Friday, May 21, 2010

On Great Depression II

When I was writing about the economic recession in October 2008 [Memoirs of A Recession, for a local literary journal], I expected a short, painful recession, which will be ended by splurges of public spending. I also thought this would be an unfinished recession, which will come back in a few years with sovereign bankruptcies. President Bush was still at the helm, and I thought about the mother of all bankruptcies, that of America, and how that will mean the end of economics as we know it. I likened it to the First World War, which was an unfinished war, only to culminate in the mother of all wars, in 1939. I fancied telling the story as if sitting in 2040, old and wise, reflecting on lessons learnt and not learnt.

It seems now that I was optimistic. The world has been on a downward spiral since then. We failed to learn the lessons. We tried failed and discredited remedies to new diseases, not recognizing the limitations of our thinking nor the complexities of our situation. Mostly, we carried on business as usual, may be with a little inconvenience. We confused credit ratings for credit worthiness, short term for long term, investor confidence for innate competitiveness. We thought China and India will pull the world while Europe and America take a bit of rest, not realizing that our power structures and role expectations are biased against such a new alignment. Also, we overestimated these emerging economies, giving them a false sense of confidence, which allowed them to take the eye of the ball - of their own problems that they must solve. It seems now that we are sinking in the mud faster and deeper than we imagined.

Today, there are great fears everywhere. Remember, it always starts with fear. Greece is bankrupt, and has been kept on life support by European generosity. But even this generosity did not come with the kind of post-nationalist solidarity one would have expected in Europe; it has come at a price, a steep price for Greeks, and the European solidarity is all but broken. Euro, which was a favourite currency for investors even at the wake of the recession, is suddenly looking at a very gloomy future, possibly never to recover its standing as a global currency ever again. But it is the stock markets and the commodity prices which are causing more worry; suddenly, those who, like me, thought that this is going to be a short recession, are waking up to an alternate possibility - a rerun of Great Depression, which lasted a decade and caused a destructive war.

I am no doomsday preacher, but it is possible. World has enough unresolved problems already. At least two billion people around the world go starving every night. There are enough flash points around the world which can quickly snowball into a major conflict. There are desperate leaders at the end of their shelf life, like Kim Jong Il in North Korea, who may still have the power to create a collective hysteria and seek to destroy. We have imagined, and therefore got, a war of civilizations in our hands in the Middle East. And, on the other hand, we have got a commercial system, which we believe will bring in all remedies, which is dominated by juvenile investors and entrepreneurs who have made money just being at the right place at the right time. Our only hope out of the crisis, as we proclaim, is innovation and entrepreneurship; however, the very system that is supposed to produce the miracles we need, the capitalist financial system, has become an old boy's club, worshipping all values other than disruptiveness and innovation. So, we have a real risk and no real remedies, and a huge population caught in between; we are counting on providence, and patience on part of the dispossessed, but the signs are, we are moving to the opposite direction.

Let's talk about India. I do believe in India. I am after all, Indian born, and have deep connections with the country. I believe in the India story; I propagate them. But, I also know that despite the vast human potential of India, for all the opportunities to build a great society, the India story is not built on such solid foundations. It is, instead, a make-believe based on the real estate prices of suburban Mumbai and the speculation fuelled BSE Sensex; both, if you look deeper, are stories made of stories which are made of stories. The other parts of the India story, the corruption of IPL, the insurgency in the Indian heartland, the inefficient and grossly corrupt ministers, the bankruptcy of mainstream politics, are not counted, or counted as an aberration. We always see what we want to see; the problem is that unseen parts sometime may be more real than those which we believe we have seen.

China, ditto! Great progress, indeed. Have we not seen Shanghai? But that wealth is built on forced labour, on the accumulated miseries of the travelling workers, and a lack of freedom which makes it even more dangerous than India: We don't even see what is coming. Remember, the Rural poor in China was always very compliant, except at times when they were pushed to the brink of extinction, and when they rebelled. Mao may have been a great leader or may be not. There were times in China when the accumulated anger did not need a leader to turn into chaos. Remember the last Ming emperor committing suicide in his garden? That is unlikely to happen though, not because there are no emperors anymore, but because there is no sense of honour.

The recession, the talk of shifting global balance, allowed the Indian and Chinese governments to take the eye off the ball. As if such a shift is a given, or desirable. But this may not ever happen without a fairly deep transformation of world's economic system. As we have seen, such system changes need catastrophes of war and destruction; never in history a dominating power abdicated.

So, if we are still left with the old hands to pull us out of doom, are there hopes in America or in Europe? It seems that the last two years have so far taken its toll on collective thinking; the enterprise is all but muted and the speculation is all but rife. At the start of the recession, we said we need to curb speculation and encourage enterprise. We designed policies to do exactly the opposite - bailed out banks hoping for a trickle down effect and then consumed ourselves in the ensuing disputes about continuing bonuses. The democratic system that served us so well since the Great Depression showed its limitations in the face of the next one - we learnt that democracy actually middles public consciousness and actively disregards political innovation. For all its advantages, democracy is the political system of status quo; desperately short then things are not working.

If the economic and political system that we live under is bunk, and if there are no new solutions coming from the East, is our inevitable future to surrender to the pangs of a depression all over again? Today's fears may indicate just that: The systems we put our faith on may not be as foolproof or permanent we would like to claim. And, also a clear realization that no one knows the answer. It is not yet time to be fatalistic and give up hope; but there is nothing real to support exuberance and new beginnings as well.

Except one thing - the indestructibility of human spirit. We have been here before, such depths of confusion and directionlessness is not unknown to us. Our make-believe world did distract us from attempting any real solution, in the past. But this is also the setting when new ideas emerge. The new ideas may have a difficult and chaotic life path, it may have greater barriers in democracy, vested interests and conventional wisdom, but it will emerge and prevail. The new ideas may come from unexpected places, Sao Paulo, Chattisgarh or Xinxian comes to mind, but if the course of human history has to remain true to itself, it will emerge. Yes, I am aware that it is equally fatalistic to believe in redemption as it is to see a straight road to hell, but in situations like this, we are better off keeping our minds open than closing it off.

5 comments:

Baron said...

Supriyoji, really love your blog, great posts...

Vidhyadhar said...

Suprimo....

Great article.

Supriyo Chaudhuri said...

Thanks to you both for your kind words.

Supriyo

mandeep said...

One thing is sure. We have not seen the end of it. Let us hope and pray that it is manageable.
Sounds slightly pessimistic - but I feel that is what emerges when you scratch below the surface to analyse deeper.
Regards

Supriyo Chaudhuri said...

Mandeep

I agree. It seems that the economic system that we live in is like house of cards. Because cash begets cash, some people have lots of it; the problem is that cash gets cash only when people spend enough, and if you keep taking things away from most of the people, you end up with lots of money but not much else. The conventional economics have no answer to this, and this is why it feels so uncertain right now.

Supriyo

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