Sunday, October 17, 2010
Developed Indonesia and third world America
Indonesia is enjoying a rosy economy with a 6.3 percent GDP growth predicted in 2011. The United States’ economy, however, is slowing down rapidly with a predicted 2011 GDP growth of 2.5 percent.
Assuming optimized economic, political, and legislative environments at home and in Mexico, Australia, Vietnam, Nigeria and South Africa (MAVINS), Indonesia shall become a developed country by 2032.
On the contrary, assuming pro-blems aren’t fixed properly, the United States may have become a third world country by that time.
On paper, Indonesia is a youthful winner, while the US is a grandfather waiting for a face-lift and a steroid injection. This shows how unprecedented the opportunities available for developing countries are.
Today, Indonesia, which is a G20 country, is receiving a large influx of capital, just below China and India.
Based on US mistakes, Indonesia should be able to learn the relevant lessons and be prepared for a future economic boom.
Yet such an opportunity might not be that easy to grasp because Indonesia is a country notorious for its unique problems: massive corruption, poverty, unemployment, persecution of minorities, human rights abuses, and so on.
John Maynard Keynes stated that although capitalism is the best system to achieve a civilized economic society, it comes with two major drawbacks: Failure to provide full employment and failure to equitably distribute wealth.
These elements will continue to render the economy vulnerable, despite that the US recession was declared over in June 2009. Economist Robert Reich in Aftershock argued that such a declaration of “new normalcy” was a political statement because the fundamental problem had not been addressed properly.
2010 Nobel economics laureate Peter Diamond worked on a theory explaining the obstacles preventing buyers and sellers from pairing efficiently, while Mortensen and Pissarides applied the theory to the labor market. These models are helpful to understand that unemployment, vacancies and wages are significantly affected by regulations and economic policies.
However, to better understand a phenomenon, a multidisciplinary holistic approach would provide a clearer picture, which would ideally include more than economic frameworks.
Economic theories are excellent to see the world from a bird’s eye view, but meso (medium reach) and micro (focused reach) are also equally important, because people deal with other people on the micro interaction level.
Arianna Huffington in Third World America painted a detailed picture of the severity of current problems in the US. Let’s look at the statistics: 2.8 million homes were foreclosed in 2009 and 3 million more homes will be foreclosed in 2010.
Another source said 10 million more homes are expected to be foreclosed in 2011 and 2012. The fact is, every single foreclosed home brings a multitude of changes within the community, in the family, and in an individual. A 1 percent increase in foreclosed homes translates to a 2.3 percent increase in violent criminal acts. With a gazillion homes already foreclosed or on the verge of being foreclosed, the quality of life of most Americans has been significantly affected.
More than 41 million foreclosed homes in US are located in a neighborhood with other similar homes.
The value of each home in the area decreases by US$9,000 for every foreclosure in the neighborhood.
The result: A loss of US$356 billion in property market value nationwide. While Wall Street is recovering nicely, Main Street is still hemorrhaging.
There are three waves of the foreclosure crisis. The first wave was due to subprime loans, the second wave was due to unemployment, the third wave was a result of negative equity in homes directly or indirectly affected by the other two.
While many families are fortunate enough to have another place to live, some end up on the streets waiting for temporary shelters. The National Center on Family Homelessness estimates that there are 1.5 million homeless children in the US, which is one in every 50 children.
Every homeless child means a homeless family. More than 37 million people, or more than 10 percent of current US population, are homeless. Without a home, working morale is low, which leads to an increase in unemployment, and you have a vicious circle.
The banks’ role in handling foreclosure procedures is questionable. Banks prefer foreclosing as it brings more cash quickly, so they can write off the loss in the same fiscal year. Short selling requires more paperwork and loan modification requires meticulous checks on a home owner’s current financial situation and current property market value. The $789 billion Obama stimulus plan did not help much.
Speedy foreclosure procedures but extremely long loan modification processes have sparked Congress’ interests. It is a good thing that Obama has refused to sign a bill for speeding up foreclosures and a hearing on this topic is scheduled in Congress in November. The largest mortgage lender, Bank of America, with a 50 percent US market share, has halted all foreclosures and short selling processes in the 50 states.
America has a long way to go to fix its problems, but with deeply ingrained enthusiasm, positive thinking and a can-do attitude, it will eventually raise itself up at the speed of an old mammoth climbing uphill.
How about Indonesia? Can Indonesia successfully switch places with the US as a developed country in 20 years?
Jennie S. Bev author and columnist based in Northern California.