D N I H BE E H T S W NE PHIL I EE T S P LE THIS PAGE LEFT BLANK INTENTIONALLY A B O GL Philip Steele Fir First irrst pub p lis isshe hed in i n 20 14 14 by Way Waylan land la lan d The pu publi blishe bli s r woul woul ould d woul woul ould d like l ke to o th tha a nk th an the e followi ow ng Copyri Cop yright yri ght © Way Waylan land lan d 2014 fo their for their ei ki k nd perrmis missio si n tto sio o repr produ duce du c the ce t ir p tog ph g rap hs: s Waylan Way lan an nd Sh Shu hutte tterst tte rst ock.co rst ock k om u nl nlesss sta stated ed ot o her erwis er wise: wis e 338 38 Eu E st sto ton R oad ad Frr nt Fro n cov cover: er: r Ge etty Im Image ages, © Char age h les O' O'R Re /C Rear/C / orbis,, London Lon don d on NW N 3BH 3BH B © Stef t ani ania a Miza izara/ a Cor Co bis b © AFP/ A FP//Get Getty ty Ima Im ges es (4 (4), ari arinda n mba mbaner nerjee ner e (5 ( ), ) W lan Wa Way an nd Aust ustral ralia ral ia Geo eorgi eo gios os Kol Ko lid d as (6) (6),, WIKI W KI KI_Co Commo Co mmons (7) (7 , Olivier O rL Le Lev evel 17/ e 17/207 20 Ke 207 Kent nt Str nt S eet Queine Que nec (8), ), Ve Verve rve erid d is i Vas Vasiliis (9), Ge G tty y Im I age a s (10) 0), 0) Sy ney Syd n , NSW ne W 200 20 F ntp Fro ntpage age e (1 (11), Ge 1) Getty y Im Image ag s ((12), K zen zenon on (13 – pos o ed d by mod dels),, AFP/Ge Getty Ge t Image ge es (14)), meunier ier erd (15), Nick c u All l R Ri ghtt s R ese eserve rve v d d (16 16), Get Getty ty Ima a ges ge (16), ) Bllanscap ca e (17)), WIKI_Commons Produc Pro du ed duc d for Wa Wayla yla l nd n by y Tall l T ree Ltt d (17 17), ), Shc Shchi hipkova a Ellen n a (18)), Nata a789 78 (1 ( 9), Murat Edi d tors: torr Emm Em mm a Marr Marrr iot io t a nd d Jon J Ri R cha a rds r rd B san Bay n (2 20), Verve Verve rverid ridis Vas rid Vasilii s (21) , Bloomberg via a Design Des g ner: gn r: Ma Malco l lm lco m Parchm Par ar h ent n nt Get e ty Ima ages (22), (22 WIIKI_ KI_Com Co o mon mo s (23) , WIKI I _Commons (24 4) del el Monaco (25), K 5) Kosta t s Kout ta utsaftik k is (27 ), ISB IS S N 978 7502 7502 53 82 © MAL A Langsd g on/ o Reu R ter te s/Corbis (28), E book E-b ok k IS I BN ISBN N 978 97 7502 8782 ©m mirrorimage irrorimage photos/Dem photos/Demotix/Demotix/Demotix/ e otix/D x Demotix/Demotix// C bis Cor b (2 ( 9),, WI WIKI_Common o s (29)), Andrew Zarivn ivn ivny Dew wey y nu nu be : 330 number 30 9'0511 511-dc 511 -dc23 -dc 23 (31), cozyta (3 ( 2), WIKI_Common m ns (33), © CA CARLO C R S BARRIA/Reute ers/Corbis (3 34), Le ewis Tse ewis Ts Pu ui Lung 10 (35), © Nevada Wier/Corbis (36), chungkin chu ng (37), lev a din (3 (38), 1000 Words (39) 39), Kosstas Koutsaftikis Printe ed in i n Chin i a (40), © YIORGOS KA A RAH RA HALI A IS/Reut eu ers/Corrbis (41) 1, joy y ful u l (42), WIKI_Co Com mmons (43), spirit of a america Way Waylan ay an and is a di d vision i of H Ha chette e Ch C ildre en’s Books, ks an n Ha Hachette t UK co c mpa pany www w hache h tte t co c uk (44), WIK WI I_Comm mmons (4 45) C S T N E T ON 28 , 2013 K U , s t 30 efit cu r save? Ben o d n e p 32 ld we s Should d bust n a t c h a c p n Cru 34 bal im The glo , 2008 view a r e in g h n C , lo The ancies 36 wrong Redund nswer? a s went g e h in t h t ion How , 2008 obalisat 38 ns trap s glo I a lo e e i ic m t o s h u ju e d h T 8- 40 erty an me? ce, 200 Pov e s to bla e a r w G , o s s e h W ssue 42 of pric al is Socia ? nd falll r a e e w s is r n a The the ories 44 What is mic the o n s o e c r e u ut Four money? 46 ng on f Bettin e is our r u c e s How nks 48 wiith ba lossary G s m e le b o r p e h T s, 200 Index Brother n a ? m e h Le respons he best t is t 26 a Wh y t i r e t s ciing au Introdu Beh ehind the he New ws The 1990s and 2000 0s were ttimes off great economic chang nge In the world’s d’s most d developed ed countries, factories and d mines were bein ing run d down Th he really big money was s now w being made in ffinance,, banking b ng and real estate (proper erty) Multi-national corp Mu rporation ns were n now richer and more pow owerful than some nat ations In n financia cial centres, such as the City C of London an and New Y York’s W Wall Street, fortunes were Wa re being mad ade The money m ney flowed freely The big plun nge Busine n ss s es could d not o bor orro ow the mone neyy Frrom 2007 onwaards, s the h hea eaadl d ines tol oda th hey neede d d to surrvive Unem empl ployme ent v ry differe ve ent sto t ry r Th he US U hou ousing g marke et waas as risin riising ing ng, g factorry pr p od o uc ucti tion wass falling, was no wa ow in troub ub ble with fa f iled ed payments sto ock oc o ck ma m rkket e s were diving Now w the media iaa o hom on o e loan ans Banks ks were go g ing bust s were r using ng g words ds likke ‘ccredi d t crun unch’, Traders in São Paulo, Brazil, sell