Opinion Sur
What have the principal countries gained with the various rescue measures they have adopted in face of the financial crisis? They have gained time. But gaining time is not a strategy. At best it is a tactic that may be used to engage real reforms; at worst it merely postpones the day of reckoning. We have gained a measure of time to set in place regulatory structures, to mitigate global inequality, to reorganize societies around a more austere lifestyle, to energize the bottom of the social pyramid, and to establish the bases for new patterns of sustainable development.In the third quarter of 2009, the American GDP is said to have grown by 3.5%, from the bottom of the hole in which the economy had fallen during last year’s financial meltdown. Armed with this figure, most mainstream economists –the same economists that “missed” the crisis two years ago—declared, “The crisis is over.” (1) The headlines in the press convey a sense of renewed confidence, albeit cautious, that “the day after” things are not as bad as they had feared.
The measures taken by the government of the United States and by the governments of all industrial nations –Europe, Japan, and some of the BRICs– prevented a veritable catastrophe –the kind of social and political disaster that followed the ”crack” of 1929-30. (2) As I have indicated in previous articles for Opinion Sur, this time there has been rapid and coordinated action on the part of most countries, or at least by the G20. They have all launched anti-cyclical programs by injecting large amounts of cash into the stalled banking sector. Moreover, they committed to not beggaring their neighbors, engaging in such protectionist practices as competitive devaluation of their currencies.
Governments took hold of accumulated public savings to rescue financial institutions deemed “too big to fail.” By and large, governments did not nationalize the banks. Instead they socialized their losses. Public funds from taxpayers were also used to bail out the disastrous automotive enterprises that were once the pride of American industry, and to bail out the largest private insurers which, together with the banks, had triggered the crisis by assuming unsustainable risks through opaque financial instruments like the now infamous credit default swaps (CDS). In other words, governments organized a sort of slow-motion bankruptcy restructuring of big players at the top of the social pyramid.
Nevertheless, the rescue program has worrisome characteristics, some of which may herald the onset of an even bigger future crisis. The reasons are:
1) The rescue was undertaken by individuals and cliques directly and indirectly linked to the very same institutions whose crackpot behavior triggered the crisis in the first place. There already exists an entire library of studies –some good, some bad, most middling—which describe the emergency measures and how they were taken. Popular culture has an expression that may portray the situation: “putting the fox in charge of the chicken coop.” In the early scramble of “sauve qui peut” (“every man for himself”) the powerful financial clans came out ahead.
2) The result has been an even greater concentration of finance capital at the top, and the consolidation of its steering position in the global economy on the whole and in the hole. The reality of late (too late?) capitalism approaches a caricature, and the caricature seems to follow the script of bygone Marxists like Rudolf Hilferding and V.I. Lenin. Like all processes of economic concentration, this one too involved a degree of cannibalism at the top. An emblematic example was the fall of the house of Lehman Bros. to the ultimate benefit of the competition (J.P. Morgan, Goldman Sachs, and even Citibank).
It was a ritual sacrifice –what Thorstein Veblen called an atavistic remnant of barbarian times among the economic elites. As one of the big players was served on the altar of the crisis, the ensuing panic about a generalized collapse (in the sanitized lingo of policy makers it is called “systemic risk”) provoked a frantic scramble of rescue measures to save the remaining financial clans. Had Lehman been rescued, the public reluctance to follow suit with the others (leading most likely to a Congressional veto on bailouts) would have led to their serial demise, like a stream of falling dominos. It would have resulted in a total paralysis of banking, and in a forced banking holiday like the one decreed by F.D. Roosevelt when 75 years ago the entire economy went bankrupt and unemployment reached 25% of the labor force. As befits an earlier era of greater stamina and courage, conditions were decidedly direr and remedies much stronger then than illness suffered and the medicine purveyed by the Obama administration today.
So far, no Rooseveltian grand coup d’autorite has taken place, and as a consequence the same cast of financial characters do what they have always done: reap mega-profits, resist and evade regulation, move one step ahead of the controlling authorities, and continue to inhabit the old world of predation and chicanery. In Wall Street they are conscious of the fact, and plume themselves a little with it. They have no problem to acknowledge their tricks with smug candor when interviewed by our sociologists.
