Political Science Paper

“When the United States sneezes, the rest of the world catches a cold” - (Anonymous). The chain of events arising from the international economic crisis originating from the initial disaster in the United States has affected the vast majority of countries in one way or another. The amount of influence ranges from economic devastation of some nations at one end of the spectrum to national growth and prosperity at the other. In order to deal with the global crisis, countries have used an array of economic policies and programs in order to either revive their failing financial system or to maintain momentum of a successful market for the future. This includes attempts to either spark capital flow and revenue from increased bailouts and massive stimulus packages or to keep an economy’s health and maintain its fiscal impetus through increased export, trade, and international relations. Upon investigation of the various efforts used to deal with the crisis it is clear that realistic approaches of enhanced international cooperation and exports as well as responsible, conservative government policies are the most proficient way to properly fuel an economy.

The worsening condition being experienced by the global economy has appeared to stem from the United States’ financial crisis and its ensuing economic ripple-effect across the world. Because of the U.S.’ large role as one of the main superpowers in the global community, the crisis has become widespread and is only worsening as some predict the oncoming of a double-dip recession. The interdependence of many nations’ trade and general economic stature on the United States has proven to be a large problem as the problems introduced by the U.S. are crippling and destabilizing the global economic network. The crisis has resulted from failures in many vital market components such as a deflation of the housing bubble, unstable sub-prime lending, and the crash of the shadow banking system. In an attempt to combat the rising debt and unemployment, which has risen to nearly nine percent, the United States has established stimulus packages. The packages have resulted in nearly 275 billion dollars in tax reductions as well as another 500+ billion dollars associated with inter-domestic purchases (Wolf, Martin. 2010). Some say that the attempts will succeed in reviving the United States’ economy, yet to many it only appears that it will greatly burden the future generations with a maintained trade deficit and place the nation in even greater trouble. With these huge deficits one would believe that the U.S.’s power among the global community will be diminished, yet their military strength and national security will likely remain largely unhindered while the population suffers instead. The country’s failure to adopt realist policies regarding global foreign economic involvement and trade are preventing them from solving the problem although the interrelations and dependence of the large majority of nations upon the United States has merely added fuel to the global fire.

Brazil has also been affected the global crisis, but their economic prosperity has taken a different direction than that of the United States. Although they were originally hit quite hard by the crisis, involving a GDP drop of 2.9 percent in late 2008 and another drop of 0.9 percent in early 2009, previous economic structuring and strength as well stimulus and support programs have enabled growth and are beginning to create a financially sound nation (Dadush, Yuri. 2009). Yet with the stimulus and support programs in place, the extent as to how effective they will be and for how long remains hard to predict, although it is expected that the costs will be minor in the near future and end up being considerably large in the longer run. In order to better their national interest in the form of foreign advancement, Brazil has placed more emphasis on their trade and export industries under a realist approach of international coordination. This has allowed them to avoid unnecessary liquidity shortfalls and put a huge dent in their domestic debt, all while increasing export income without suffering from increased inflation. On top of this, their deep water oil industry has provided resources and an admirable GDP plus an out in regards to dependence on oil import. Their economic performance during the crisis and active international role has permitted Brazil’s influence to grow rapidly from an international point of view. Due to their realist approach of trade and export prominence, Brazil is expected to become one of the world’s greater economic powers in the future and has dodged the global economic bullet, so to speak.

India is a second country whose economy has not only avoided huge deficits and debt but has thrived and continues to grow as the second fastest globally. An initial GDP growth of 6 percent and steady rise to 7.9 percent by the end of 2009 was a surprise considering the fact that the very midst of the economic crisis was accompanied by the terrorist attacks on Mumbai in late 2008 (Wolf, Martin. 2010). Although Mumbai is considered to be India’s economic heart and an initial hefty stock market withdrawal occurred as a result of the attacks, India remained strong and not only brought back investors but increased foreign investment overall. In addition, the majority of their GDP and economic status was self sustaining, with only 20 percent of revenue gained from foreign trade (Székely, István. 2009). The vast and vigorous internal network of trade and movement provided them with the necessary funding and flow of capital to keep losses at a minimum. India also utilized the United States’ approach of using stimulus packages, but India’s government had avoided the mortgage and other related investments which had created trouble for many of the other larger nations negatively affected in the crisis. This proved vital as this allowed for conservation of internal resources and capital and fuelling the packages, making them much more successful than the ones introduced by the U.S. The realist approach utilized by India in maintaining national interests has introduced positives to the nation and has permitted them to greatly and quickly increase per capita income growth and continually reduce the amount of people living below the poverty line in the last decade. India’s conventional use of realistic properties and secure stimulus packages has allowed them to advance their nation instead of attempting to prevent their economy from collapsing, allowing them to very likely become one of the strongest economic powers in the near future.

