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Garten Offers Gloomy Global Economic Forecast

By Nancy M. Davis  10/7/2011
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Jeffrey Garten

CHICAGO--One in 10. That’s the odds that Yale business professor Jeffrey Garten gives for avoiding global economic meltdown.

“We’re on the precipice of major financial crisis,” said the former U.S. undersecretary of commerce for international trade at the Oct. 6 general session of the Society for Human Resource Management’s 2011 Strategy Conference here.

The meltdown might begin with a European bank failure, said the author of The Politics of Fortune: A New Agenda for Business Leaders (Harvard Business Press, 2002). He predicted “a global financial catastrophe greater than the one we saw in 2008,” bringing on “almost inevitable recession.”

“All risks are on the downside,” he warned. “The recovery is faltering.”

Europe’s severe debt “could easily spread to the United States,” whose financial institutions are “linked to financial systems of Europe in ways no one can fully comprehend.” While the U.S. deficit and debts are not as serious as those of European countries, he noted, slow growth, an inadequate job base, high unemployment, erosion of skills and income inequality mean that “We’re in bad shape.”

“Our government seems totally paralyzed, and if government doesn’t act we will go into deeper and deeper austerity,” Garten said. “Our situation will only get much more severe.”

He asked: What situation could turn this around?

  • European leaders could get together and take dramatic measures to buy up debt so that every bank would survive. “They just have to print more money,” he explained.
  • The U.S. Congress could take decisive action to move the U.S. economy “in the right direction.”
  • The Group of Twenty could “triple the resources of the International Monetary Fund to backstop the world economy.”

Reasons why these are possible: “There is nothing like a real crisis to concentrate minds. Everything I’ve talked about is in the hands of a dozen people.”

Chances of turnaround grow more uncertain amid the following future business trends:

  • A shift in the “center of gravity” of the world from the West and Japan to emerging markets and their 2 billion entrants in the global middle class. The trend will feature “hyper-urbanization” of 180,000 people per year through 2045. “Every year, six New York Cities will be created just from the sheer momentum of these people going from country to city,” he said. “Think of the business opportunities” from all that growth.
  • The ascendance of multinational companies with headquarters in emerging markets to the ranks of the world’s largest corporations--and intense competition among them.
  • Economic “supercycles” resulting from massive increases in demand for goods and services in developing countries, rapid changes in technology and changing trade patterns.
  • Much slower growth in the developed world, including the United States.
  • Withdrawal of the U.S. government from “every aspect of the economy except regulation.” For example, Garten predicted that U.S. government subsidies will be withdrawn from several industries, including agriculture and energy.
  • Greater connectivity among all countries. “We have probably gotten to about 10 percent of globalization, and we will have an awful long way to go,” he concluded. This will be an era “of enormous opportunity.”

In the face of such uncertainties, Garten said, business leaders must define their missions in terms that “truly inspire employees.”

Nancy M. Davis is editor of HR Magazine.

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