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It’s over for US-style capitalism
04-08-2009
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The Anglo-Saxon financial model would have been declared dead had there been a live alternative to it. It is now surviving in ICU on financial steroids supplied by the State. Is India missing a chance to introspect, asks S. GURUMURTHY.
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The global crisis is clearly an Anglo-Saxon cultural and economic construct.

After attaining freedom, India began imitating the socialist Soviet republic from the 1950s and continued it till the Soviet sunset in the 1990s. Afterwards, like most others , it began copying the US, which emerged as the icon of market capitalism as Anglo-Saxon capitalism turned into a global monologue after communism fell. But, in less than two decades, as the year 2008 closed, the US has ceased to be the icon . For many, it is an object of scorn.
US DISCREDITED
Its friends like France and Germany, not adversaries like Cuba or China, openly accuse the US financial model — read Anglo-Saxon – of setting the world on fire. Germany and France even see themselves as continental Europeans — culturally, therefore economically, different from the Anglo-Saxons. And for the first time, Japan, which, for decades, had been accused of shielding its banks and businesses through crony capitalism and shamed thus, began asserting that its financial order was more reliable than the US model.

The present crisis has thus helped many to re-look at, and reposition, themselves, while also questioning the universality of the US model. For India too, the global crisis has provided similar opportunity to re-examine itself. Let’s see what it does. But before that, some history.

The collapse of the socialist world, with which India had a more than desirable degree of integration, forced all socialists, including the head of the socialist family, Soviet Russia, to defect wholesale to the global market model of the Anglo-Saxon variety expounded by IMF and World Bank. Both state socialism and market capitalism had their defects; but, in 1990s, a less competitive socialism failed first against a more competitive capitalism. But now it seems to be the turn of the US-led capitalist model to fail.

THE 1990s AND NOW
But with socialism already in the museum, there is no live global level alternative to replace the (f)ailing US-model of capitalism. Assume that, in the 1990s, there was no US-led capitalist alternative; the socialist order may not have collapsed at all; it would have somehow pulled along, like the (f)ailing US-led global capitalism does now.

It was the live alternative of US-led capitalism and its political cousin, liberal democracy, that hastened the socialist collapse. If socialism was the villain then, its alternative, US-led global capitalism, is the culprit now. Worse, the mess unleashed by socialist implosion of 1990s was largely restricted to the socialist world ; now the capitalist meltdown has messed up the whole world! That is why the likes of Japan, Germany and France emphasise local and regional models. Where does India stand in this debate?

With demise of the global socialist order, India too gave up its socialist pretensions in 1991. It accepted to do a U-turn to adopt the Anglo-Saxon free market model commended by the Bank-Fund combine.

And the man destined to do this U-turn was Dr Manmohan Singh. Only a year earlier, he had authored the South Commission report which had trashed the Bank-Fund model of economics. From then on, everything that the Anglo-Saxon US said and did became like fatwas for India , as also for all ex-socialist and even non-Anglo Saxon capitalist nations.

A MODEL IN CRISIS
The Indian reform agenda was guided by US economic thought and policies; its national discourse merely echoed the ideas of US. From then on till now, India has gradually implemented the Anglo-Saxon free market model; with circumspection first and expeditiously later.

Just as there was no national debate when India adopted the socialist model in 1950s, there was no debate when it defected to the US-commended capitalist model in the 1990s . The defection had to take place in days rather than months following the sudden collapse of the socialist order. So, the transition from the Soviet model of socialism to the American model of capitalism had become a fait accompli before any discourse could commence. There was no post-facto debate either . This is the story of the 1990s. Now move on to 2008. After the 1997 Asian crisis, it was increasingly becoming clear that Anglo-Saxon global capitalism, which has been repeatedly getting into one mess after another, was heading towards an inevitable, accumulated crisis. But the proponents of global capitalism successfully shifted the blame for the 1997 crisis on to Asia’s “crony capitalism” and thus escaped scrutiny.

But soon after the Asian meltdown, the US itself got into a huge crisis in 2000 — the dotcom crisis. The power of US was too pronounced for the world to scrutinise it then. But things came out in the open when the long-awaited financial tsunami swept away the US financial system in late 2008. This qualitatively matched the collapse of the socialist order in the 1990s.

