By Harold Hakwon Sunoo

According to the IMF, in 2013 America’s economy may grow by around 2%, Britain’s and Japan’s by 1% and the Euro Zone’s will be lucky to grow at all. Policymakers in each of these economics could do plenty of things to improve this prognosis, but most involve unappealing choices.

The economy will be a worry almost everywhere.  The rich world will muster feeble growth while the emerging world will grow at a faster rate including China and India as well as Indonesia.

As for domestic markets, there is no shortage of American industries where President Obama could start to remove needless red tape.  But the opportunity is greatest in Europe.

By championing freer trade and open markets, the west taught the rest of the world how to grow.  Nowadays, globalization is associated with the surging middle classes of the emerging world.

The natures of great-power politics is changing. Re-elected president Obama would love to focus on domestic policy.  But foreign relations will drag him away.  The emerging new rival, Mr. Xi Jinping of China, is rapidly catching up with America.  One testing ground for Mr. Xi and Mr. Obama could be trade.  Cash-rich Chinese firms will be likely buyers of large American companies.  Wang Jianlin, President of China’s Dalian Wanda group, told a news conference in Hollywood on Jan 21, 2013, about his plan to invest at least $10 billion in entertainment property.

Meanwhile, on the diplomatic front, disputes involving China, Japan, the Philippines, South Korea, Vietnam look set to continue.  Mr. Obama should look for ways to integrate China into the existing world order, so that it helps to solve disputes.  Obama make clear that America’s future foreign policy will be dominated by developments in Asia and the Pacific region.  Obama, however, should remember that only 7% of Pakistan’s held a positive view of Obama.  It is not only in Pakistan, American imperial power is not welcome in abroad.  Obama should understand that Bush’s war on terror is no longer accepted.  The sooner both Mr. Obama and Mr. Xi get off their rhetorical high places and meet at their field of the reality, the better it will be for the rest.  Mr. Obama is facing a new Prime Minister Abe of Japan.   Mr. Abe emphasizes the confrontations with all three of its neighbors Russia, China, and South Korea on islands dispute.  Mr. Abe also visited Yasukuni Shrine honoring war criminals, and he also rejects Japan’s “Apology diplomacy” for its wartime atrocities.  Abe rejects the peace constitution that America imposed.  All these Abe’s policies put Mr. Obama in an awkward position.  

Main trouble spot for America is Europe.  The troubled European economy presents a very different sort of challenge.

To begin with Germany’s chancellor, Mrs. Merkel, faces an election at home in September and has no formal power over the European Union.  The Euro Zone’s economy is stagnating with the continuing danger that the single currency might collapse,

The more likely, Europe will go in the direction of more integration, and Mrs. Merkel becomes more dominant.  That will be a nightmare for America’s main ally, Great Britain where many British want to get out from European Union altogether.

Mrs. Merkel has been by far Europe’s important political leader since she became German chancellor 2005.  In the coming election, the Christian Democrats are certain to emerge as the biggest party in the parliament.  The issue is Mrs. Merkel’s choice of coalition partners.  The most likely outcome is a repeat of her 2005 “grand coalition” with the Social Democrats.  She might be pressured to become the president of the European Union in 2014.

The global financial crisis is continuing for its sixth year.  The Euro Zone’s GDP will advance by less than 0.5% in 2015.  Germany and France will move a little forward.  Greece will be in recession for the sixth consecutive years, the economics of Spain, Italy, and Portugal will shrink for the fourth time in five years.  So the misery will mount.

In Spain, the situation is bad, and the Prime Minister Mariano Rajoy endured a first year, but 2013 is unlikely to improve.  Catalan, the largest province of the country, talks seriously of secession.  

In Greece, the country is walking a tightrope above the abyss of bankruptcy.  Half of young Greeks are unemployed. The economy is shrinking at an annual rate of 7% and a neo-Nazi party, Golden Dawn, is on the rise, exploiting the resentment and rage toward the ruling class.  The Greek people are demanding an end to deception and corruption.

