Of Free Lunches and Dutch Uncles

Of Free Lunches and Dutch Uncles

On Indian television recently, the venerable Mr. Henry Kissinger was asked if he saw the possibility of America ceding power to Asia in deciding matters of global finance. The News Channel interviewing Kissinger alluded to the manner in which old Europe ceded substantial decision-making power to America after World War II. Kissinger blandly replied that if India, or China, or indeed all of Asia, are able to do for America what America did for Europe during and after the War, then the answer would be yes.

But, as the saying goes, there are no free lunches. Even if there are indeed times you really can’t pay for lunch. So what if the meals cost rather more in the end? Dire straights give you a ferocious focus on essentials. Particularly, when even going Dutch is a no-can-do. And tough, advice-giving Dutch Uncles smoking Meerschaum pipes are anyway hard to come by. But thankfully, they’ve metamorphosed, like Kafka’s spider, into paternalistic governments instead.

Governments are today’s institutionally constituted mater and pater familias. They can feed you for sustained periods with their inexhaustible pantries and indefatigable kitchens. They have their social securities, doles, free medical schemes, subsidies, and occasionally, loan waivers too. And the full-bellied you can go about minus that squirmy sense of obligation or guilt. After all, it has generally been the other way around. The Government fed off you. You paid your taxes, direct and indirect, but it was the Hukumat that gave the orders, and you did the obeying. So now if it takes care of a mountain of your bills gone bad, why worry?

As things unfold home and abroad, it is evident that it will take trillions and trillions of US dollars to take up the slack from a stack of financial and real economies de-leveraging from multiples of forty and even seventy. This puts this money game outside the scope of private players. You need the ability to lend and issue credits against sovereign guarantees, the ability to grow your deficits as necessary, and the keys to the country’s legitimate currency presses, to deal with this.

And if this fever is to break, we all have to set to. All governments must pump-prime every enterprise and institution in need of funds. The action cannot falter or grow weary. But still, there is no need to feel cheated. The governments don’t have to give anything away to floundering corporations, mountebanking banks and swindling insurance companies. They can requisition, take-over and nationalise instead. They can kick out failed managements to the general applause of the humble. They can nurse what they’ve bought on-the-cheap back to health. They can use altogether different sets of honest drivers. Later, when all is well, they can sell off the fattened calves to new owners at a substantial profit.

President-elect Obama has already said he will do “whatever it takes” for the economy. It is fortunate, given the circumstances, that Mr. Obama is a Democrat. And with a Democratic Party majority in Congress and a near majority in the Senate, and an aggressive Chief of Staff in Mr. Rahm Emmanuel, Mr. Obama should indeed be able to move swiftly and surely after his inauguration on January 20th 2009.

But the real restructuring will take much more time. Take for instance the fact that General Motors already has USD 48 billion in debt even as it asked for a USD 25 billion bailout. It is widely known that without radical surgery and brutal changes, General Motors cannot survive anyway. That they have been sent packing to rework their pitch is entirely to the Bush government’s credit.

Meanwhile, China, has smartly announced a fiscal stimulus of about USD 600 billion. All of it to be spent on its domestic infrastructure in the next two years to hold the economy steady at 8 per cent growth, in place of the erstwhile double digits. India too hopes to grow its economy at between 6 and 8 per cent in this fiscal and the next, the projections based overwhelmingly on its domestic consumption and on the strength of its infrastructure building. That is what makes them realistic on the one hand. But India, on its own, does not have the resources for its infrastructure build-up, estimated at a minimum of USD 500 billion, and is staring at substantial back-sliding, without outside financing.

In any case, India and China cannot, as Mr. Kissinger pointed out, rescue America, Europe, Japan and the others from their recessions. But in a world of economies posting minus growth figures, they do stand out, and can be of help. Brazil and Russia, the other major emerging nations, could also make a contribution. David Rothkof, a visiting scholar at the Carnegie Endowment, says a full 75 per cent of growth in 2009 will come from the BRIC countries.

India and China can make their infrastructure development plans inclusive and open their doors to imports of infrastructure-building materials and machinery. India could, in addition, accelerate its civilian nuclear programme and its defence purchases, thereby boosting American, European, Israeli, Australian, Japanese and even Russian exports, while securing much tied credit and finance via US influence at the World Bank and the IMF and those of the Japanese and others at other lending agencies.

India could also encourage urgent foreign direct investment in its road, power, port, petroleum exploration, space programme development, climate control initiatives, and even railway modernisation and development; but without the red tape and suspicion that have always marked our dealings with others.

Note that we could put the Arabs also in as partners, because, notwithstanding their well capitalised Sovereign Funds looking for lucrative investments, they have money going forward too. Because, even at USD 50 per barrel of crude oil says McKinsey, The Gulf will collectively earn USD 4.7 trillion every year from now till 2020.

Bottom-line: we have a chance, as the second largest growth story in the world after China, to make a difference both to ourselves and others at this time. If we take it, we might truly earn a bigger say on the Boards of the IMF and the World Bank and even get ourselves a Security Council Seat at the UN. And all of this while truly growing at the 9 and 10 per cent per annum that we routinely dream about these days.

(1,055 words)

21st November 2008
Gautam Mukherjee

Published in The Pioneer as "Bailing out the rich" on Tuesday, November 25th, 2008 on the OP-Ed Page and online at www.dailypioneer.com. Also archived under Columnists at www.dailypioneer.com