It is confirmed that the two Windalco alumina plants at Kirkvine (Manchester) and Ewarton (St Catherine) will be closed because of sharp reductions in demand all around. In the case of alumina, which is used in the manufacture of cars, sharply falling demand has reduced car sales so far by some 30 per cent - 40 per cent compared to last year. Most likely, worse is to come, especially with the American companies, General Motors, Ford and Chrysler, struggling to stay in operation.

The consequence of the reduction in bauxite and alumina will be a significant loss in revenue in bauxite and foreign exchange, in the sale of alumina. Earlier, there was an announcement of a 50 per cent cut in production at Alpart, the largest alumina plant. Between these three plants, and assuming no further fallout, the total revenue loss to the Government over a year could be $3 billion and US$700 million in foreign exchange.

Crisis not in Jamaica

Late last year I warned in a column that while the global financial crisis had not reached Jamaica yet, the key signal of its arrival would be a substantial reduction in the production and earning of the mining sector.

Taken along with the economic downturn emerging in other sectors, it can now be said that the recession is onshore in Jamaica. It only remains to determine how damaging it will be.

Now that it can be seen where the mining sector is headed, it will only remain to determine the extent of the eventual downturn in tourism and remittances which are only just at the beginning of a slide. These two sectors account for around 70 per cent of foreign exchange earnings, and together carry a much heavier impact than the mining sector in this current recession than in the 1980s, when tourism and remittances made much smaller contributions. With support from these two sectors, the damage from slippage in the mining sector this time will, therefore, not be as great, although still punishing.

Now that the economy is becoming exposed to the recession, the other major question is: how long will it last? The recession of the 1980s lasted two to three years, 1981-83. The fundamentals of that global recession were triggered by the inadequately secured loans of 4,590 Savings and Loans banks in the United States, which lost more than US$160 billion after regulations were lifted on the maximum loans they could make and the category of borrowers, which included casinos.

This was strictly a matter of financial parameters affected by the unwise policy of the US Congress to deregulate banking controls. It was because of the less complicated structure of that recession that straightforward financial stimuli were successful. This will not be so in the instance of the current global crisis.

The current recession is based on different and far more complex dynamics. In this case, the ultimate underlying determinants are some of the most deeply rooted cultural factors which differentiate eastern and western civilisations. To better illustrate these differences, the arguments offered here will contrast the dominant American and Chinese cultural systems of East and West as they apply to the economic process.

Remarkable work ethic

Far Eastern societies, particularly China, have in recent decades shown what can be achieved by their remarkable work ethic and penchant for frugal living, together with the accumulation of savings. Western societies, especially the United States, are characterised by high spending and low savings. This allows huge financial surpluses to be developed in China and huge financial deficits in the United States economy.

China needs to invest its vast surplus and the US economy offers the best outlet. As a consequence, more than US$700 billion Chinese surplus funds are invested in US financial instruments. This symbiosis made everybody happy until it was suddenly realised that the US economy is overinvested and undersecured, creating a huge financial bubble which eventually burst, strewing financial shrapnel all over the globe and plunging the world economy into a deep crisis.

These two financial models: high savings, low expenditure and low savings, high expenditure, can co-exist, in moderation. But with the super performance of the Far Eastern countries, notably China, at an extraordinary nine per cent rate of economic growth per annum for more than a decade, moderate performance is replaced by a mega outturn, creating a monster surplus which cannot be handled by the present fragile deregulated financial system. Hence, the call for more far-reaching regulations to be imposed as a solution.

But deeper regulation of the global economy, as is now being mooted in panic by frustrated world leaders, would reduce a high-flying world economy to a lower level of performance as regulations slowdown and impede the flow of funds in trade and investment which has been occurring in the deregulated global world. This would mean operating in a global economy with lower ceilings for growth and much disappointment all around. It could mean the advent of an international mechanism to hold back expansion to internationally agreed limits. A whole new world economic order would have to be designed to accommodate such a regulated global economy, if it could ever find the level of cooperation required.

It has been tough enough to get as far as the present system of globalisation with the more dominant economies still unwilling to give up some of the inbuilt protection of their trade systems, notably in agriculture. Consider then, crabs in a barrel trying to grab the best deal by climbing over each other to stake out their claims and preferences in a new order. The reality then would be that the prospects of creating a new order with less expansion and more stability would be horrendous, if not impossible.

