The End of The Raw Materials Boom

Robert Kurz

There are increasing signs that the economic downturn is turning into a new global recession. After the crash of the financial markets, the extremely indebted world economy is reaching its second barrier, that of public finances. As in the first half of 2009, a renewed slump would hit the export-heavy countries hardest, and all the harder the smaller the share of the domestic market in their national product. This does not bode well for Germany, whose elites are currently patting themselves on the back in view of their world market leadership in key sectors. But it would also hit the much-vaunted emerging countries hard, all of which have bought their recent rise with a one-sided export orientation.

However, there are different forms of dependence on the world market. While China acts as the world’s industrial workbench with still relatively little vertical integration of its own, most emerging countries are mainly dependent on the export of raw materials. They have thus not been able to improve their traditional weakness vis-à-vis the industrialized countries. Their position has even deteriorated structurally because industrialization processes have failed or at least declined. This has only been masked by the commodity boom of the global deficit economy, especially the commodity hunger of rapid Chinese growth. A new world recession, which can no longer be absorbed by public finances, would mercilessly bring to light the particular plight of the raw material countries.

Thus, the Brazilian upswing of the last few years has feet of clay. The export success is based primarily on industrial and agricultural raw materials such as iron ore, sugar, ethanol (biofuel from sugar cane), coffee and meat. Their upward price jumps spurred growth and foreign exchange reserves. In a global recession, this process can reverse within a very short time. Behind this is a dramatic shift in the structure of exports. While the share of manufactured goods has fallen by 16 percent over the last five years, the share of raw materials has also risen by 16 percent. Accordingly, the contribution of industry to the national product fell by almost half. An important factor in deindustrialization is foreign trade with China, which floods the Brazilian market with cheap industrial goods as a countertrade for raw materials. This only works well as long as raw material prices are high.

The situation is even worse with countries like Russia and Venezuela, which are extremely dependent on oil and gas exports. It is true that the depletion of natural reserves promises a demand surplus in the long term. But in the short and medium term, these countries would hardly survive a cyclical drop in the price of their “liquid gold.” The designation of Russia as an “emerging market” is sheer mockery and only an expression of the widespread deindustrialization after the collapse of state socialism. The consequences were concealed by the raw materials boom, but must appear all the more violently when it ends. The highly indebted economies of the Emirates and Saudi Arabia, with their bizarre construction activity, are also threatened with collapse if the oil price crashes. Such a development would not only cut off the air to the autocratic regimes of the oil-exporting states, but would also intensify the chain reaction of a global recession and financial crisis.

Originally published in Neuen Deutschland on 10/17/2011

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s