dollars on 15 September 2008, the day of the USA’s biggest ever bank failure In 2012, people around the world protested against government cut-backs and the actions of the banks ‘do owntturn’ n and d ‘re r cession’ n A globaal Had fu fundam men enta tal problems m rea eallyy been n reccesssion set in n, th he worsst sinc n e th he Gr Grea e t fixed, or ju ust plaast ster ered ed d ove v r? Was a a new e De epr p essiion o of th t e 1930 s s This led to t a home ho me loans n crisi s s on the e way a? finaancia ial crisis in Eu uro rope,, wher where e the ch hose en In th t is book, k we go g beh ehin nd the rem medy was a har medy harsh a ssh h ccut-b back in pu ublilc head a line n s to find ou ut wh w at wen e t wr w on o g,, serrvices es Pe eople ple wer e e sufferrin ng w att was don wh o e ab about it i and wheth t er th hat worrke ed d Doe oess th the e cu c rren entt gllob en obal a What ne ext? econ ec on nom o ic i sys ysste t m maake sen ense se? Is it faairr? se B 2014, th By here were hope es of a reccov over ey Is itt su ust staaina nabl ble bl e in n the e fut u ur u e, e or ar are e beg g nn gi n ing,, but maan ny jobs b had a bee en lo ost s more mo re crash re shes sh es on th the e wa way? y? In a gl glob obal ob allis alis ised ed a d the an e staaandard of livi v ng had fal alle en eccon o om omy, y, the hese se e que uest stio st ions io ns afffec ectt evver eryo y ne yo Th he fu future was a far a fro om ce c rt r ain n on the pla lane ne et THE FALLOUT t#Z IPVTFQSJDFTJOUIF64"XFSFQFSDFOUCFMPXUIFJSIJHIJO t#FUXFFOBOE BCPVUQFSDFOUPG"NFSJDBOTIBEMPTUUIFJSKPCTBUTPNFQPJOU "CPVUQFSDFOUIBEMPTUBTNVDIBTQFSDFOUPGUIFJSXFBMUI t*UXBTFTUJNBUFEJOUIBUCZOFBSMZQFSDFOUPGXPSLJOHBHFBEVMUTJOUIF64" XJMMIBWFFYQFSJFODFEQFSJPETPGFDPOPNJDJOTFDVSJUZ Crunch and bust Beh ehind the he New ws Th financ The ncial world has ev evolved o over thou ousands of years, from the da ays of bartering g ffor good ods to the e rise of banking in the 1400s 0s By the 1600s, s, global ttrade and nd the financial institutio ions we know to today we were begin inning to take shape EJTB BTUSP PVT V 4PVUI4FB B$PN $PN NQB Q OZCVCCMF PG PG o JO#SJUB JO #SJUBJ BJO B BJO O t*O 4 4 4DPUUJTI IFDPOPN NJTU"EBN B 4NJUI NJUIXS XP PUFUIBUF FDPOPNJDTFMGGJOUFSFTU TQVS V TPOX XJEFSTTPDDJBMCFOF X O GJU) )JTUIFPS P JF FT XFSFQ QVUUUPUFTUE EVSJOHUIF*OEVTUSJBM 3FWPMVUJPO OBOE O UI I B IF BHF H PGFNQJSFT t5IFFDPO POPN PNJDTZZTUFNOPXEFQF FOE O FE POUIFBDDDVNVMBUUJPOPGXFBMUI DBQJUBM Scottish economist Adam Smith advocated a system of economic self-interest DPNQFUJUJW WF F NBSL LFUTBOEXBHFEMBCPVSS 'SPN UUIF(FSNBOFDPOPNJTU,BSMM BSYEFDMMBSFEUIBUDBQ B JUBMJTTN CBTFE E POFYQMPJUUBUJPOP PGUIFXPSLGPSDF P F t5IFGJSTUTUPDLFYDIBOHFXBTGPVOE EFE XBTVOTVTTUBJOBCMMF JO"NT N UFSEBNJO5IF#BOL LPG 4UPDLI L PMNJO4XFEFOXBTJTTVJOH t"GUFS S 8P PSME8BS BS* BS* S* o (F FSNB N OZZ CBOL LOPUFTCZ&DPOPNJDACVC V CMFT FYQFSJFODDF FEIZQ EIZQF FSJOGMBUJP PO#ZZ oIZQFEVQTUPDLWBMVBUJPO OT XIJDIUIFO O 64XBT XBTTXPSSUI UI ACVSTUoCFDBNFDPNNPO OPUBCMZUIF (FSN (F (FSN SNBO .BSLT**O O UUIF8B BMM4USFFU FUU A crowd of anxious depositors gathers in the rain outside the Bank of United States after its failure in 1930 $SB BTIPGUIF6 64TUPDLNBSL S FUNB BSLFEUIF IF TUB BSUPGUIFUFO F ZFBS(SFBU%FQSSFTTJPO FTTJ T P DBNFUPBO OF FOE OEJO O X XIFOUI UIF F EP EPMM MMBS BS DSF FBUJOH HNBTTTJWFVOFNQMPZNFOU ZNFOU C DB CF BNF NFBAGJ G BUU DV VSS S FO ODZ D OPMPO PO OHF O H S S UJ UJFE FE E UPJUTWBMVF V JO O HP HPME ME E t*O O UIF T UIF & OUIFT UIF&O &OH JT &OHM J IFDPO P P PNJT J U +PI IO.BZOBSE SE, SE,F ,FZZOFTTBJE EUIBU t*O * UUIF *O IF T ,F T ,FZOFTJB BOFDDPO POPN NJD JDT T XF FSF F DBQ QJUBMJTN QJUBMJTN JTN N NDPVMEP POMZTVSW S JW SW J F XJEF XJ EFMZ MZB MZ BCBOE CB BOE OEPO POFE PO FEGGPSUIF FE PSS IF FAANP N OFUB UBSJ SJTN SJ TN N EFQ QSF QSFTTJPO OTJGHPW WFS F ONFO F UTXFSSF F PG64 PG FDPO P PN NJT JTU U J JMU MUPO MU PO O' 'SJ SJFE F NB FE NBO O QSF FQBSFE F UPTU T FQJJO C CPSSSP PXNPO OF FZBOE E $ OU $F O SB S MMCB CBOL OL LT T DP PVM V E E QSSJO OUNP NP POF FZUP UP TQF FO OEJU DDSFBUJOH HKKPC P TJO J UUIF I Q QVC VCMJD D U DL UB DLMF MFJOG MF OGMB OG M UJJPO MB O XI XIJD XI J IXB JD XBT T OP PX XTF TF FFO FOB BTTT B TFDDUPS P )F FTTVQ QQPSSU SUFE EQ QPM PMJDDJFT T TJJN NJMB BS S UP UP UIF UI F DI DIJF JFG JF G QS QSPC PCMF PC MF FN N SB S UI UIFS FSU FS UUIB IBO O UIP PTTF F JOUSP PEVD V FE F CZ Z '%3P PTFW WF FMU U JOUUIF V FN VO FNQM Q PZZNF QM NFOU OU'J OU 'JOB OBO OB ODJB ODJB OD BMNB BSL LFU FUT TTXF XFSSSF F 64" VOE 64 EF FSUIF IFA/ /FX%F %FBM %F TVCK TV CKFD CK FDUF FD UFE UF EUP UPMMMFT UP F T T DP DPOU OUSP OU SPM SP M Q M Q QVC VCMJ MJDDD MJ DTF TFSW TF SWJDDF SWJD SW FTT X SF XF FQ QSJJWB BUJJTF TFE E t*O *O Oo BO B JJJOUFS F OB BUJJPO POBM BM BM BH HSFFN FN NFO OU UNB N EF FB F BU#S #SFU #S FUUP FU UP PO O8P 8PP 