The preliminary edition of OECD's Economic Outlook relating to April 2002 begins on a note of optimism regarding the prospects for an economic recovery in its member countries. This recovery, which is expected so soon after the September 11, 2001 incidents that aggravated pre-existing recessionary tendencies, is characterized by three aspects. First, it is driven by an upturn in the United States that is yet to impact on many other economies, especially Japan, which has been languishing for close to a decade now. Second, even in the US, it  is stimulated by an easing of monetary policy, the maintenance of low interest rates, and by  a return to deficit-financed government spending, all of which have helped boost consumption spending. Third, there are as yet no signs that the recovery has begun to touch investment spending, especially in the crucial area of information and communication technology, which helped drive the long boom of the 1990s in the US. As a report in the June 23 issue of The New York Times put it, "While other areas are showing tentative signs of strength, technology remains in a deep funk."
 
Of these the most disconcerting to many observers is the lack of synchrony among developed countries in the timing of the upturn, if any. In fact, through the 1990s, there was no sign of any degree of synchronization of the economic cycle across the major economies. As Chart 1 shows, between 1991 and 1994, while the US and UK recorded sharp recoveries in annual rates of GDP growth, Germany, France and Japan witnessed a downturn. In the subsequent five years, only the US managed to maintain remarkably high rates of growth; performance in Germany, France and the UK ranged from moderate to good and that in Japan was dismal in almost all these years excepting 1996. It was only when the US economy lost steam early in 2001 and found itself on a downturn, that there seemed to be a semblance of synchrony. The downturn that afflicted the US now appeared to be a more generalized phenomenon, making its implications more ominous. And today, even as the post-September 11 spending spurt seems to be quickly halting the downturn in the US, the effects are less impressive in other major OECD nations.
Chart 1 >>
 
This lack of correspondence in economic performance is even starker when assessed in terms of developments in the labour market. Unemployment rates in Germany and France rose significantly between 1990 and 1997, to touch 9.4 and 12.2 per cent respectively. Though they declined subsequently, unemployment levels in these countries are still above the 1990 mark. Unemployment in Japan rose continuously through the 1990s, though the low initial level of 2.1 per cent has meant that it still records rates close to the US and the UK. It is  only in these latter countries, the US and the UK, that unemployment rates have fallen sharply since 1992-93, though that trend has been reversed in 2002 in the US.
Chart 2 >>
 
Thus, clearly, unlike in the four decades following World War II, when the world economy was ostensibly less integrated, the 1990s have seen a process of de-synchronization of the economic cycle in individual nations, which is visible even in the relative performance of the developed industrial nations. Not coincidentally, perhaps, the 1990s were also the years of globalization, years in which inter-country relationships were substantially mediated through financial flows. By that decade financial liberalization had ensured a build-up of liquidity at national and international levels, enhanced the flexibility of financial firms to undertake diverse operations across financial activities, provided new avenues for speculative investment in areas such as foreign exchange and derivatives markets, and rendered finance globally mobile.
 
At the most superficial level the de-synchronization of the economic cycle across developed countries may be attributed to the end of the era of Keynesian counter-cyclical policies, which the rise of finance capital implied. Greater integration through trade and financial flows meant that if any one country adopted counter-cyclical policies, it ran the risk of triggering domestic inflation, of undermining the ability of domestic firms to face up to foreign competition in local and foreign markets, of experiencing a worsening of its current account balance and a weakening of its currency, and of being threatened by a speculative attack on its currency that would be destabilizing. This is precisely what happened to France under Mitterand in the early 1980s. This loss of the ability to undertake counter-cyclical policies in isolation meant that when individual developed economies were faced with a downturn, they could not correct the imbalance by increased government spending.