In order to fix the situation in the Euro Zone, there is more momentum for taxing the wealthy.  France intends to achieve two- thirds of its deficit reduction in 2013 from the rich.  In addition to a 75% tax rate on people with income over $1.3 million a year, there will be a new income-tax bracket of 4.5% for a broader group of the affluent.  However, Europe is more egalitarian-minded society.  

Now move to the British situation.  Britain has been on a government austerity budget for some time.  The architect of the austerity program, George Osborne, the Chancellor of the Exchequer, told Parliament recently that the government had missed one of its self-imposed debt-cutting goals and would have to extend the belt-tightening into 2018.  

The next general election in Britain will take place in 2015, well before the end of austerity program.  The program cuts welfare service and eliminates of tens of thousands of public sector jobs.  It also says that economy would grow 1.2% this year as opposed to the 2% predicted earlier.

“It’s a hard road but we are getting there.” Mr. Osborne said in Parliament.  “Britain is on the right track.  Turning back now would be disaster.”  But an opposition economist, Andrew Smith says  “…the government’s strategy is to combine deficit reduction with economic recovery, but at the moment we are not getting much of either”.

European leaders have yet to find the way out of their crisis and austerity.  European Central Bank which has promised to buy unlimited sovereign bonds has put off the risk of an imminent Euro collapse. But Europe’s leading economies are still in trouble France, Britain and Germany will all flirt with recession in 2013, while Italy and Spain will struggle with austerity programs.

In general, the American economy could have a pretty good  2013, assuming Washington does its part.

Economists see a number of sources of underlying strength in the economy; for example, housing rebound, the natural gas boom, a friendlier credit market for small businesses, etc. Corporate profits reached a high in the third quarter.  Companies have saved a lot of cash that they can use to buy equipment or hire people. However, there are worrisome signs also, driven partly by drags from Europe’s recession and China’s slowdown, and partly by companies readjusting after over stocking inventories in the third quarter, and largely by worries about the fiscal cliff of spending cuts and tax increases set for early 2013.

The US has finally worked its way through the excess housing inventory from the bubble years, and now housing prices and housing construction are rising. Household formation is picking up, young people are moving into their own homes, and more jobs for young people are available.

Many economists say that the economy could grow more robustly this year as many indicators have begun to reach their pre-recession levels.  For example, Morgan Stanley reported earnings of $481 million, in contrast to a loss of $275 million in 2011.  4 years after the financial crisis the bank emerged as a much stronger.  Morgan Stanley’s stock went up 50% since early 2012, and Goldman Sachs announced an increase in profit.  The chief executive, Mr. Blankfein, earned $21million last year, and the average employee earned nearly $400,000 last year, up from $365,000 in 2011. (New York Times, Jan. 19, 2013)

What Washington must do now?

According to survey of some 10,000 Harvard Business School alumni for America’s competitiveness, the big challenges require action.  Most business leaders and policy makers agree on the essence in following points.

1. First of all, ease the immigration restrictions of highly skilled individuals.  American faces skill shortages in knowledge work.  Our universities educate the world’s best and brightest, yet our current immigrant polices force the graduates to return home or go someplace like Canada, where they are welcome, America needs these skilled workers.

2. Next issue is to simplify the corporate tax code.  We need to avoid the loopholes, and the corporates should pay fair taxes to increase the national revenues. Tax reform could be a cure for much of what ails the economy.  Currently, the top 1% of tax payers receive more than 70% of all Capital gains, while the bottom 80% receive only 6%.  Tax reform also will contribute to help the inequality situation in America.

3. Enact a multi-year program to improve our infrastructure.  American roads, ports, telecoms and energy infrastructures fail to match the world’s best.  America is  23rd in international ranking.

There are many more suggestions made by the survey, America must to restore its competitiveness and America’s vitality.
    
There are many issues in international affairs. However there are two major issues which attract global attention today.

One is the politics of corruption.
    
Financial markets are punishing corrupt companies.  The big international bodies dealing with corruption are progressing.

