I thought it worth asking, in the adapted words of the old fairy tale, “Mirror, mirror on the wall; Where is the Blackest Bear of all?” after a week in which bearish news for the world’s economies has been around in considerable profusion.

It’s not in South Korea, for a start. Seoul’s KOSPI stock index is up 15 percent on the year, and the South Korean economy is expected to grow by 6 percent in 2002. The outlook is thus about the best in the world, though clearly a second “dip” in the U.S. recession would have an adverse effect. There appear to be two reasons for this. First, the South Korean government is relatively the smallest of all countries in the 30-nation Organization for Economic Cooperation and Development, taking only 24 percent of Korea’s gross domestic product in 2000, well below the take of the next smallest government, the United States, at 29 percent. Second, this trend towards small government is reinforced by the fate of Korean governments themselves. A country in which the last four presidents — including the current incumbent Kim dae-jung — have either left office in scandal or subsequently been imprisoned is one where people will have a healthy reluctance to look to government to solve their problems!

South Korea’s neighbor, Japan, is a favorite subject for bearish moaning, especially among analysts who are otherwise bullish on the world as a whole. If you think that the United States in the late ’90s was the apogee of free market achievement, then you will also believe that the previous model held out as an example to the United States, that of Japan in the 1980s, must have been an abject failure. Certainly, in Japan, there are features of the system which give one pause, like the shaky banking sector, the 6.5 percent of GDP spent on public sector infrastructure, the growth in government spending from 23 percent of GDP in 1960 to 46 percent in 2000, and the staggering Japanese government debt, of 140 percent of GDP today.

In fact, as the 5.7 percent rise in Japan’s first quarter GDP showed, Japan is in better shape than people give it credit for. The Koizumi government is restraining government spending and infrastructure wastage, albeit gently. Japan’s government debt, while huge, is almost all held domestically and pays very low yen interest rates. The Japanese banking system’s bad debt problem appears easily soluble by the application of a little economic growth. The stock market is up by about 20 percent from the lows earlier this year, and the recent drop in the yen, in trade weighted terms, is sufficient to provide further fuel for Japan’s export engine. Japan lacks entrepreneurship, compared to the United States, its government spending remains unacceptably high, and a decline in the U.S. economy, if accompanied by an over-valuation of the yen, could push it back into recession, which might be highly politically and psychologically damaging. Yet, provided the Japanese government sticks to its weak yen policy, the balance of probability must be for a moderate continued upswing.

There is no doubt that some of China’s economic progress is real, that there are parts of China where immense progress has been made, and that China’s export sector remains and will remain highly competitive in cost terms both in the West and in Asia. Yet her economic performance has been grossly overstated by Chinese official statistics, the politics of China are by no means set for a stable Western-oriented future, and the Chinese banking system is the worst in the world, containing bad debts almost equal to its deposit base. This combination means that a huge financial crisis in China, with accompanying political and social unrest, must remain more likely than not. On balance, for China one is very bearish in the medium term, with accompanying optimism for the long term — say 2020 onwards — when its current financial problems have been overcome, and her political system has been replaced by something less corrupt and more truly market-friendly.

For India, the prognostication is to some extent the reverse. Clearly there is the danger of nuclear war, which would not, given India’s size and population and the limited nature of the arsenals involved, be devastating to the country as a whole, but would be very damaging both economically and psychologically. If this is avoided, then the track on which India is now running produces economic growth of 5 percent to 6 percent per annum, without excessive financial problems, and will slowly turn India into an emerging market of enormous size and fascinating scope. The big risk here is political. If growth falters, or a war takes place, then the current reformist Indian government could easily be replaced by anti-reformist forces, which would close off economic growth and cause India to revert to Third World squalor. On balance one is optimistic, but the risks of backsliding are high, and the transition to success remains difficult.

It is hard to see how things in much of Africa could get much worse — on an absolute level, Africa has to remain the Bear Pit. Indeed, in certain respects, notably the appalling social and economic costs of AIDS, living conditions in Africa may indeed fall still further. Nevertheless, there are two grounds for optimism over the very long term. First, the rate of population growth in most African countries has already dropped substantially below its highs achieved in the 1980s. Four percent per annum population growth makes the economic problem not merely difficult to solve, but impossible; its absence must therefore be a plus. Second, the more appalling of the experiments in post-colonial Africa have demonstrated to both the African governments themselves and the international aid agencies that existing strategies aren’t working.

A new strategy, that brought international aid to Africa only if accompanied by direct management of such factors as education, would offer promise of a brighter future. Of course, African sovereignty would be compromised by such an approach, but it is clear to many African governments now that an uncompromising insistence on sovereignty is often counterproductive. The question is whether the diffusion of information internationally is now such that African countries’ public opinion can successfully be brought to bear to improve the performance of African governments and force change. At least in principle, one can be a little optimistic.

