7.9A - Economic Problems
Economic problems (debt, unemployment, economic restructuring, social costs) represent an ongoing challenge to the USA and EU.
The Global Financial Crisis of 2007-8 was a stock-market crash and a series of bank failures that in turn led to a global recession, business closures and rising unemployment. Since then, the USA and EU have slowly rebuilt their damaged economies. The crisis caused government debt levels to increase sharply as money was borrowed to:
- re-finance banks and other businesses facing collapse
- pay social service costs, such as unemployment benefits
- pay for new infrastructure (roads, bridges) in an effort to stimulate economic growth
By 2016 debt levels had reached 90% of annual GDP in the UK, 75% in the USA and 214% in Japan. High debt levels, in the long term, may slow down future economic growth. Debt levels are pushed up by high social costs:
Structural unemployment
- Loss of manufacturing jobs to emerging economies through globalisation
- This has led to a pool of middle-aged, low-skilled, male workers without jobs
- Many rely on social security payments from the government
- The global shift to Asia has created deindustrialisation in the EU and USA
- There are high costs linked to regenerating former industrial areas
- In addition, the workforce needs retraining and re-skilling in tertiary sector jobs
- Rising life expectancy and low fertility rates mean an ageing population
- Care home, nursing care and pension costs are all rising
- This has to be paid for by a shrinking working-age population in many EU countries
High debt levels, economic restructuring and high social costs represent an opportunity for India and China. The two emerging powers have a chance to pull level with the USA and EU because of the ongoing and long-term nature of these economic and social problems.