Transcript | 4. lecture: Globalisation, Crisis and Assumptions for the Future - University for modern Slovakia

As we said in previous contributions globalisation means only two certainties - that uncertainty will increase and the rate and intensity of global competition will grow as well. Consequently the flexible and prepared for these conditions will benefit from this environment and the others will, at least relatively, lose.

Let us ask ourselves two questions. What the crisis has changed on the above conclusions? What does it mean to be flexible and prepared, i.e. what are the most important prerequisites for success in global competition?

The crisis has shown that conclusions on the growth of uncertainty and intense competition have not changed; on the contrary, they will apply even more strongly and more intensively than before.  

The crisis arose mainly due to excessive pumping money into the economy to support consumption and indebtedness, due to widespread moral hazard. Moral hazard means such a risky behaviour when risking party relies that it will not carry any losses alone, but that they will be shared with someone else, usually with taxpayers or consumers. That's what happened. The behaviour of banks before the crisis and their rescue by state afterwards is the most famous and the saddest example of moral hazard.

Once we summarize it, the excess supply of money, support for consumption and indebtedness, and moral hazard actually mean softening of the conditions of competition. Such softening occurred not only before the crisis, but also after it, because the various rescue packages (bailouts) means softening and alleviation of potential impacts of the crisis.

The crisis means a huge increase in debt and insolvency of people, businesses, but also the state. People and companies pay less direct and indirect taxes and the state in addition to the crisis is going into debt because it is pumping huge amounts of money to various rescue packages. State expenditures consequently increase, but earnings are falling. This cannot last endlessly. Even now the situation is serious and not only in Greece by far. Almost all developed countries are indebted to such an extent as never before in history (in the peacetime).

The only reasonable and viable alternative how to get out from the vicious circle is deficit and debt decreasing, savings, cuts in public expenditure, reforms, in particular those to deal with costs associated with the aging of population. But that means toughening of the conditions, thus intensifying of the competition extent. This conclusion is confirmed by the fact that there is still a gap between production and services capacity (i.e. offer) and a real future demand. The markets should be cleaned and thus the excessive capacities reduced. In this situation, the competition for capital and investments even more difficult than it was in the pre-crisis period.

What does this mean for us? In particular, that a reasonable, responsible and competent policy will be more important than ever. The most important prerequisites for success in the future increased global competition will be as follows:

• Healthy public finances, thus low deficits in boom time, the need for balanced, or  surplus government budget, relatively low public debt
• Good and constantly improving business environment, especially low taxes and levies, high law enforceability, flexible markets, especially flexible labour market, flexible entry and exit from business, low level of bureaucracy, regulation, and corruption, good governance and proper functioning of public institutions
• Education, science, research, and computerisation, especially quality school system, science, and research, advanced computerisation, interconnection of science and research with the practice

We should judge and evaluate every government mainly by how it fulfils the above priorities. From their implementation our future will depend, along with the future of our children, and children of their children.

Note: Correct answers to the test questions are intentionally not included in the text of the lecture. The reason is to motivate students in their additional self-study and partially (as revealed from the students’ responses and requirements) to make the test questions more challenging.