3) The surviving financial clans captured the public funds released to reboot the economy and restarted trading again in their magic world of self-referentiality, using financial instruments as opaque as those that led to the crisis. The funds have not found their way to the productive economy at home, they have not eased the pain of unemployment, and they have not stemmed the wave of destitution at the bottom of the social pyramid. Instead they have led to speculation in commodities soft and hard, to games of “carry trade”, borrowing at negative interest rates at home and profiting from juicy interest rates abroad, creating along the way new asset bubbles in emerging markets. The punctured asset bubble at home (urbi) has been replaced by new asset bubbles in the wider globe (orbi). The economic revival, although it generates handsome profits for some, seems once more based on “fictitious capital”, which is what sustains a modest level of economic activity and a semblance of recovery. Under these circumstances, it is difficult to distinguish a bounce in the stock market from a dead cat’s bounce in the real world. Some countries like Brazil have felt compelled to impose a tax on the inflow of speculative funds, and many emerging economies are worried about the upward trend of their currencies. In short, public stimulus funding has produced so far concentrated financial profits and a lot of speculative action in the markets.
4) There is no visible easing of credit from the financial sector to either the productive world of real small and medium enterprises, or the consumer and housing sectors. Thus, the recovery is shabby both at the quantitative and the qualitative levels. For the United States, there is a renewal of exports, due in large part to the debasement of the currency (an inevitable consequence of massive debt and public stimulus through the printing press). But it is hard to imagine that the world’s largest debtor and the world’s largest consumer market can go back on track pulled by the locomotive of exports.
5) The most dramatic index of continuity and even aggravation of the crisis in the real economy is the relentless climb of unemployment and the retrenchment of consumption. For many years ahead, the American population will have to adjust to a lower standard of living, or to put it more elegantly, to a way of life leaner than that to which they have grown accustomed.
6) The sociological corollary of the present process of sham recovery is an increase of inequality at both the national and the international levels. Such social regression is more visible in some advanced countries like the United States than in others like Germany, and in some developing countries like Argentina than in others like Brazil. The effect is directly related to the quality of public policies of redistribution and the design of state intervention, the star examples being in this respect and with all critiques of the model notwithstanding the Scandinavian countries. Here public intervention in health, education, and pensions is key. In the emerging world there are cases like China where increasing inequality has been mitigated by the overall rise in prosperity and by the birth of new middle classes. But we must not forget that the present recovery is a checkered process, and that the crisis has left a sequel of destitution, hunger, and malnutrition at the bottom of world society. The United Nations has estimated that there are one billion and twenty million human beings that are hungry and that the number is rising. As Roberto Mizrahi maintains in his latest book, inequality is the silent and deep cause of the crisis. In this respect, a recovery that increases rather than decreases inequality is not sustainable. We should harbor no illusions about the self-healing propensity of the present economic arrangements.
7) As I mentioned before, we are living through the aftermath of one punctured bubble but we are not immune from larger and worse bubbles, some of them a consequence of the rescue policies themselves. While there is a severe dearth of funds in the real economy, there is a glut of speculative funds in the financial orbit, ready to pump up different assets the world over. Whereas the bursting of the last bubble in real estate provoked a crisis that spread from the center to the periphery of the world economic system, the next bubbles may burst here and there, sequentially or simultaneously in various corners of that system. Speculative funds are flocking to hard commodities like gold, energy and minerals, or to soft commodities like water and foodstuffs, to the bonds and stocks of emerging markets, or to fun and games with currency trades. The danger therefore is that the next crisis may be a devastating metastasis.
In sum, we are witnessing a timid, sputtering recovery, largely sustained by public intervention, or if you wish by wanton throwing money at each and every problem in the short run. But these policies will sooner rather than later run out of strength, especially in light of a looming fiscal crisis for each and every government at the central and at the local level. When we reach that point, governments will face the dwindling of their resources, a mountain of debt to service, and a very tight spot to maneuver. The failure to manage deftly these crisscrossing pressures may well place “serious” economies in the same predicament that Latin American countries faced in the past. They may be caught in the vise of debt and forced to ride the roller coaster of deflation/inflation, social stress and political instability. Welcome to the world of the future American peso. The specter of depression has not vanished.
The Day After the Day After
What have the leading economies gained through the various rescue packages launched in parallel and in coordination? In my opinion, they have gained time, which is a precious commodity. But gaining time is not a strategy. It is merely a tactic, which, depending on the larger view or its absence may be either fertile or just dilatory. On the positive side, we have gained a bit of time to design new structures of world economic growth, better (by which I mean enabling) regulation, lesser inequality, greater austerity, less waste, cleaner energy, and a spark of entrepreneurial hope at the bottom of the social pyramid.