8P PET PE T JO O t*O *OU *O IF U IF T TB T BOE B OE OE T TT FM FMFD FDUS FD USP US PO POJD OJD JDD U F UI F64 64"FT 64 FTTUB UBCM C JTTI IFE IF EBO B **OUFS OUFSOB OU BUJ UJPO POBMM POBM UF UFDI FDI IOP OPMP MPH MP HZX HZX HZ XBT BTD DIB DIB IBOH OHJO OH JOH JO HUI UIF FX F XBZ XB X Z XF Z XF P POFUB BSZZ' 'VO V E E * *.' ' *OU OUFS OU FSSOB F BUUJJPO POBM BM XPSL XP SL L CV CVUUOF OFX X*O X *OUF *O U SO UF SOFU FUC FU CVT C VTJO VT JOFT JO FTTTTF FT FT T XF XFSF SF FYYDDIBO OHF HFSBU B FTTX XFS FSFUJ FS UJFE FEU UP U P UI P IF F64 64E EPM E EPM PMMB MBS MB S PW WFS FSW W WBM BMV VFE VF E JO JOB B BAAEP EPU UDP U DP PN N CV CVCC CCMMF CC MF F X XIJ IJDDDI I BOE E JUUT T WB WBMMMV MVF F JO J H HP PMME E 5 5IJ I T TAH AHPM AH P E PM E TU TUBO B EB EBSE SE SE CVSTTU CV UJO JO O The longer view Beh ehind the he New ws In n the 1990s and d 2000s b banks we were eager for quick profi fits Some made risky So y iinvestm ments or cut c corners When there e was a housing boom, m mortgage ges were e given to people on low w incomes i s Few question ns were a asked as to whether they could d afford the th monthly y repaym ments Th hese ew were called ‘sub-prim rime’ loan ans Toxicc debts often n bu b nd n led up p an nd d sol o d on o to o othe herr In n 200 04– 06 6, USS int n er e es e t rate es began to t rise bankss and d in nve vest s or o s These soo ca c lled ‘to oxxic s arpl sh plly Man a y peop o le e cou ould no lo onger e debt b s’ tur turn rned ou ut to t be a fa fatal liab bilitty aff ford rd d the heir mor o tg t ag ge repaym mentts and t eiir ho th h uses were repo p ssessed The h se e bad d Go oing gb brok ke d bt de btss st stilil had th t e potential to o maake In 2007, 7, th he US su ub-pr prim me sp specialist moneyy for creditor mo o s, and n so th heyy were New Ce C nt ntu ury Fina n nc ncia ial we ent bankr k up upt A notice on a house in the USA shows that this property has been repossessed by the bank after the owner failed to keep up with mortgage repayments As growth slowed in China, workers returned to small, family owned businesses like this one in Puning, Guangdong Province firm ms closed ed dow own in i the he southe ern a lowe wer grow wth rate, and d relyy mo more on n pro ovince of Gu ovin Guan ngd gdong Eve ven if faacto cto tori r ess increaasing g hom ome e co cons n um mpt ption n th han no on n the staayed d ope p n, some wo w rk r ers had to accep ptt expo ex ort mar a ke k tss Biig ec e on o om o ic and nd soc occia i l a 75 75 perr cent cut in n wages ges In n som ome case ess, refo f rms we w re b bro roug ug ght h in, n witth grea eate ter te the e governme entt ste tepped tepp p d in with fin nanciaal reliiance ce on n market forrcess th han a on ce entra r l sup ppor ort forr laid aidaid-of d fff workfor o ce c s go ove ern rnme ment ntt plann n ing Was thi h s a re eciipe p fo or su succ c es ess or o dissas a te er? In 20 014 14,, so ome m Ch hina on hina, o the up or down?? econ ec on nom o is i ts pre r diict cted d suc u ce cess s for the e Go Gr owth did d recove er in Ch hin na, a whicch h todayy proj ojjec e t,, but u th he intterrnaati tion onal on al fin i an anccier hass th t e wo world’s secco ond n bigge g stt ecco cono no omyy G or Ge o ge g Sor o os war a ne ned d th that at a ris i e in is n a tter th af he U USA In 2013, tthe 3, he Chi h ne nese s Ch hin nes ese e de debt bt cou ould ld o ope pen pe n a wh whol o e ne n w Go ove o vern r me mentt ssaiid it was a prepa pared d to hav ave e chap ch apte ap terr in the te h g glo loba lo ball fi ba fina naanc nciaal cr c is isis is is ‘One day we went to work as usual, the next it was all closed Thousands of us are looking for jobs now We walk around every day till our feet ache but we can’t find anything.’ Miigr g a an nt wo work rk ker er Wei ei Sun unyiing n , a fo ng, orm mer e toy ffac ac cto tory r emplo ry mplo mp l ye y e in n Dong ong on gg gua uan, n, Th T e Gu Guar uardi ardi ar dian an, 20 an 2008 008 08 Redundancies, China, 2008 35 Beh ehind the he New ws: The big qu questions ns The he IMF (see page e 7) aims ms to prom omote economic cooperatio tion between countries bet s; the Wo World Bank nk loans to developing nations, na and the World Tr a Trade Org rganisatio ion (WTO) regulates inter ernational al trade Perhap ps the ultimate ult symbol of the global mar sy arket is th the Internet, with th money y trading ng arou round the world at lig ightning s speed d Globallisattio on – a ble esssin ng or a curse?? If the ere e is un u em mploy ploy oyment o ym n and recessi sion on in W s gl Wa g ob balis li atio i n – th the wo w rldw dw wid de jobss to o Ba Bangalore in Indiaa? Suppor o ters integr in grat a ion n of mar a ke ets and nd tra raade – a facto t r clai laim a m th that at globalisation creates wealth, i the in he crisis? The downturn certtainlyy enco c urag ge es devvelopmentt and stabilise s s se seem e med d to pr p ovve th t e old saying n that ‘If If econom mie es Critics complain that wealth America sneeze Am es, the h whole world rld d catche es is distributted unequal a ly, that financial a co c ld.’ Eco onomies around th the h wo orld are interests aare often placed above human now w so intterco c nn co n ec ected ed th that if one e falls, rights orr the e environment and that a they all go o down n lik like dom minoes minority ccultures are often overwhelmed d With improved communications technology, companies can now base their customer service centres in places where labour costs are cheaper 36 the UK U , doess it make sense to outsource e Barrrie ers to o free e tra ade e? recessio on, some politicians have come to Th he re r ce ession h s threatened d globa b l trade talk of protecting nattional maarkets by in many wayss New regulati ulati ulations w which introducing restrictive trade measures require banks to increa crease crea their liq quidity This policy is called ‘protectionism’ and is (accesss to funds) ds) in n order to reducce futture e resisted d by th he WTO, which insists that free risk, have em made it harder for them m to trad a e is the best route out of recces e sion f nanc fi nc nce in i tternational trad a e In the e wake o of Improvements in transport have been a major driver in globalisation In Shanghai, China, the USA has invested in this ‘mega-port’, making it the largest in the world It handles more than 700 million tonnes of cargo every year DEBATE Should it matter that our goods are made in foreign countries? YES NO *OIBSEUJNFT DPVOUSJFTTIPVME 5IFXPSMEIBTNPWFEPOGSPNUIBU MPPLBGUFSUIFJOUFSFTUTPGUIFJS QPTJUJPO'SFFUSBEFXPSLTCFTU PXOXPSLFST XIFOJUJTHMPCBM Is globalisation the answer? 37 Beh ehind the he New ws The e debate about the th global al financia cial crisis is often a fierce ce one Many different arg Ma rguments ts are rai aised Most of these theor ories talk k of eradicating p poverty a and prom omoting social justice – yet ye propos ose comple letely diff fferent ec eco conomic and social reme medies On the one hand thro oug gh ta t xation So S me peo eople p are al a wa ways y Ad dam Smith th (see e pa p ge g 6) wr w ote th t at going go g to be mo ore able than oth hers, theyy s lf-int se n eresst acts t in th the e in intere estt of th the say, y,, and d deserve e hig ighe h r fi financial rewa w rds co omm mmon o good on d Man ny politici c an a s today Byy ssp pend pe ndiing money, y the rich h bo boostt the b liievve that equalityy of oppor be o tunity is a econ o omyy and cr create e job obs s In th his way, b tt be tter e sol er o utio ti n th t an redistributtio on of wea wea e lth wealth h ‘trriickl k ess dow wn’ n to th the e poorerr levvels Volunteers distribute food at a food bank in New York in 2010 to people unable to afford the cost of feeding their families Protestors storm Fortnum & Mason, a luxury food store in London, to protest against tax avoidance by the rich of societyy The ch hance nce c off ea earnin ing mo m ne ey makess othe hers asp aspire to t th he saame Th he welffare stat ttate an nd th t e cu cultture of benef e its o lyy re on rew waards ds laz a ines e s – an and co costs a va vast amount aatt a ti am t me e when we can ill affor o d it i Privat Pr ate e firrms can the same job as pub blilc se erv rvices es, bu but mo m re e efficcie ently because se theyy co omp pete wi w th each h ot other and d on the otthe er Th hosse wh ho o op ppo pose thi h s argu g meent might po oint outt th that a tax a ation can be use ed to make soccie ety t fai a rer fo f r all.l At the mome m nt, eq qua u l opp portun u itie iess are on o lyy a dre eam am m As A for Ad dam a Sm mith mi th h, ‘self-inte ‘ lf i teresst’ is i one thi th ng, bu but grree eed iss q quite anoth ther That TTha ‘tr tric i kle down w ’ efffect is a myth t Wher Whe ver neo-lib Wh Wherev berral po olicies es (ssee page pag 19) have e be b en u used, the ne et, t esp pecciaallllyy im mportan nt in tim i es of re esult has ass been b a ssharp in ncr c ea e se in the e reccess ce sion n Cutti t ng p pub ublilic ub i se erv rvic i ess is a fa ic f lsse po ove overty ver gaap p This in ncrease es the likke kelilho hood od d eccon onomy yy Priiva vati t sse ti ed fiirm ms se ervve th he off problem emss such as sociial unres est, poo o r i tere in est s off sh shar areh hol o ders de erss rat a he herr th than an the the heallth t orr ccrime – aalll of o which c cos o t so ociiety publ pu b icc Offte ten n priv ivat iv atis at issat a io i n de deal a s al al allo low lo w dearly ly An A efficient wel e fa farre staate e is th hem em to sk s im offf p pro rofi ro fits fi ts,, wh ts whilille le leav