27 March 2012 18:02 [Source: ICIS news]
LONDON (ICIS)--Policy makers need to change their thinking so that a stable macroeconomic environment can develop in which the chemical industry can prosper, a leading consultant said on Tuesday.
Governments in mature economies are implementing the wrong policies because they have failed to realise that their ageing population means slow economic growth is inevitable, according to Paul Hodges, chairman of UK-based International eChem.
Chapter 10 of the free ICIS/International eChem New Normal eBook describes how flawed policies such as fiscal stimulus, bailouts and big tax cuts have destabilised the global economy rather than helping it to recover from the economic downturn.
Hodges said: “Politicians and central bankers are following a path which is maybe 10 or 20 years out of date. They say we should cut taxes in order to stimulate growth or give people more money to stimulate demand. This idea is out of date.”
He believes that western economies are entering a New Normal of sustained low economic growth because their ageing populations are spending less and saving more for a long retirement. Emerging economies have large numbers of people becoming consumers but at a very low level of disposable income.
“This lifecycle theory [that people spend as much in old age as when they are young] that the bankers are in love with is a complete waste of time and is fatally flawed. This is why, for the last couple of years, it simply hasn’t worked,” Hodges said
He also called for better long-term thinking and cooperation between governments and businesses and highlighted the successes of initiatives such as the US Space Program which resulted in the commercialisation of the Velcro fastener.
“It’s not the job of a CEO to manage shareholder expectations for the next quarter; it’s to say “we’re entering a complex and ambiguous period. Where do I want this company to be in 5-10 years time and how will we get there? We need CEOs to focus on that alongside government and society.”
Read Paul Hodges' Chemicals and the Economy blog for ICIS
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