In the past three decades we have gone through, despite our problems, a marvelous revolution in IT. The next marvelous revolutions will be in the bio-medical and energy sectors. Health, R&D (which entails education) and energy are the bright spots of the future. Greed, predation, and gambling are its dark spots. If growth is to be sustainable it must be global and fair. The alternative is the Hobbesian universe of “warre of all against all.” The premises for sustainability are these:
here must be a convergence in the quality of life of the present “underdeveloped” and “overdeveloped” worlds. The point of convergence is that delicate spot in a double escalator in which the ascending and the descending crowds detain their motion and choose a new and joint point of departure. To continue along the present pathways will lead to endless nasty troubles.
There is a growing awareness of the problem and a serious thinking of the issues, and not just in the ivory towers of the developed world. For instance, the Chinese authorities and a number of Chinese intellectuals know full well that current rescue policies, such as large investment in infrastructure, aid to export companies, and calibration of the currency, useful as they may be in the short run, are not long-range solutions. The longer view requires a re-orientation of economic activities to satisfy the pent-up demand of the domestic market, but in a manner that does not repeat the excesses and distortions of the overdeveloped world. They are figuring out growth scenarios based on greater equality, and a uniform standard of living, which they call “tempered well-being”. They also envisage a re-balancing of world trade in a South-South direction. That is going beyond rescue tactics. It is strategic thinking.
In the context of the “day after” the current crisis, China occupies a geopolitical key place. No wonder then that strategic initiatives, not well understood by the West, are taking place in the “middle kingdom.” These initiatives are for the day after the day after. Anna Maria Jaguaribe, a Brazilian sociologist that has spent several years in China, has recently reported on Chinese strategic initiatives in the field of alternative development. (3) Her report lays out the terms of the ongoing debate in Chinese policy and intellectual circles. Of particular significance is the concept of “tempered welfare or well-being” (xiao kang she hui). It refers to a strategy of development that is not bent on the Western idea of “trickle down” prosperity, but of a more egalitarian “bottom up” capitalist economic growth, which blends the full spectrum of urban and rural life, and has surprising similarities to the successful model of high-tech village poles that has taken root in Northern Italy. Not only are these dynamic centers of innovation and profits, but also have a limited “carbon footprint”, are “environmentally friendly” and, given the scale, more accountable to local populations. Green, sustainable, and intelligent are the hallmarks of these experiments.
Just as ascending China seeks to temper growth or channel it in sustainable pathways, so the advanced world of late capitalism in Europe and the US will have to learn to live well with less. Just as there are creative ways to manage “emergence” so there are creative and humane ways to manage “decadence.” It is not an easy geopolitical task, and there are few past examples of non-bellicose rebalance. For the United States this is an uphill political and intellectual task in a downhill economic environment. It means shedding not only the obsolete business models of the past but also the obsolete ideological models of unequal growth, and the over-dependence on outmoded forms of –to cite only three—conspicuous consumption, transportation and security. Above all, it means shedding the fetishistic protection of high finance –a social sector that is predatory and over-concentrated—and whose social utility is largely unwarranted. Much has been written in derogatory tones about the new class of Russian “oligarchs.” It is time to examine with the same critical eye the parasitic world of the American financial oligarchs –in the name of that old principle of democracy in America, whose attraction has remained intact from the days of Tocqueville to our own.
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Notes:
1) Even on this standard indicator (GDP), economists have a lot to answer for and a lot of homework to do. There is a widening gap between data (as hitherto measured) and reality that distorts the official picture of the country’s economic health, overstating growth and productivity. The statistical distortions are significant. In fact, the GDP would have risen at only 3.3% annual rate in the third quarter instead of the 3.5% reported if more accurate measures had been chosen. At a recent conference on economic indicators, experts pointed to the failure to distinguish between what is made in the US and what is made abroad, thus falsely inflating the gross domestic product. Moreover, because overstated value added is accompanied by great job losses in the current downturn, the overvalued products appear as produced by fewer workers, and productivity falsely rises. In this way official statistics turn a bad situation into an apparent good one. At this rate, the economic calculus risks becoming the newest branch of creative literature.
2) On this see the remarkable study by Wolfgang Schivelbusch, Three New Deals. Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933-1939. New York: Metropolitan books, 2006.
3) Anna Maria Jaguaribe, “Visoes de Futuro: A China e seus desafios, elementos do debate atual,” Rio de Janeiro, 2009.
