current worldwide credit/energy/food crunch it is that we are all in it together. Global problems must be solved with global solutions: the world coming together to solve its difficulties.
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