avin av ing in g th the e affo ord rdable e and d pro oviides an n ess s ential a saf a et ey pu ubl blic ic wit ith h a bu burd rden rd en o off de debt bt bt DEBATE Should the tax system redistribute wealth to the disadvantaged? YES NO *OBDJWJMJTFETPDJFUZGJTDBMQPMJDZ 5IFUBYTZTUFNTIPVMECFUIFSFUP TIPVMECFVTFEUPQSPUFDUUIFQPPSFTU SFXBSEBOEFODPVSBHFFOUFSQSJTF GSPNIBSETIJQ OPUUPQSPWJEFIBOEPVUT Poverty and justice 39 Beh ehind the he New ws: The inside e story y Since ce 2008, Greece h has recei eived 240 40bn Euros in loans from m the IMF MF, ECB and EU – b but in th that perio riod the economy has shr runk by y 23 per cent Un nemploym yment is s still over 27 per cent Wh Whatever r caused this sit ituation,, it i was th the Greek people who we were blame med for the cri fo crisis, and nd they hey who paid the pric ice NEWS FLASH Date: 2008-2014 Location: Greece The problem: Sovereign debt crisis Measures imposed: Severe austerity Outcome: Social breakdown Tempers run high outside the Greek parliament building in 2011 as protestors vent their feelings against the EU’s austerity measures Au usteritty catastrop phe lives of modern Greeks? Auste sterittyy of a kind Cattaast s roph he is a word from m the anc n ient no orm r ally seen only in wartim wa me TTaxatio on Gre ee ek lang guage It originaally meant an was in ncreased on n incom in me, prope erty, y ove ertturnin ng, a sudden end, a fatall turning g purchases and nd d fu uel Public sectorr jobs point Whaat have these caatasstrrophic were cut and wag gess slash s ed He eaalth eco onomic figures meant for f the everydayy spe d ng spendi g was cu ut by bi u b llio ons of EEuros 40 C os Cl o ur u es or me erg gerss were e planned for 1,976 schools Teach c ers’ salaries were cut byy Jobless Greeks queue outside an employment office in 2011 In that year unemployment reached 18 per cent – 48 per cent up on the previous year about 40 per cen cent The state pens nsio ns sion io age was raised sed, be b n nefits we ere cut t The sociial cost Suicide ratte es ro r se by 40 per cent or so in the first five monthss off 2011 In n 201 2, the minimum wage w was cut byy 22 per cen nt Charitties have had to sup pply frree p e food parcels Familie i sh have broken up p Priisonss have become ru un down n and overcrowd ded as budgets ts were cut A And if au uste usterity ust te y has been m makin king th things bad a for the Th he Gr G ee e k go gove v rn nment said th t at the he Greeks, it has h been n even wor o se for o co oun ntr try wo w ul u d of offi fici fi cial allyy com al om me ou outt of penni nniless migrantts and ref e ugees wh w o haave re ece cess ssion n in 201 But the he e int nter errnaati t on onal al en nttered Gree e ce fro om Afri r caa or th t e Mi M ddle O ga Or gani n sati t on ti o for o Eco c no nomi mic Co Co-o - pe -o p raatiion Easstt, fleeing wars orr even worse se e povver erty a d De an Deve elo l pm pmen nt (O OEC CD) wass nott so su sure re The ey wer e e scapeg goate ed fo f r th he tr t ou o bl bles e es Coul Co uld d th the e co coun untr un tryy sttayy in re tr rece ce essio ss on fo ss forr and d often attackked d on the e street more mo re e yeaars to co come me me? e? ‘The crisis has made a bad situation worse Alcoholism, drug abuse and psychiatric problems are on the rise and more and more children are being abandoned on the streets.’ Cos Co stas stas st a Yan anno no opoul poul ulos o , fr os f om m the cha hari riity y Smi m le o off th he Ch Chiiil ild, d, The Th e Gu G ar a di d an n, 20 2011 11 Social issues, Greece, 2008– 41 Beh ehind the he New ws: The big qu questions ns In his history, politicians s and busi siness lea eaders have often caused g great hu uman suffering by pushin ng throug ugh all kinds of radical eco conomic plans They hav ave made e tthe facts ts fit their ideas, rather than th the other way ro round All ll such pla lans are doomed to failure re because se they are th e not susta stainab nable on a human level vel Children scavenge for food at a rubbish tip in Ukraine in 2009 The country has about 50,000 children living on the streets Th he huma an facto or un nem e pl p oyme ment n an nd debt ebtt caan have a Eco onom o ic theories ma m y cr c un u ch num u bers deva v sttating g ef effect ctt on orrdinary peopl p e’s an nd talkk off inflation , leve v rage, supp p ly l and d liive v s s Did d the e ban b nkers r and financial dema de m nd – but u the jar a go g n ofte ten se eem e s to o w izzkid wh kid i s thin nk thro ough h the cons n eque encces ign nore the hum man n factor Recession, o the of th h actio heir ons?? EEcconomiccs sh hould alway ayys A member of Anonymous at the Occupy Wall Street protest in New York holds a leaflet asking people to join in their campaign be e matched to hu uman ne eed ed Affter alll, o we