The Anglo-Saxon financial model would have been declared dead had there been a live alternative to it. Unlike socialism which could be allowed to fail because a live alternative existed, the global capitalism had to be saved somehow; it was saved by partial and covert socialism. The free market economy of the US is now surviving in ICU on financial steroids supplied by the State which has nationalised the market losses.

The unbelievable cost of saving the US financial system bears the dignified label of “stimulus”. The total fiscal and monetary stimulus which, according to Bloomberg (31.3.2009), has been “spent, lent or committed” by the US Fed and the US Government so far, is $12.8 trillion! The amount of stimulus has “approached the value of everything produced in the US” in 2008. America’s GDP last year was $14.8 trillion.

This works out to $42,015 for every man, woman and — note — also child in the US; it is 14 times the $899.8 billion of currency in circulation. Out of this, till March 2009, $4.169 trillion had been used up. Included in this is the fiscal stimulus and other costs borne by the US government of $1.833 trillion.

In contrast, German government has provided just $40 billion as fiscal stimulus; its central bank has provided $642 billion as monetary stimulus. Germany’s GDP is estimated to shrink by 1.7 per cent in 2009 and the US GDP by 1.2 per cent . Despite such a huge stimulus, the US economy performs no better than Germany’s.

According to an IMF paper submitted to the G20 meeting in March 2009, the support of the advanced economies to the financial sector amounted to 43 per cent of their GDP, most of it in the US. So, rightly, continental Europe led by Germany and France dubbed the present crisis as an export from the US and blamed the Anglo-Saxon capitalist model for the present mess.

INDIA’S FAILURE
The global consensus points to the Anglo-Saxon model of a nation and its people living beyond their incomes— commonly known as savings-investment imbalance — as the cause of the crisis. The Council for Foreign Relations (US) has, in an in-depth study, has zeroed in on global imbalances — read current account deficits — as the root cause of the global mess.

The Anglo-Saxon nations — the US, UK, Australia, Canada and New Zealand — share the common feature of savings-investment imbalance, that is, spending and investing beyond their current income.

Consequently, their external account is ever in deficit. The figures for 2008 are: US $673 billion; UK $ 44 billion; Canada $11 billion; Australia $29 billion; New Zealand $ 9.8 billion

In contrast, Germany has, despite the impact of the global crisis, earned a current account surplus — yes surplus — of $265 billion last year. It is the same case with Japan and generally Asia. The global crisis is clearly an Anglo-Saxon cultural and economic construct. Yet the Indian policy making continues to look towards US — read Anglo-Saxon — economic philosophy.

When the non-Anglo Saxon nations are waking up, India is not. Is India not missing a chance to introspect? Has the Finance Minister not missed the opportunity to take a re-look at India? Is it not a frightening intellectual failure? Read on tomorrow.
An economy different from US
05-08-2009
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The rule of economics that says if interest rates are low, people spend more and save less, does not operate in India as it does in the US. Here, the growth in spend is always less than the rise in income. Yet, our policy-makers tend to see India as US policy-makers see America, overlooking behavioural differences, says S. GURUMURTHY.

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Most Indian intellectuals, including the media, often love to draw a contrast between ‘India’ — meaning the urban — and Bharat — meaning the rural; the former as ‘modern’ and the latter as distanced from ‘modernity’. This comparison, long settled in Indian discourse, pretends that today’s India is more like the West, and today’s Bharat is more like yesterday’s India.

But a deeper look suggests that this analogy seems superficial. In appearance, urban India — particularly, the metros — does look like the West, but the similarity ends there. A closer scrutiny reveals that even the metro Indian is, in his economic behaviour, unlike his counterpart in the West, and not very different from his rural Indian cousins. .

Chapter I (Page 3) of the Economic Survey 2007-08 tells us something about the average Indian’s economic behaviour. It correlates India’s “Per Capita Income and Consumption” for the period 1980-81 to 2007-08. For the 12 years from 1980-81 to 1991-92 per capita income grew by 3.1 per cent per annum and per capita spend by 2.2 per cent.

