Senior Editor Daniel Gross, one of the most widely read financial and economic writers working today, led a straight-forward discussion at DCI offices recently attended by economic developers representing more than thirty five countries in which he tackled how we slipped into this global economic crisis, when the US might start to recover and how foreign direct investment and trade will be affected in 2009.
How did we get into this economic mess?
Referencing his latest book, "Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation," (www.simonandschuster.com/) Dan observed that with the subprime crisis and banks collapsing the “smartest people in the financial world were now seen as dumb as you and me.” He said that the continual subprime misdiagnosis became a mere symptom of a “global virus of bad lending decisions” that began in the US and quickly spread to Europe and around the globe.
Instead of nations growing together, we started to shrink together. In fact, a report published in January by the International Monetary Fund (IMF) predicts the first contraction of advanced economies’ GDP since World War II (http://www.imf.org/external/pubs/ft/weo/2009/update/01/pdf/0109.pdf). Dan said we continue to witness a decreased velocity worldwide in capital, goods and services, and people due in part to a switch in gears from a free trade policy to protectionism and the great sense of mistrust in governing bodies such as the Federal Reserve.
How should countries market their advantages for continued foreign direct investment (FDI) in the downturn?
Dan believes that the previous approach of highlighting low costs and available workforce to attract FDI will take a back seat to countries that can point to promising advancing industries within their borders. Such countries can then market this to companies looking to get similar projects scaled up. For example, Denmark has a head start in the solar and wind energy industries, which may provide a competitive edge in helping to attract corporations looking for a market with this concentration in place.
What’s the best approach to growth in the tourism industry at this time?
The tourism industry has been hit twice as hard as other sectors with the lasting impact of the energy crisis on top of the economic downturn. Dan’s advice to boosting visits to a region or country amidst the downturn is to focus on lower profit margin visits such as those by backpackers or students in an effort to get people familiar with and in the habit of traveling to destinations, even if it’s on a shoestring budget.
Is there light at the end of the tunnel?
Despite the doom and gloom in our economic outlook, Dan is still optimistic about the US in the short term and the world in a longer term sense. As the downturn hit the US early on in December 2007 and with our new global financial architecture, he said that it’s probable and highly possible that we’ll start to emerge from the recession in the second half of 2009. He believes that important factors in our recovery will include the aggressive stimulus funding, low interest rates on borrowing, and our continued capacity for innovation.
What’s your take on where we’re headed? How long will it take to get on a path to economic recovery? We’d love to hear your thoughts.