One example of that is a recent case of Swiss Bank.  The New York Times reports on Jan. 4. 2013, in headline; “Swiss Bank Pleads Guilty to helping American Tax Dodgers.”  This was the first time a foreign financial institution has admitted to helping Americans evade US taxes and pleaded guilty to tax law violation.  It was Wegelin & Co. of Switzerland which admitted in Manhattan Federal District Court that many American customers dodged taxes by hiding more than $1.2 billion in secret Wegelin accounts and the bank agreed to pay $74 million in fines.  The bank executives said in the court that “Wegelin was aware the conduct was wrong.”  It was a victory for the Obama administration in its crack down on Americans using off shore banks to evade taxes, a common practice of the wealthy in America.
    
Another example is the well-known Bernard and Peter Madoff case.  They swindled investors out of billions of dollars.  Both of them are now sentenced to the prisons.  They admitted to falsifying documents, lying to securities regulators and filing sham tax returns.  Madoff’s customers had cash losses of about $17 billion in the fraud according to the Madoff bankruptcy trustee.

There are many cases like this.  American Foreign Corruption Practice has authority to impose penalties on firms that do business by sleazy means.

Laws are one thing, enforcement is another.  Public pressure alone may not create political will among decision-makers.  Anti-corruption laws themselves can be mis-used for partisan purposes.

Recently high officials in China were urged to read Alexis de Tocqueville’s “The Old Regime and the Revolution” in which the unbridled excess among French Aristocrats ended with the guillotine.  It tells the serious problem of corruption in world-wide.  The financial corruption is a global problem.

Second global issue is a problem of obesity.
    
Two-thirds of American adults are overweight.  Americans may be shocked by these numbers, but the problem is not limited to the US.  

The rest of the world should not scoff at Americans, because they are not immune.  Swiss women are the slimmest and most French women generally are not over-weight.  But in Britain 35% of all women are fat, and 25% of the adults in China are overweight, and Mexican and Brazil’s adults, 53% were overweight in 2008. Not long ago the world’s main worry was the people had too little to eat, but now obesity is a global concern.

It is plain that obesity has become a big problem.  Diets are important factor.  How can we control diets?  Radical moves such as banning junk food would infringe individuals’ freedom to eat what they like.  Some governments educate their citizens to eat less and exercise more, and food companies are offering more healthy foods. Some scholars estimated that unless there is a radical shift in the trends, by 2050 the number of overweight and obese people globally may double to 3.3 billion.  That would have huge implications for not only individuals but government, employers, food companies and makers of medicines.  

For poor and rich alike an easy solution to obesity would be welcome.  But no such answer is available at the present time,  

Fast food chains have spread far into developing markets.  McDonalds is in now in 119 countries.  KFC, Taco Bell, and Pizza Hut derives 60% of their profits from developing countries. Coca Cola and Pepsi Co control nearly 40% of the world’s soft drinks market; their sales quadrupled In China, India, and Brazil past 10 years.

The costs fighting obesity falls heavily on the public.  Americans spend $150-190 billion a year on obesity. Obesity was responsible for a fifth of the total health bill of which half is paid by the federal government. In most countries the state covers some or most of the costs of health care, so fat people raise costs of everyone.  

Obesity is the result of many personal decisions.  The government can try to promote healthy nutrition habits and discourage overeating, but efforts to date have met with only marginal success.  Medical science has not provided a simple solution either.  In the absence of a single solution to obesity, the state must try multiple measures; e.g. schools should serve nutritious lunches, teach children healthy eating habits and massive public education.  In the end however, the responsibly is with the individual who is barraged with food industry advertising and generations of cultural influences.  

The world must act to reverse this trend.  

Conclusion: The saddest thing about the deal on the fiscal cliff is how unaware both Mr. Obama and Mr. Boehner seem to be the wider damage their petty partisanship is doing to the country.  National security is not just about the number of tanks or rockets you have.  As it has failed to deal with the single currency, Europe’s standing has collapsed.  Why should emerging countries trust America and the west’s leadership, when it seems unable to solve their problem at home?  While the west’s democracy stays paralyzed, China, India, Indonesia, and Brazil are making decision and forging ahead.

It is a time for America and the west to restore their vitality.

(Some of the facts for this essay were obtained from The Economist.)