The New Depression threatens to be catastrophic
Sunday 24 June 2012
The global economy deteriorated precipitately in the second quarter of 2012; there is a possibility of a catastrophic collapse worse than 2008 - not a certainty but a distinct possibility. European capitalism can soften the blow if Chancellor Angela Merkel throws the full force of the German economy into rescue mode; otherwise a possible worst case scenario looks like this: First Greece, then Spain, exit the Eurozone, then the Euro staggers wreaking economic carnage and wrecking the Union. Yes worst case, but just now China and India are stumbling - the latter in a steep decline that will not reverse for years - and worse, the US recovery is faltering. I previously sketched in this column a Wobble-U shape that captures the passage of the New Depression, but notwithstanding its aptness I will restrain a temptation to reproduce it today.
It is in this context of multisided global instability that I return to the rudiments of a left programme. I plan to offer a draft in five letters but with no illusions; they are but a starting point for more competent hands to improve. Last week it was (a), today item (b).
a) The political landscape
b) An economic policy framework
c) Industrialisation
d) Agriculture, services, foreign investment
e) National Question, State and Constitution
A lingering hangover of Stalinism is that the word ‘planning’ became an economic profanity. Regimented central planning and ubiquitous state ownership of everything from giant shipyards to street corner ice-cream vending is indeed an obscenity; the dinosaurs in Cuba are the last surviving learners. And Maoist adventure-economics has proved harmful and wasteful. But throwing everything to the market is a neo-liberal prescription gone toxic. Now state-capitalism is the paramount article of European intervention; America drip-fed finance capital and giant corporations two trillion dollars of public funds to resuscitate their corpses.
The wheel has turned full circle; the state has arrived again.
South Korea, Taiwan and Singapore, then China and Vietnam - capitalist and non-capitalist - show directive-states intervening to promote growth. The dirigisme model is not a state-owned economy, nor autarchic inward-looking or neo-liberal. The role of the state is to manage economic movement and macro decision making. The capitalist sector and foreign investment are incorporated not as free agents but managed inputs. Direction is achieved by marrying economic tools (interest rates, taxation, capital controls) to explicit interventions such as choosing winners and losers; electronics was an obvious winner choice. The South Korean economy nearly toppled in 1997 when purposefulness and driving energy slackened and chaeybol cronyism undermined the model.
Dirigisme approach
In the dirigisme approach growth is balanced by curbs on inequity, the trade-off between local needs and the export market is managed, picking winners is responsive to employment creation needs, and banks are directed to support SMEs. Industrialisation is priority, then the agricultural sector, followed by services. The exact lines in the sand will differ, case by case, depending on the class nature of the state in question, but always the trick is the same, planning and management of the trajectory. Whether state failure or market failure is the greater evil all depends. In the cases mentioned the state played a positive role, in failed states the opposite is more likely. A dirigisme strategy is not suitable for the Rajapaksa-UPFA; this letter is intended for a different kind of state animal.
Is there a plan in Lanka?
In any developing country there is always a degree of planning. India’s overarching five-year plans reached their apogee in the Nehru period. In Lanka memories of economic planning have not entirely evaporated. This current crop of dumb political leaders apart, a residue lingers in the minds of a few public servants in Treasury, Central Bank and other repositories of talent. It sometimes breaks to the surface in contradiction to the IMF’s neo-liberal prescriptions. Reports of plans for five massive economic zones in the north could develop to the point where the state picks winners and losers and tells local and foreign capital what it should do, insists on employment creation, and how much “labour market reform” (anti working class legislation) will be permitted. Yes movement along these lines is conceivable, but unlikely.
Why unlikely? Because this government is eclectic; it has no policy drift, it only strings together individual projects; rent-seeking state. Should it dare direct, it will conflict with the business friendly hands-off paradigm implicit in the IMF compact. A second more serious disorder is that though the regime promotes infrastructure it is committed in equal measure to useful projects and to madhouse white elephants. The Hambantota Harbour, international airport in the wilderness, stadium where weeds grow, a dumb tombstone opposite St Bridget’s Convent, and others of a feather, add to hundreds of billions of rupees on your children’s heads. Insane, but officials wet their pants before they can bring themselves to tell the emperor that his pants are off!
Who will bell the cat?
If you are with me thus far, then where should we seek an alternative? Let me draw your attention to a feature of all my writing; I never indulge in exclamations like: “The government must do/not do this” or “We respectfully call upon the President to do/not do to such and such”, etc. Even as a rhetorical mode of speech this is distasteful as it fosters the illusion the government may do the said thing. The problem is that regime will not do precisely the said thing. Be it objective economic governance, reconciliation with Tamils, respecting judicial independence, or better law and order, it is ludicrous to call upon President and government to do precisely that which they will not! I leave the rhetorical fashion to liberals; good for Friday foreplay or national peace counselling.
A government of the left I readily agree is not imminent; is that reason for going slow on drafting a programme? Of course not, and it need not be a left-only programme. This series of letters strays well beyond a left-only outlook to accommodate liberal and democratic concerns. Unless I have misunderstood them, I am entitled to a friendly nod from the liberal side. Both want to eliminate those who rob the public of money and the nation of liberty.