In the Middle East, conversely, deep pessimism is in order for all but the longest term. There is no reason why a Muslim country cannot be economically successful; Malaysia and to a lesser extent Turkey and Indonesia have demonstrated how it is done. Nevertheless, it is clear that the oil riches of the 1973-85 period have been wholly squandered and/or stolen, and that the impoverishment of the Middle Eastern populations, their lack of democratic institutions, the anti-Western propagandist nature of Middle Eastern media, and their obsessive concern with Israel all combine to make bad outcomes, in the short and medium term, much more likely than good ones.

Two countries to watch are Pakistan and Iran. If Pakistan can remain pro-Western, and is allowed proper access to Western markets for her textile industry, then maybe increasing Pakistani prosperity can provide an alternative pro-Western model for other countries to follow — as well as lifting 150 million Pakistani people out of poverty. If Iran’s moderate elected politicians can escape membership of the “Axis of Evil” and remove U.S. sanctions, then the country’s oil wealth, substantial industrial base and 60 million people can also make her a role model for the region. However, both these positive outcomes require a number of good decisions to be taken by the West, and particularly by the United States, as well as good luck and good management in Pakistan and Iran themselves; at the moment the probability of such happy outcomes must be much less than 50-50.

The countries of the former Soviet empire are almost wholly dependent for their future on decisions taken in two capitals: Moscow and Brussels. Of the two, Moscow appears now to be the more market oriented and reformist, although as in all matters Russian, one must be cautious in taking things at face value. Russia itself seems on the upswing for several years to come, and, provided Russia does not attempt to keep its “near abroad” poor and downtrodden, its economic progress and western orientation must be good news for the states of the former Soviet Union, who may one by one turn westwards and reap the benefits of both genuine economic reform and an economically successful neighbor.

Further west, the prognosis is not relatively so good. Most East European countries have oriented themselves firmly towards early membership in the European Union, but it is by no means certain that this will in the end be offered to them on terms that their populace will find acceptable. Should, for example, a Polish referendum reject EU membership, then Eastern Europe may turn towards greater nationalism, which may in turn cause Brussels to turn even more protectionist, and the East European economy to collapse into autarky and chaos. The main hope here lies in the recent political movement away from Socialism in the major member states of the EU, which may, albeit with an agonizing time lag, cause a movement away from centralization and socialism in Brussels, and towards a genuine opening of the EU to the East.

For Western Europe, the principal problem remains the same: a struggle between national polities that are swinging against both socialism and European centralization, and a Brussels apparat that remains committed to both, and that will undoubtedly be assisted by the European constitution project, the commission for which has been packed with socialists and centralizers. Economically, the euro should be strong, and inflation low, but this is likely to lead to even higher levels of unemployment and economic stagnation.

I wrote last year that Latin America was the “darkening continent” and events since then have both confirmed my prognostication and darkened the picture further. Argentina and Venezuela, two of the continent’s major economies, are now more or less ungovernable, while it seems likely that Brazil is about to embark on yet another experiment in anti-market socialism that will reverse many of the gains of the past decade, hampered as they have been by the inanities of the 1988 constitution that make slimming the public sector, for example, almost impossible. Chile remains a beacon of common sense, although no thanks to its present government, while further north Colombia, if it achieves victory over terrorism, may also become something of beacon of small competent government in the region, as may Bolivia. The positive signals are however far smaller than the negative ones.

Further north, Mexico and Canada are both highly dependent on the fortunes of the U.S. economy, which do not look good. Both countries have shown a tendency to expand government, and any hopes at the time of his inauguration that Mexican President Fox might improve Mexico’s position, for example by privatizing Pemex and the electricity company, and seriously reducing corruption, appear to have been largely chimerical. At least, in Canada, the weakness of the currency against the U.S. dollar will allow the country to remain economically competitive, but at a standard of living far lower than that of even a recession-bound United States.

The United States itself, as I have written many times, is suffering from a number of structural problems, and is likely to continue to do so for several years. The trade deficit is huge, and is in the process of being joined by substantial federal and state budget deficits, that will be exacerbated as recession continues. Asset prices remain excessive. The stock market is still at twice its historical level of valuation on a price/earnings basis, with earnings themselves being increasingly seen to be of very doubtful quality because of accounting chicanery. House prices, at least on both coasts, have been pumped up to unsustainable levels by the Federal Reserve’s irresponsible inflation of the money supply, especially recently but also throughout the late 1990s. Consumer debt is at record levels, and delinquencies are rising fast. With interest rates having little further to fall, the prospect is for a continuing slow deflation of the stock market, accompanied going forward by a deflation in asset prices generally and in the value of the dollar, as foreign investors cease to invest such a high proportion of their money in the United States, while the U.S. government’s demand for funding increases. Inevitably, consumers will retrench and stay retrenched. Not a Great Depression, but a near-repetition of the 1970s, in other words. But that will feel very Black Bearish indeed compared to the ’90s exuberance that Americans have become used to.

Relatively, therefore, the Blackest Bear is in the United States. In absolute terms, however, to an inhabitant of Nigeria, Belarus or even Argentina, the U.S. position will continue to seem paradisiacal.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.