want mone money to work rk for us, or ensslave ve us?? Eth E hical beh hav viiour? S ch quesstions haaavve always Su y been at the e he ear a to of phi h lossso ophiccal a and religious u debate te We Wealth, po ove vertty, gre eed, and d envy have v rai a sed d mo mora r l or ethicall questtions n throughou utt historry Pe u P ri r od ods of o eco conomic boom m or b bust st rar ae elyy sh s ow w hum man n natture e at its best Tod day, tth he te term m ‘usury’ y’ usuallyy mea e ns char a gi g ng e exces essive ve interrest ratess on n lo loa lo nss At tim imess itt hass me eant ean nt charging ch harging ng aan ny inte terestt at all Usuryy wass co nde emned in ancient Hindu, u Bud uddhist, ddh d t Jewish, Chr h isti t an and Isla lamic scrip criptu u es Desp ur pite this, it became me th the h central practtic ice e in the glo oba bal fina n n nancial syystem TTo oday, som o e Islaami mc b nks havve bee ba e n ffounde ed wh w ich trry to conf nfor o m to o originaal Musl s im m princ n ip iple es s beco be come m a not me o orrio ious us fea eatu ture tu re e of th he Prredato ory y le en ndiing fiina nanc ncia i l cr ia crissis is Pa Payd y ay loa yd oan n comp co omp mpan anie an iess ie M nyy Chr Ma hristian an leaaderss o de emn n o fe of fer un unsecu cure cu red re d sh shor o tor t-te term te rm cre redi dit, di t, p ed pr dattoryy le end din ng to o vul ullne eraablle p pe eople op ple, s me so etime mess at a ta tach ched ch e to an ann ed nnua uall ua su uch h as th t e ‘p pay a daay’’ loaans n whi h ch hav ave e perc pe rcen enta en tage ta ge e rat a e of ove er 1, 1,00 000 00 pe perr ce entt ‘Nowadays people know the price of everything and the value of nothing.’ Osc s arr Wil i de de, T Th he Piict c ur ure e of of D Dor oria o or ian ia an Gr Gray ay, 18 ay 1890 890 What is the answer? 43 Beh ehind the he New ws The gl global financial cr crisis ma made many ny people feel a sense off great g inju njustice Why shou ould the p poor be ta targeted for mistakes made ma by millionaire banke m kers? At a time w when the public were bein eing asked ed to make grea eat sacrifi ifices, why hy were vastly rich multi ltinational al c companie nies being g allow llowed to pay less tax? x? ‘As long as the problems of the p po oor are not radically re resol olved by rejecting the absolute autonomy of markets and fina nancial speculation, and by attacking the s stru tructural causes of inequality, no solutiio ion on will be found for the world’s ld’s problems ’ Pope Po pe e Fra ranc an ncis nc cis i , he h ad d of th the e Ro Roma man ma n Ca ath t ol o ic Chu h rc rch h The deb bate goes go goe on n Chancellor, George Osborne, was quick As of 2014,, it llooked as if a recove ery migh ht to point out that many more years of take hold hold, at least in the U UK Had tthe crisis austerity ccuts were still to come, so it at last l been resolved? Would the public seems thaat heated de ebate, bo oth for and nd ncern no ow evaporate? TThe Britiish against, is likely to o continue New w writers w Migrant workers arrive to pick crops in California, just as they did during the Great Depression of the 1930s Dorothea Lange’s famous photograph taken during the Great Depression captures the despair on the face of a migrant worker are e now arguing that ineq equal eq qua itty prevents t the e glob bal a ised ed wor o ld now ow w loo ookk forw rw war ad a country from runni nnin nning g efficiently Bu B t are to a bri righ ghte t r future e? po oliticians listen ten ng? tenin g The gap a between rich ap and d poor orr g grows evver wide er.r A changing world Th hatt will de d pe pend nd on al a l so ortts off unk nkkno nown wn n Sorted So or not sorte ed? f ct fa ctor o s Eco Eco cono no omiic ch chan ange an ge e willl be aff ffec eccte ed Co onc n ern has been nc n exp x re essed e by many nyy b tec by echn hnol olog ol og gical al adv dvan nce es,, by po popu pula pu lati la to ti on n eco onom misttts that th he le esson ons of the glo loba lo ball ba grow gr owth ow th or de decclin ine, in e, by res re esour urce ces, ce s by cl clim imaaat im ate e financ n ial crisis i hav is ave no n t be been leaarned a d en an envi viro vi ronm ro nm men nt, by po polililiti t caal st s ab abilillit ity y y Su St ud dent te text x bo ookks have e not bee een n re revi v se s d Such Su ch fac a to tors rs willl haave v to be alllow owed ed d forr, Does Do e thatt mean a th haat it cou h o ld l all hap appe pen pe n but no bu o new e eco c no nomi m c pl mi p an an wili l wo w rkk if it ag gain? A novvel e callled d Th he Wa Wayy We Liv i e No ow iss nott aacc ccou cc ount ou ntab nt able ab le to th he pe peop ople op le e who h se ho e de escribe b s ho be how w grre ee ed an and d di d sh shon o es on e tyy can a liive vess it aff ffec ects