And in the next 11 years from 1992-93 to 2002-03, per capita income grew by 3.7 per cent and per capita spend by 2.6 per cent. In the subsequent five years to 2007-08 the annual per capita income growth doubled to 7.2 per cent; the spend moved to 5.1 per cent. An unwavering pattern for 28 years — long enough to fix the character of a people — is self-evident. The growth in spend is always less – yes, less — than the rise in income.

SAVINGS BEHAVIOUR
Indian policies were socialist up to 1992 and increasingly liberal thereafter. The per capita income of Indians rose sharply from 2002-03 but their spend did not rise as much. Instead, their savings rose in greater proportion. Household savings rose from 22.9 per cent to 24.3 per cent of the GDP between 2002-03 and 2007-08. Says the Survey: “The average growth of consumption is less than the average growth of income, mainly because of rising saving rates.”

This sets the Indians, in India and Bharat, apart from the West. When, in the early 1990s, the Indian government asked for his counsel on how to promote growth, Dr Jagdish Bhagwati, the Indian-born US economist advised: Indians should spend more and avoid saving which, he said, was — believe it or not — wasteful!

Despite the transition from socialism to liberal economics promoting consumption-friendly policies, Indians do not seem to have drastically changed their lifestyle. Anglo-Saxon countries could, by policy , make their households spend more than their current income even if that meant risking household bankruptcy. Even the marginal household savings in Anglo-Saxon economies are mostly of a risky nature .

PREFERENCE FOR STOCKS
Over half the US households are hooked to stocks. The US household economy went into the red in 2005, with their spend topping income. To maintain growth, the US Fed encouraged Americans to spend based on unrealised asset values, of stocks and homes.

Homes became like stocks; and both stocks and homes finally became like ATMs for them to borrow and spend. This was not seen as risk, but promoted as a virtue. Alan Greenspan, who headed the US Fed for almost two decades, saw no virtue in savings as developed economies provided social security; he viewed spend beyond current income as growth-friendly.

He repeatedly cut the interest rates to help the Americans spend more and save less. They obliged by spending more when the interest rates came down and saved less. But, finally, they stopped saving altogether and began spending beyond their income. The US now realises, but only now, that persisting with that model has been the cause of today’s global crisis .

See, as a contrast and as an example, how non-Anglo Saxon India, Japan and Germany behave. They do save a lot but mostly through banks, rather than stocks. More than 51 per cent of Japanese savings, about $7 trillion, lies deposited in banks at less than 1 per cent return; about 26 per cent is placed in insurance and only 11 per cent % in stocks.

The Germans and the French also prefer banks and insurance — with over 51 per cent of their savings in banking and insurance instruments. Stocks are not high up in their list of preference: only 7 per cent German households have stocks. In India less than 8 per cent of annual household savings gets into stocks. In Japan and India, cuts in interest rates do not result in private spend. In Japan, money was almost free of interest till 2005; now it costs 0.5 per cent Yet that hardly altered Japanese frugality. Indian bank deposit rates came down from 12-13 per cent in 1995-96 to 4-5.25 per cent in 2001-02 and to 7.5-9 per cent in 2007-08. In 1995-96, inflation was 8 per cent, in 2001-02, 3.6 per cent and in 2007-08, 4.7 per cent As a result, real interest was 4-5 per cent in 1995-96, less than half of it at 2 per cent in 2001-02 and below 3 per cent in 2007-08. Yet the household saving rose instead of falling.

From 18.5 per cent of GDP in 1995-96, it rose to 22.1 per cent in 2001-02 and further to 24.3 per cent in 2007-08. So the rule of economics, which says that if interest rates are low, the people spend more and save less, does not operate in Japan or India the way it does in US.

BEHAVIOURAL ASPECTS
Interest rate influences business but not people. It means that economic behaviour, in India or Bharat, is akin to Japan , and quite unlike America .

Yet, Indian policy makers tend to see India like US policy makers see America. For example, there was a sharp deceleration in the growth of per capita income in India in 2008-09, hence the per capita spend decelerated even more.

But, the Economic Survey 2008-09 speculates, like a US policy maker would, that the deceleration in spend may be due to fall in stock and property prices ; cut back in consumer credit; uncertainty in labour market; and consumer deferring buying or choosing unbranded low quality alternatives! Obviously those who wrote the 2008-09 Survey did not look at the earlier one.