Perhaps, however, this will be less daunting than the alternative, which would envisage either the Eastern countries producing less and saving less, or the Western nations producing more and saving more to achieve a new global balance in the availability and use of savings for investment. Both scenarios would face huge political domestic and international crises in trying to achieve such massive cultural changes.

Throughout history, Far Eastern people have defined their cultures on the principles of hard work and thrift. Western nations have also come to recognise these principles, but to a far lesser extent by comparison than the supreme individual efforts made by eastern people. The saving rate of the United States and the United Kingdom, for instance, are among the lowest in the world.

Performance of immigrants

The work ethic of the East promotes all forms of work, including jobs undertaken under the worst conditions. The West chooses the type of work most favourable to the human condition rejecting the rest for immigrants to perform.

No one puts it better than Robert Peston in an articl titled 'The New Capitalism', which was sent to me a few days ago:

"To put it in crude terms, for much of the past decade, millions of Chinese slaved away on near subsistence wages and still managed to save, both as a nation (China swanks £1,400 billion in foreign exchange reserves) and as individuals. And to a large extent they were working to improve our living standards, because they made more and more of the stuff we wanted at cheaper and cheaper prices - and clever bankers took their savings and lent the cash to us, so that we could buy the houses we cherished, the cars we desired, the flat-screen televisions.

This imbalance - between the savings of China, India, Japan and Saudi and our indebtedness, between their massive trade surpluses and our deficits - was never sustainable. At some point, the Chinese were bound to say, 'we'd like some of the cake now, please, which means you'll have to have a bit less.'

Tragically, they toiled for our prosperity - or we lived high on the hog while they fattened the pigs for us - for too long. Which is partly why the return to equilibrium, to a more balanced global economy, is happening in a horribly painful way that's impoverishing millions of people."

The governor of the central bank, Zhou Xiaochuan, clearly identified the way forward when he chastised the former US Treasury Secretary Henry 'Hank' Paulson, by stating that "Over-consumption and a high reliance on credit is the cause of the US financial crisis, and as the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits."

The gauntlet has now been thrown down. Will President Obama pick it up? Will he tell Americans that the only way out of this crisis for them on a sustained basis is that they have to work harder, cut wages, produce goods more cheaply to compete better, and improve earnings at home and abroad, from which they must save more in order to borrow less so as to strengthen their currency, failing which the value of the dollar will continue to slide until, like it or not, the United States will no longer be the largest, strongest, most powerful economy in the world, but a second-rate economic power? Would he be prepared to say that the American dream, as they have known it, has now ended? A lower level of living is inevitable? A cultural shift of oceanic dimensions would be needed to do this.

Will the Chinese government tell its people to work less and save less? This would be an equally awesome cultural transformation. The Chinese dream would be at an end and the impoverished people of the world would then face the closing of their only open door to prosperity: work harder and save more, in order to spend more without borrowing more.

Restoring global balance

To restore global balance to this cultural disequilibrium will require many years to stabilise the world economic condition. It required a dozen years for the government of the United States to return the country to the economic level which existed before the Great Depression, and it took the mega production resulting from the US entry into World War II to do that.

The new American secretary of the treasury, Timothy Geithner, has accused China of "manipulating its currency", that is, refusing to re-value the yuan as an alternative to devaluing the dollar, so as to create a more competitive environment for the export of American goods.

This will be the first salvo as a new war begins in trade, with America reversing the globalisation process by imposing restrictions. Even Barrack Obama advocated this in his presidential campaign. But it should be recalled from my article published October 19, 2008, that "The apocalyptic crash of the stock exchange in 1929 was due to a panic sale of stocks when legislation was in the process of being debated in the United States Congress which would allow increased tariffs to be imposed on 20,000 imported items. It was recognised that retaliation by other countries would cause US exports and imports to plunge.

"This created more panic in the stock market with losses finally increasing to a cumulative 89 per cent of value. The Great Depression was launched. Unemployment reached 26 per cent as businesses and banks collapsed, bankruptcies were rampant and more persons emigrated from than immigrated to America."

This global crisis is unlike any other, and the period of time needed to restore global stability to the world economy will be unlike any other, because it will require the balancing of competing and contrasting deep-rooted world cultural orders which govern the lifestyles of Eastern and Western civilisation.

Edward Seaga is a former prime minister. He is now a Distinguished Fellow at the UWI and Pro Chancellor at UTech. Email: odf@uwimona.edu.jm or columns@gleanerjm.com.