| Ripe for a bust
Despite the new-look city-scapes in China and rows upon rows of skyscrapers in Shanghai, it is pertinent to remember that its per- capita income at the present peak of prosperity has just come up to that of present-day Russia in the depths of despair. Its economy has developed serious imbalances. With the slack in the demand for tradeable goods, there has been a mad rush for investment in real estate, and over a half of the millions of square metres of posh office and residential space remains vacant, despite offers of large reductions in rents.
Whether the Chinese economy has been hollowed out to the extent Prem Shankar Jha claims is still a moot point. But the fact that its tax revenues add up to only 11 per cent of the gross domestic product is not flattering to its leadership. If it can lay off almost a million workers in the textile industry in two years, with no alternative jobs on offer, why can it not collect more by way of taxes for creating a larger social security net' And why has it promoted conditions resembling more a laissez-faire economy in the special zones than what they claim to be a “social market”'
But are things in China as gloomy as Jha claims' If the boom in private enterprise there is ripe for a bust, how is it that it still remains the most attractive destination for foreign capital, notching up a total every year almost twice as large as India has been able to do in the entire first decade of reforms' Of course, with all the disingenuous attempts to see the changes under way as an advance towards socialism, the Chinese leaders cannot alter the logic of the market with its inevitable booms and slumps. But that is part of the bargain when they decided to change the direction of the economy in 1979. Jha does not explain why the non-government sector in China continues to expand at a time when its viability is on the decline, as he would have the reader believe.
If a depression comes because of the spread-effect of what happens in the United States of America or an economic slide-down at home, China is likely to be in a better position to cope with its resulting ill effects than India, which is far more vulnerable to both external pressures and contrary internal pulls on policy. The huge foreign exchange reserve has been of no avail in checking the steady deterioration in the economic health of the country. The world situation, with the US economy getting into depression and the looming danger of a war on Iraq, which will lead to a rise in oil prices and a dip in remittances from workers in the Gulf, the decline in the growth-rate, and the government paralysed by policy differences between parties in the ruling coalition and between members of the sangh parivar, rule out an early recovery.
The worst danger is the way fiscal management seems to have gone completely out of the government’s control. The recourse to reckless borrowing in the last few years to finance non-plan expenditure, the 40 per cent increase in salaries and pensions of government employees, the bail-out of financial institutions which will cost 35,000 crore rupees this year alone and the rise in the outlay on both defence and internal security — all present the picture of an economy creaking in every joint.
What both Joseph E. Stiglitz and Jha point to is indeed a world in disarray, which despite the hype about all kinds of data on tap, instant communication, frequent interactions between national leaders, political pundits and high-profile economists, has made a dangerous mess of managing its affairs. The focus of Stiglitz is on the wrong-headed policies of the international lending agencies, guided by the interests of the affluent nations. He holds them responsible for making the transition of developing countries to a better life for their people far more difficult than it would have been otherwise. Jha concentrates on the mistakes of the national leadership and the malfunctioning of their political systems.
Unlike in China, the political establishment here is not even sure of the character of the world they live in, the dimensions of the problems they are up against, and the costs of a dysfunctional government, which cannot either make up its mind on contentious issues or goes on changing it, depending on what pressure group is able to get the upper hand for the moment.
Stiglitz is not the only economist to give John Maynard Keynes the credit for saving capitalism after the Great Depression of the Thirties. It is his prescriptions for stimulating aggregate demand through government intervention that, in fact, allowed the post-war Western world to achieve new levels of prosperity, create the welfare state and reduce the danger of future slumps reaching the level of those in the Thirties.
Whether Keynesian policies can work with the same felicity in the new conditions of globalization, with more volatile currency markets, sharp ups and downs in commodity prices, sudden inflows and ouflows of capital, the terms of trade rigged against the poor and economic sanctions denying countries which incur US displeasure both credits and access to technology, is a moot point.
Insurance against the new risks calls not only for changes in the conditions the International Monetary Fund attaches to bail-outs, but also a far more radical restructuring of the global order. The global economy today prevents poor countries from going by their own judgment in times of crisis. The widening disparities of power are eroding the sovereignty of the nation-state, disrupting local cultures and unleashing fundamentalist forces, which are very often a malign reaction to Westernization or what Europeans call Americanization.
It is no accident that the prodigious increase in industrial and technological capital has gone side by side with a reduction in moral capital. While arrogance of power is warping the outlook of countries like the US, making it insensitive to the suffering in poor societies and to the ongoing devastation of the natural environment, imported consumerist values and lifestyles are corrupting the elite groups in all developing societies, making them indifferent to their own surroundings. It was said of the Bloomsbury group that what hurt the sensibility of its members was not so much the existence as the sight of poverty. This is true of all those who live in posh enclaves in third-world cities shielded from the sight of slums and uncleared garbage dumps.
Even if the IMF changes the rules of its game — and Stiglitz sees some signs of its having half-digested the lessons of the failure of one bail-out after another – merely giving its client states in distress brief holidays from austerity programmes or convertibility on capital account will go only a short way in alleviating poverty. The building of a more equitable world-order requires far more drastic action. It calls for a massive diversion of resources from defence to economic development in poor societies, fairer terms of trade and a clearer understanding of how the global market, like the capitalist one, cannot be left to its own devices in looking after problems of equity and social justice.
The Soviet system was supposed to have brought a new man to birth free of greed. But the speed with which some members of the nomenklatura turned into big-time racketeers, stole public property, set up mafia gangs and became billionaires overnight, has blown that myth to smithereens. Just now even the Chinese Communist Party is fighting hard to end the widespread corruption among its local leaders and bureaucrats. And the claim that India was better placed to make a transition to a market economy has been soundly refuted by the fate of the Unit Trust of India and many other financial institutions. What were the regulatory bodies doing when speculators gambled away huge amounts of public money on the stock exchange' Ironically, even in the most advanced industrial society in the world, they could not detect tampering with accounts on a colossal scale by giant multinationals. It was too late by the time the shareholders found that their stock had been turned to junk.
Laws by themselves cannot change the character of a society. And power cannot be imbued with a sense of moderation when too much of it is concentrated in the hands of an individual or a nation. Having lost their balance, the managers of the world-order have already forfeited their claim to determine its shape. They have arrogated to themselves the right to decide where their frontiers lie in the light of their strategic interests. At one time they were located along the Mekong. Now some of them seem to be on the point of shifting them to the Euphrates. Globalization creates discontents not only through wrong-headed economics; it also fosters new fears and hates through the overwhelming power it puts at the disposal of a few. Who can make the West give up its hegemony' Who dare bell the biggest of the fat cats'