ec t Sp ts Spec eccul ulat atio at io on on on the price rice ri t kke ta e hold of the h finan a ci c al a sys yste t m at a gre eat at off futtur u e co comm comm mmod odit od itie it iess iss parrt of ie o the e s ccial so a cos osttt Tha os hatt book was as wri ritt tten tt e by en fiinanc nanc na n ia iall wo worlld It co worl oul uld db be sai aid d that th hat An nto t nyy Tro olllllop o e–b baackk in n 18 875 75!! Ar Are e we e on ec onom om missts and p pol o it ol itic icia ic ian ia nss are bet n e ti ting ng ng oom omed e to re repe peat pe at p pas ast mi as mist sttakkes, ess, or o can can a on n alll ourr fu uttur ures u es e es Betting on futures 45 austerity cra ash In eco cono nomi no m cs cs, pol olic iccie es br brou o gh ou ht in n to T e sudd Th dd d den e , diisa s sttro rous us col o la lapse e of a redu re d ce pub du ublilic lic sp spen en ndi ding ng ng markket,, as a in th he Wa W ll Stree et Crassh of 1929 benefit cred cr redit it crunch A pu publ bllic p pay a me ay ent or or o ce cess sssio i n in nte tend nd ded d A sudd d en red duction in the avvailabi bili b bilit lit ityy of to ass ssistt ne ss n ed edyy me memb m errs of mb o socie ety und nd derr cred e it fro om bank nks and d len nders nd rs a so soci c aall wel e fa fare r sch heme em de epre ession bonu us A lo ong period off eco c no omi micc de d clin ine or A on onee-off pa epaymen e t orr rewar a d made in ar r cess re ssion, som omet o e im imes defined d as lastting g a ditiion ad o to wage es s forr tw t o ye years orr m mor o e e bub bble e downtu urn A eco An c nomicc crisis caused d by ove er-vaalued d A de d clin i e in eco cono omi m c acti t vityy or proffit it stoc st ockk an and d un u su ustai a nable prices e fisscall po olicy y budg get defiicitt Gove ernme me ent pol o iccy th that dealss wit itth Th he amou unt by wh hic ich public blic e expen e diture e taaxaatiion o aand nd spen nd ding g exce eeds pu publ b ic inc ncom ome e forrecclo osure or or rep possse essio on ca apita al An atttem mp pt by a le ender to o re ecove er th he Accu umulatted weal a th h use ed to cre reaaate baala lance off a bad debt Forr examp ple, a p further err p pro ofit baankk may a seize a hom me if its purccchas a er cca apittalissm a cannot ke eep up u mortg gag ge re epaym men nts An n eco onom mic syystem e base ed d upon n th t e fra aud acccu umulattion of capitaal, p private Fina Fi nanc n iaal d decept ptio ion an nd corru rruption o ow wne nership p, com o pe p tition and wag ge labo bou ur gllobalissa ation n ce en ntral b bank The e in nte t grrattio ion of of econo n mics wo orld dwide e, An nattional institution n thatt ma m y manaage e with wi h trans ns-n -nation a i nal co at c rporationss, rap pid g ld go d reserve ves, currenc ncy, ym mon oney e su upply an up nd c mmuni co un nicatio ons ns, an nd th the move em ment of financ n ial re egu g la l tion o capiita t l an and la l bo bou urr acros o s bo b rd derrs 46 gold d standa ard prriva atisa ation n A mone etary sys y tem in whi which whic hic the curre rencyy Turnin Tu ng publicly owned d ser e vi vice c s ov over e to i based is d on a fixed val value e in n gol o d private pr e owne ership p hype hy er-in inflati flatio tion prottectio onissm A dang n ero erou ousl o u ly hig gh and g d rapidly in ncre r asin ng n Regu Re g lating free international trad ade to r te te of in inflat ation n su upp pporrt bu b si s ness sses e in on ne coun ntry infllatiion n qu uan ntittattive e ea asiing A long ng-term rise in n the price of go oods d and nd A waay of stimu mulaating n the e economy om my during g the e co costt off livi ving n a fi f na nanc n ial cr c isis A ce c ntrall bank ba buyys up interrestt ratte th he as a se sets of comm mer ercial ci l bankss so o th that The e rate t att wh whicch inte t rest on n borrrow wed d they can an lend d mor mo ore money money hass to be p paid d to o th he cred ditor recesssion on inve estm men m nt ba an nk A perio riod i o of declin ine in trade and in nd dustry, yy, A bank thaat he help ps people, co ompanie es orr lasting tw last two o montth hss or mo m re e banks to t raaiise cap apital al red dunda ancy lev verage e allso s kn nown as gearring ng T e layi Th y ng g off of w work wo rkerrs who ar a e no n Buyi y ng ass sset etss with h borro r wed d mo m ney in th he lo ong n er nee ede d d hope p tha h t the proffit its willll ex exc e cee eed tthe de d b bts so overeig gn debt g monettarism m Go overn nme ent bond ds in n a fo f re eig i n ccu urrren ncy cy, A policy cy th haat focus foc se es on mon o ey supply y wh hicch ar a e ussed to o fi f nancce grrow o th h morttgag ga age Re epa paym y en ym ent ma mayy b beco ome m pro robl b em mat a ic A lo loan a use ed to buyy prope erty, secu u ed ur e in n a fin i