The New World Economy

The global character and deep roots of the economic difficulties experienced by Malaysia in the 1980s focused attention on two features of the world economy. It is increasingly acknowledged that the recent problems were not merely cyclical in nature, but were actually structural in origin as well. Conventional economic analysis has tended to portray the global economic downturns of the 1980s as the result of unavoidable temporary cyclical downturns — normal to the otherwise healthy world economic system — exacerbated by inappropriate government policy responses. This view obscures the systemic roots of such cyclical trends, and more importantly, the contradictions of the global economy, including tendencies towards stagnation, offset in the post-war period by an impressive long-term growth trend. Recessions then are the outcome of contradictions and imbalances during periods of buoyancy, and may in turn create some conditions for renewed upswings. Far from being automatic, however, the momentum of such upswings is greatly influenced by the historical circumstances in which they occur. Such a relationship between upswings and downturns is true not only for ordinary business cycles, but also for the longer, more protracted waves of growth and recession.