I have had a few posts about China’s difficulties, and Europe’s problems are so well reported, I haven’t much bothered. It is natural to focus on the problems of the larger countries, but they are not the only ones having problems.
Smaller countries often have a very difficult path weaving their way through the world economy. Their markets are not large enough to even think about being self contained, and they often don’t have enough clout to insure reasonable trade agreements for their products. Any advantage they may have in a particular market sector can quickly be swamped by a policy change by one of their trade partners.
Vietnam is not usually held up as a poster child for good governance. Much of their industry is government controlled. But the following article goes a long way toward illustrating the attraction of government run companies, as well as showing how wide the current economic malaise appears to be spreading.
Bloomberg News, 21 May 2012
With almost 18,000 companies idled in four months and the government stepping in to prevent a banking collapse, Vietnam is trying to find a sustainable path to growth after years of easy credit funded makers of cheap goods and triggered Asia’s highest inflation….
In the first four months of 2012, 17,735 companies halted production -- including more than 400 with overseas investors -- about 10 percent more than a year earlier, according to a report from the Ministry of Planning and Investment. Pledged foreign direct investment fell 32 percent.
Vietnamese companies are caught between slowing export orders and high borrowing costs after the government passed a resolution last year to restrain credit growth and tame what was then Asia’s highest inflation. While commercial lending rates have since fallen from the peak of 27 percent last summer, they are still as high as 20 percent. Vietnam’s annual inflation, now Asia’s highest after Pakistan, slowed to an 18-month low of 10.5 percent in April, from 14.2 percent in March, according to the statistics office.
Of 700 companies on the country’s two stock exchanges, 11 percent posted losses last year and 62 percent saw profit fall, according to data compiled by Bloomberg. Among 473 that have reported results in the first quarter, 14 percent lost money.
The private companies are collapsing. Of course the government run companies, I am sure are not doing real well either, but they can fudge their payroll problems for awhile, and add some stability to the economy. To some extent they act as a halfway house between welfare and productive jobs.
It is these radical swings in the fortune of the private enterprise side of the economy that brought the impetus of the 19th century progressive movement. In the United States the luxury of ever expanding borders, and untapped territory probably exacerbated some of the short term swings, but meant that in the long term there was always the recovery expansion. The destruction of World War 2 may have acted as a substitute, for the no longer existent untapped West.
For a world with 7 billion people there is not a lot of virgin territory, and what there is is dwarfed by the size of the economy.
And this brings us back to the small economies. The wild swings of market based economies were not accepted back when the world was in growth mode, they are going to be even less popular in a hyper connected world were a few big players can take through the simple math of the situation collect large portions of the markets to themselves, and there is very little expansion for the smaller nimbler players to exploit.