an nccial crisi sisss agaainst th ag t e va v lue o of thatt prrop o ertyy sub-prime lending ne eo o-liibe eral ecco onom miccs H gh Hi h-r - isk loan ans ma made to to pe peop ople op le e who h m may ay ay Am mode ern econom m c po mi p liicy bas a ed ed upo p n po haave h v tro r ub uble e wit ith h re repa paym pa ym men e t t de ere egu g laation n of fin nanc n iall instittut nc utio ons n and nd d taxa atio on p ivat pr a isattio on of pu ublic se s rv rvices ess T e im Th mpo possi siti t on o of ch har arge gess pa ge p yabl yaablle to o tthe he e pa ay yday y lo oanss s ate, st e du due e on n pri r vvaate inc ncom ome, om e, ser errvi vice ces, ce s, Sh ho ortt term m loa oans from on oa ne pa payd yd yda daayy to th the e prop pr oper op e tyy or tr er trad ad ade de e Tax axes es are use ed tto o fun und d ne exxt, of o tte en cr c it i icissed for the eir ext x rre eme melyy pu publ ub icc wor orkss, se serv rvvices iccess and n wel e faare hg hi gh h ratess of in nte ere restt trade union orr labour union povertty gap p An o org rg gan anis issat atio ion io n of wor orke ke ers ttha hatt aai aims m to Am me eas assur ue em men e t off povver erty tyy, de d fi f ned prot pr otec ot ecct wo work r in ng stan anda dard da rds, rd s emp s, m lo loym y en enttt,, agaaaiinsst a b ag base ba se lin ine e of eco cono no omi micc n ne eed d wage wa age ges an and co ond ndit ditio ittio iions ons ons n Glossary 47 A F L S AAfricaa 32, 41 Akronn 10, 11 Amstterdaam Atos 28, 29 austerity 21, 26 , 27, 30, 31 3, 333, 40, 41,, 44 Auustraaliia 32 Fannie Maee 10, 111 Fredddie Mac 10, 11 F iedman Fr a , Miltton 7, 17, 199, 21 Fuuld, Richard S Jr 22, 233 Lange, Dorotheea 45 La Laastmi m nu n te.com 14 Lehman Brothers 9, 22, 23 Libor 25 Li Linaardoppou o los, Spy p ross 27 Loondon 25, 5, 28, 29, 39 Lloydss TSB Seoul 15 Shanndongg 34 Shanghai 37 Sh Sm mith, Adam 6, 16, 38, 39 Soros, Geo e rg r e 35 Southh Af A rica c 32 Sout u h Kore r a 15 Southh Sea Compan a y bubbble an Sppainn 9, 33 speculators 144 Stoockholm ockholm olm sub-pr sub b p ime loaans 8, 10, 111, 22, 23 G Bank of Enngl g andd 30 Barclaays 25 Bear Sterns Boourig igeaud,, Bernarrd 288 ig Brazil 4,, 32 Brret e ton Wo W odds 7, 18 B ICS 32 BR Geermany 6, 33 Gibson o -SSmi m th t , Chrirs 133 global a isiat a ion 36, 37 goold l stand n arrd 7, 18 G eaat Depr Gr p essioon 5, 7, 10, 17, 22, 31 , 44, 45 Greece 9, 21, 266, 27, 33, 40, 41 Greenspan,, Alaan, 18 Gr Grimss s onn, Ólaffur u Rag a nar 24 G angddongg 344, Gu 4, 35 C H California 23, 44 C nary Wha Ca h rf r 23 caapitalism 6, 7, 13, 16, 19, 34 Chiciaggo, Univers r ity of 17 China 32, 34, 35, 37 City of London 2222, 25 Commun u ist Parrty 34 HBOS 9, 23 Hoover Dam 311 Hubei 34 hyper-in -inflat nfla ionn 6, 17, 20 B D dot-co t-com bubblee 7, 14 Dunncan Smith, Iain 30 E ECB 9, 26, 33, 440 Edw wardds, Rick 11 Einhhorn, David Englan a d 28 EU 99, 25, 26, 33 33, 40 Euroo 9, 13, 33, 440 I Iceland 9, 24 IMFF 7, 9, 17, 21, 26, 33, 36,, 40 India 32, 36 Industrial Revoolutioon inflation 6, 7, 114, 15, 16, 18, 19, 42 Italy 9, 33 M Marx, Karl 6, 16 monetarism 7, 17 Monti, Mario 33 N neo-libeeral 19, 399 New Century ury FFinancial New w Dea Deal 7, 311York NNew York 22, 338, 43 Northern Rockk Japan 32 K Keyynes, John M Maynard 7, 117, 19, 30 Krugman, Paul 31 Trol o lope, Anthhony 45 U Ohio 10 Osborne, George 30, 44 UK 9, 12, 23, 224, 25, 26 , 228, 29, 30, 31,, 36, 44 Ukraine 42 United States 22, 25, 26, 37 usury 43 P W Pagiantza, Thoomaai 21 Polk, Ad A di d e 100, 11 Pope Francis 444 privatisation 17, 39 Wall Street 4, 6, 22,, 43 Waxman, Hennry 23 Wei Sunying 335 Wenzhou 34 Wilde, Oscarr 4433 W otton, Wo tton, Lindda & Peter 288, 29 Wo d Bank 117 World WTO 36, 37 O Q quantitative eaasing 20 J T R RBS 9, 12, 23 recession 5, 15 15, 19, 20, 311, 32, 2, 33, 33 3, 344, 366, 37,39, 41, 42 R Roosevelt, FD7 Russia 32 Y Yannopoulos,, Costas 41 Z Zhejiang Provvince 34 Plenty of Books to INFORM AND ENTERTAIN For a full range of titles visit WWW.WAYLANDBOOKS.CO.UK • Free printable downloadable resources • • Titles which fit the changes in the new curriculum • S T MIS DON’ LATEST THE WS! NE FOLLOW US ON www.facebook.com/wayland www.twitter.com/waylandbooks ... What is the best response? 25 Beh ehind the he New ws The he financial crisis is had alr lready ca aused hardship around the th world With the s w sovereign gn debt cr crisis in Europe, the sickn... City and global The firm: Lehman Brothers Holdings Inc The boss: Richard S Fuld Jr The problem: Bankruptcy Richard S Fuld Jr, the CEO of Lehman Brothers, was known on Wall Street as the Gorilla’... the money supply Four economic theories 17 Beh ehind the he New ws: The big qu questions ns Is the global e economic ic system m of the 21st century bui uilt on shaky fou oundation ns? Are ffinancial