Economic crises bring both global pressure and a vicious competition among nations trying to protect their national interests and security, and Russia’s economy has succumbed to these obstacles. Despite hopes of the growth of economic relationships after the Cold War between Russia and the West, Russia has yet to maintain steady and cooperative international relations. Both Russia and the West, consisting of the United States and Europe, have raised disputes and taken opposing positions on many of each other’s political practices and international activities. A few of such examples include the topic of discussion regarding the acceptance of more nations into NATO, missile defence programs being implemented in the United States, opposing opinions on Iran’s nuclear program planning, and the conflict between Russia and Georgia in 2008 (which not only weakened relations, it put back Russia almost 17 billion dollars due to retractions of foreign investment) (Szandelsky, Bela. 2008). On top of the lack of cooperation among many vital partners, Russia has had its own personal financial difficulties. Before the international crisis can even be addressed, there underlay an initial Russian crisis involving three major economic setbacks. The first such setback is the crash of Russia’s banks and firms in which 50 billion dollars in order to refinance the banks and aid them in getting back on their feet, out of the huge debt acquired from the Russian liquidity shortage. The shortage stemmed from a devastating crash in the Russian stock market which left the market with as much as 60 percent losses in original value pre-crash (Dadush, Uri. 2009). Second, Russia’s recent shrinking demand of domestic product began to cripple the economy from the inside out, which only made it worse when the final setback, being the rapid decline of the cost of vital exporting goods, struck the nation. Domestic capital and good exchange was in dire need of improvement, and now exports are taking the exact same turn, really placing the Russian economy in trouble. Due to Russia’s realistic approach and incompetence towards compromise and cooperation in order to increase export and domestic expenditures, the nation is struggling for survival in these times of global hardship and will need reform if international status and power is to be maintained.

The European Union has been devastated by the economic upheaval and as a result is in a very fragile state. Immediately upon being faced with the global crisis, a recovery program was put into effect in 2008 called the European Economic Recovery Plan on top of international bank reforms and restructuring. Even with this program and bank sector revamping, the European Union received a 4 percent loss in overall GDP in 2009, placing the European countries in one of the worst states they’ve been in economically since the Great Depression (Wolf, Martin. 2010). The loss in GDP is exceptionally threatening as the European Union will have a very tough time recovering their losses without reform and proper planning, for a couple reasons. First off, the loss of capital has resulted in increasing unemployment which, unless solved swiftly and efficiently, will result in the loss of skilled labour. To add to the growing list of dilemmas, reserves and equipment will be in short supply and will quickly become outdated with the rapid technological advancement and global movement of today. Without adequate funding and resources being pumped into the market as well as low supply and demand of goods, innovation and progression of goods and services will suffer greatly as emphasis on development and research is put on hold. Taking a realist approach, the European Union has applied a fiscal stimulus in order to kick-start the internal economy. Although initially it is expected that the public debt of the member nations will reach a full 100% of the total GDP by only 2014, the focus is to provide short term relief towards industry and exponentially increase investment in order to provide support for domestic business while reinforcing the European Union’s long term potential for economic expansion (Erden, James. 2010). A few components of the crisis control include providing provisions for liquidity shortages, capital injections into the market, a small degree of unemployment compensation, Eurobonds, and fiscal expansion. All of the European Union’s attempts at getting themselves out of the global crisis rely on inter-cooperation of member nations as they coordinate financial and structural policies (such as stress testing for banks and bank restructuring) as well as benefitting from international relations with nations that are not within the European Union. Although it may not appear to be a positively inclining situation for the European states in the short term, efficient fiscal planning, interdependence and cooperative utilization of member states, and stimulus arrangements made through a realistic approach will benefit the Union and optimistically pull it out of the crisis.

Upon investigation of the global economic crisis and a handful of powerful nations’ responses to the downturn, it is clear that emphasis on the safeguarding of state security and power through international cooperation through a realist approach has benefitted the nations that have utilized said principles to the fullest of their extent. Brazil has shown this through increased external emphasis on trade and cooperation, allowing them to halve their debt while simultaneously increasing future revenue through export and leaving inflation values unaffected. Similar results are seen with India, who despite the global economic despair has managed to maintain a steady increase in GDP on top of providing efficient ways to maintain capital flow and internal resources through conservative stimulus packages. On the opposite end of the economic spectrum, non-realist approaches taken by the United States have yielded high unemployment and an unbearable amount of debt that will likely not only cripple the current population’s generation but will continue to burden future generations as they attempt to deal with the huge setbacks introduced by faulty economic planning and policies. Accompanying the U.S. in the negative zone is Russia, whose anti-realist attitude towards the crisis has proven to be a very unbeneficial choice. Banks are in over their heads in debt and some are being completely wiped out through bankruptcy while the Russian market has lost the majority of its value and will be needing to revamp their whole strategy if they wish to restore their economic status as one of the strongest globally. We see here with this ripple effect originating from the United States that nations across the world must adopt realist policies of international relation and cooperation in order to enable them to not only survive in times of economic hardship, but to flourish and begin to plan for personal advancement in the future instead of attempting to try get back from severe negative values into the state their country was in before the crisis.

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