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September 28, 2010 Innovation as potential to overcome the economic crisis

 

Which are the current and upcoming risks for the world economy and what are the potential prospects in the next years? This was the main question for leading experts at the Roundtable “The Global Economy Ahead: Threats and Opportunities” at the Global Economic Symposium (GES), which currently takes place in Istanbul. The answer of the experts was ambiguous: skeptical from the macroeconomic point of view, but more optimistic in matters of innovation from business companies.

One of the macroeconomic risks is the failure of the classical fiscal politics in most of the industrialized countries. Strictly budget discipline must become the rule, also in the USA and Japan. Additionally: more than three quarter of the sectors crucial for the economic development, are still deeply indebted. Furthermore there are global imbalances: “The United States must get rid of the massive consumption of nontradable goods, China on the contrary must say goodbye to their heavy savings,” stated Willem Buiter, Chief Economist of Citi Investment Research & Analysis. Another potential risk Buiter identified is the re-emerging trend to protectionism as highlighted by the discussions about the undervalued Chinese Renminbi in the USA as well as protectionist tendencies in Europe.

Nobel laureate Edmund S. Phelps highlighted in his statement that the current crisis on the American labour market is a potential risk for a lasting depression. This crisis might not be solved through demand management and low interest rates, because its causes are structural: There are still risks in the balances of businesses, especially in those of banks and insurances. In his opinion a huge decline in the economical dynamics, a bad influence of investment funds focusing on short-term gains and an increasing degree of politicization of economics can be witnessed.

More optimistic Peter Jungen, Chairman of the Peter Jungen Holding, highlighted the power innovation can have to overcome this crisis. “The key for growth are fast growing startups.” But especially for the European Countries and Germany he misses the courage to use this potential, because their venture capital formation is so much lower than the American or Chinese ones. “Fearful societies are never successful in terms of entrepreneurship.” But still he has a very optimistic view on the future, trusting in the nature of capitalism: “Capitalism tumbles from crisis to crisis and gets stronger thereby—it is an ongoing process.”

The Global Economic Symposium (GES) takes place once a year. It is organized jointly by the Kiel Institute for the World Economy and the German National Library of Economics (ZBW)—Leibnitz Information Centre for Economics. This year the GES is hosted by the Central Bank of the Republic of Turkey and takes place on September 27–29 in Istanbul.


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