World economic crises, scarce economic resources and the concentration of
wealth
Summary of article published in CEPAL Review N° 102, December 2010
Author: Ramón López
There are three new structural factors underlying the most
recent world crisis: i) the fact that many large countries
experienced a rapid process of economic growth; ii) the
growing shortage of environmental and natural resources
(which for the first time is being observed in both poor and
rich countries), and iii) the exceptional concentration of
wealth and income observed in advanced economies over
the past 20 years.
As a result of the first two factors, the price of raw materials
and commodities has become very sensitive to economic
growth. The increasing economic clout of the largest
countries that are still at an early stage of development, such
as China and India, has led to world economic growth based
on the intensive use of commodities and energy.
Owing to the second factor (the growing shortage of natural
resources worldwide), the supply of commodities continues
to become less flexible and less able to meet demand at times
when world growth is generating an increasing demand for
such products.
Consequently, rapid economic world growth is now closely
linked to rising commodity prices.
Due to the third structural factor (the increasing
concentration of wealth), the real economy has become
much more sensitive to contractionary monetary and
financial policy. This has considerably reduced the
opportunity for stable economic growth in periods of
contractionary monetary policies.
imbalances created by efforts to tackle the crisis, the
moderate recovery of the world economy has already
retriggered pressure on the demand for commodities and
price of some has doubled in the last few quarters. If the
world economy continues to recover, commodities may
again generate inflationary pressure, which would probably
prompt governments to reverse monetary policy and reduce
fiscal deficits by raising taxes. These necessary future tax
rises will almost definitely affect mainly the middle classes,
which will only accentuate the concentration of wealth even
further. The net effect of all this is that the initial recovery of
growth will probably be smothered.
Basic structural factors must be addressed in order to
reactivate sustained economic growth: making aggregate
demand less dependent on credit, reversing the
concentration of wealth and income, promoting rapid
environmentally friendly technological change and ensuring
that growth relies less on the intensive use of commodities
and environmental resources.
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The CEPAL Review was created in 1976 under the leadership of Raúl
Prebisch. The publication has been a vehicle for the ideas that emerge
from ECLAC and the efforts of researchers analysing Latin American and
Caribbean reality and discussing approaches, strategies and policies aimed
at driving equitable development in the region’s countries. Available
online: http://www.eclac.cl/revista/
The author concludes that the combination of these factors
could make the world economy very vulnerable to crises, and
that this could even hamper the recovery following the
current crisis.
The crisis did temporarily bring down commodity prices and
inflation. However, as the above-mentioned structural
factors remain, and given the major fiscal and monetary
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