Economic stimulus packages have gone global.
While Congress is still arguing over the size and shape of the US package, at least 33 other nations have started programs that are far more ambitious than were planned even a month ago.
Many are oriented toward spending on roads and other transportation projects, such as China’s plans to build or renovate airports, subways, and railroads. Others are providing tax cuts for consumers and businesses, as is the case in Canada and Brazil. Russia is trying to restructure the massive debt hanging over its corporations. Some countries, such as France, are aiming the stimulus at key industries, including Airbus, the giant aerospace manufacturer.
Without the multiple stimulus plans, which one investment bank, UBS, estimates to be equal to 2.8 percent of the world’s gross domestic product, the global economy would be in far worse shape, economists suggest.
“Without the stimulus, there is a fair likelihood we would be in more than a ‘Great Recession,’ ” says Sung Won Sohn, a professor of finance at California State University, Channel Islands. “It will keep us from dropping further.”
The global response, which now comes to $2.25 trillion, is larger than any other government effort in a postwar recession, says economist Nariman Behravesh of IHS/Global Insight in Lexington, Mass. “And frankly, we need more,” he says, noting that more half of the spending will come from two nations – the US and China.
“For a lot of the European economies, the stimulus packages will be 1 percent to 2 percent of GDP, the same with Japan. And from my perspective, it needs to be bigger in those economies,” says Mr. Behravesh.
For example, France’s economic stimulus package totals 26 billion euros, 1.3 percent of French GDP. Although it includes hundreds of smaller infrastructure projects, such as repairing the roof of the Cathedral of Notre Dame in Paris, a significant amount of the effort is aimed at large businesses such as Airbus and Areva, the nuclear giant.
“The bulk of the spending is for research and innovation to boost investments in the private sector,” points out Adrien de Tricornot, financial columnist for Le Monde.
As is typical of the approach of French President Nicolas Sarkozy, much of the state funding for the private sector will be matched by industry itself – which analysts say helps to keep the public ownership question off the table.
The US is not the only country where the shape of the spending package is controversial.
The Japanese approach – its second fiscal package this fiscal year – includes a controversial cash payment of $135 for every resident. According to a poll in the major daily Mainichi two weeks ago, 74 percent of those surveyed oppose the handouts. Former administrative reform minister Yoshimi Watanabe quit the ruling LDP in mid-January, saying the cash would be better spent on local governments.
Other critics would like to see more spent on bricks-and-mortar projects. “Japan should carry out large-scale public-works projects to create jobs,” says Minoru Morita, a veteran political analyst and former editor of a major economic magazine. “The government can certainly do more with aggressive fiscal and monetary policy.”
China’s massive stimulus package – representing more than 6 percent of its GDP – is partly oriented toward boosting spending, much as the US Senate has proposed giving tax breaks to spur auto purchases. The Chinese measures include a 13 percent discount for rural residents who buy household appliances such as refrigerators and washing machines. The government has also halved the sales tax on autos to boost sales and waived taxes on property sales to try to revive the property market.
Very few of the stimulus plans seem to have “buy in my country” aspects to them. Last week in Davos, Switzerland, at the World Economic Forum, Japanese Prime Minister Taro Aso vowed, “In keeping with the lessons of the 1929 Great Depression, we will resolutely fight all protectionism.”
However, the US Congress was considering some form of “buy America” in its package. “If they do, the Europeans will take us to the World Trade Organization [the global trade judge],” says international economist Jay Bryson of Wachovia Economics in Charlotte, N.C. “The WTO can slap us on the wrist; we can appeal it. And then you’re three or four years down the road and, in the meantime, you bought a bunch of steel made in the US.”
“I agree we can’t send a protectionist message,” he said. But, he added, “I want to see what kind of language we can work on this issue.”
Yet economists expect much of the spending to stay at home even if there is a need to import heavy equipment. “There is so much excess capacity around the world, I’m not sure how much imports will be needed,” says Mr. Sohn.
That doesn’t mean that countries won’t try to protect their own industries, says Sohn. In November, the White House held a meeting of 20 nations, and every leader agreed not to raise protectionist barriers for a year. “The day after it ended, Russia and India raised tariffs, then Vietnam and Brazil,” says Sohn.
For some countries, large spending packages are either not possible or politically difficult. According to UBS, the countries that have had the least interest in big spending plans include Argentina, Mexico, Germany, Italy, Spain, the Netherlands, and Switzerland.
Although many of the spending packages are contentious, the reasons are different. In the US, conservatives object to the huge deficit and potential for abuse. But last week in France, the Sarkozy plan was attacked as not ambitious enough as thousands of strikers hit the streets of Paris.
Socialists and other parties on the left want a 40 billion euro plan to address injustices in the French social system, jobs, and unemployment, which rose by 42,000 at the end of 2008. The left advocates more consumer spending, in France known as “purchasing power,” for ordinary people.