Sunday 24 June 2012
A left economic policy framework
The global economy deteriorated precipitately in the second quarter of 2012; there is a possibility of a catastrophic collapse worse than 2008 - not a certainty but a distinct possibility. European capitalism can soften the blow if Chancellor Angela Merkel throws the full force of the German economy into rescue mode; otherwise a possible worst case scenario looks like this: First Greece, then Spain, exit the Eurozone, then the Euro staggers wreaking economic carnage and wrecking the Union. Yes worst case, but just now China and India are stumbling - the latter in a steep decline that will not reverse for years - and worse, the US recovery is faltering. I previously sketched in this column a Wobble-U shape that captures the passage of the New Depression, but notwithstanding its aptness I will restrain a temptation to reproduce it today.It is in this context of multisided global instability that I return to the rudiments of a left programme. I plan to offer a draft in five letters but with no illusions; they are but a starting point for more competent hands to improve. Last week it was (a), today item (b).
a) The political landscape
b) An economic policy framework
c) Industrialisation
d) Agriculture, services, foreign investment
e) National Question, State and Constitution
A lingering hangover of Stalinism is that the word ‘planning’ became an economic profanity. Regimented central planning and ubiquitous state ownership of everything from giant shipyards to street corner ice-cream vending is indeed an obscenity; the dinosaurs in Cuba are the last surviving learners. And Maoist adventure-economics has proved harmful and wasteful. But throwing everything to the market is a neo-liberal prescription gone toxic. Now state-capitalism is the paramount article of European intervention; America drip-fed finance capital and giant corporations two trillion dollars of public funds to resuscitate their corpses.
The wheel has turned full circle; the state has arrived again.South Korea, Taiwan and Singapore, then China and Vietnam - capitalist and non-capitalist - show directive-states intervening to promote growth. The dirigisme model is not a state-owned economy, nor autarchic inward-looking or neo-liberal. The role of the state is to manage economic movement and macro decision making. The capitalist sector and foreign investment are incorporated not as free agents but managed inputs. Direction is achieved by marrying economic tools (interest rates, taxation, capital controls) to explicit interventions such as choosing winners and losers; electronics was an obvious winner choice. The South Korean economy nearly toppled in 1997 when purposefulness and driving energy slackened and chaeybol cronyism undermined the model.
Dirigisme approach
In the dirigisme approach growth is balanced by curbs on inequity, the trade-off between local needs and the export market is managed, picking winners is responsive to employment creation needs, and banks are directed to support SMEs. Industrialisation is priority, then the agricultural sector, followed by services. The exact lines in the sand will differ, case by case, depending on the class nature of the state in question, but always the trick is the same, planning and management of the trajectory. Whether state failure or market failure is the greater evil all depends. In the cases mentioned the state played a positive role, in failed states the opposite is more likely. A dirigisme strategy is not suitable for the Rajapaksa-UPFA; this letter is intended for a different kind of state animal.
Is there a plan in Lanka?
In any developing country there is always a degree of planning. India’s overarching five-year plans reached their apogee in the Nehru period. In Lanka memories of economic planning have not entirely evaporated. This current crop of dumb political leaders apart, a residue lingers in the minds of a few public servants in Treasury, Central Bank and other repositories of talent. It sometimes breaks to the surface in contradiction to the IMF’s neo-liberal prescriptions. Reports of plans for five massive economic zones in the north could develop to the point where the state picks winners and losers and tells local and foreign capital what it should do, insists on employment creation, and how much “labour market reform” (anti working class legislation) will be permitted. Yes movement along these lines is conceivable, but unlikely.
Why unlikely? Because this government is eclectic; it has no policy drift, it only strings together individual projects; rent-seeking state. Should it dare direct, it will conflict with the business friendly hands-off paradigm implicit in the IMF compact. A second more serious disorder is that though the regime promotes infrastructure it is committed in equal measure to useful projects and to madhouse white elephants. The Hambantota Harbour, international airport in the wilderness, stadium where weeds grow, a dumb tombstone opposite St Bridget’s Convent, and others of a feather, add to hundreds of billions of rupees on your children’s heads. Insane, but officials wet their pants before they can bring themselves to tell the emperor that his pants are off!
Who will bell the cat?
If you are with me thus far, then where should we seek an alternative? Let me draw your attention to a feature of all my writing; I never indulge in exclamations like: “The government must do/not do this” or “We respectfully call upon the President to do/not do to such and such”, etc. Even as a rhetorical mode of speech this is distasteful as it fosters the illusion the government may do the said thing. The problem is that regime will not do precisely the said thing. Be it objective economic governance, reconciliation with Tamils, respecting judicial independence, or better law and order, it is ludicrous to call upon President and government to do precisely that which they will not! I leave the rhetorical fashion to liberals; good for Friday foreplay or national peace counselling.
A government of the left I readily agree is not imminent; is that reason for going slow on drafting a programme? Of course not, and it need not be a left-only programme. This series of letters strays well beyond a left-only outlook to accommodate liberal and democratic concerns. Unless I have misunderstood them, I am entitled to a friendly nod from the liberal side. Both want to eliminate those who rob the public of money and the nation of liberty.