As a direct consequence of the behavioural difference, the economic model that operates in non-Anglo Saxon nations also differs from the Anglo American model. The core of any economic model is the rule and the mechanism of distribution of resources, particularly money. In the socialist model, the budget is the core; in the Anglo Saxon model, the market is the core.

But in the non-Anglo Saxon model, the bank is the core. In the first model, the government is the key; in the second, it is the market; in the third, it is the household. While the government and the household can absorb shock; the market can only distribute money, like it distributes wealth, in both cases, admittedly, unevenly.

In a paper published by the Bank of International Settlements (BIS paper no 46) titled “A note on Japanese household debt: international comparison and implications for financial stability” the authors, who are officials of the Bank of Japan, conclude thus: Japanese households prefer bank deposits over other risky financial assets; this is despite all well-developed financial instruments being heavily traded in Japan. The conservative approach of the Japanese has mitigated the effect of the decade-long economic slump in Japan; their households absorbed the shock of the burst after the boom.

See the contrast in the US. Households in the US were first bankrupted by policies to create the economic boom; later the inevitable bankruptcy of households became the cause of the burst. That is, the US households were used to the trigger the boom,but when the burst came, the US households became its first victim.

INDIA UNMOVED
While Japan is clear that making market the core will not work when the people prefer safety in savings, India is not clear. It is because the Indian discourse does not look at India; instead it looks at the West and particularly the US, to copy. Japan has constantly looked at the Japanese and did what largely suited them, despite being abused as a crony economy. Today they stand vindicated; and the US stands repudiated.

It needs no seer to say that India is different and unlike the US. And in the first budget after the global crisis broke out, the finance minister had the opportunity to tell this truth to India and Indians; and also to the world, like the Japanese, Germans and French have repeatedly done. He has missed that opportunity. For this, the entire Indian discourse, including the media, is to be blamed, and not just the Finance Minister.

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Labour is cheap and the secrets of manufacturing is no longer a secret. All of the free and developing Nations are leveraging their available resources and good points and are building up their economies much much faster than we can with our restart (ups). So, all of us are left behind biting the dust.

The unions will see a little slowing and the workers (labour) will have to bend down with their backs cocked up, before anyone will take advantage of the local moth balled plants and equipment. You will also see their (Equipment's) flight to countries with low cost labour. Because the products that are emerging out of these markets are as close to the ones that we see here currently on the market and are catching up with the specs.

Please go through the article and you will know how the multi trillion economy is developing all over the world. If you have the age and the monetary advantage on your side, you can do as good or much better in any other part of this world. So, pull up you socks and the TEE PEE and get moving.

http://www.oxfonline.com/MMR/MMR0809.html?pub=MMR&code=EMMRK824&o=22291&s=23498&u=28669672&l=39772&g=156&r=Milo

Are you ready for it now?

If not, you are just one amongst us. A spectator or an onlooker.

Freddie.

As one of my colleagues from New Found Land said "F!@# Fight or Hold the light"

For a long time the labour here in Canada and the USA used to say, if we don't get our demands in wages and conditions we strike. And they did. Finally some how they settled these disputes with the owners through mediators and judges etc., and some how got over it.

But in the recent times. The plants are closing left and right. They are not even thinking of opening it ever. They don't care. Most of the International Corporations have a similar or better setups (Clones) some where else in another part of the world. So, they say go suck an egg. They move their entire operations and their kit and caboodle to a different location. They even say we will not provide you any severance pay or any settlement. That leaves them high and dry. So figure this one out!

Our Canadian Government is dependent upon the sale of its goods from the nature. If there is no sale then no GO.

See where we are because of this!

Freddie.

Quote:

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Originally posted by ftfl



Labour is cheap and the secrets of manufacturing is no longer a secret. All of the free and developing Nations are leveraging their available resources and good points and are building up their economies much much faster than we can with our restart (ups). So, all of us are left behind biting the dust.

The unions will see a little slowing and the workers (labour) will have to bend down with their backs cocked up, before anyone will take advantage of the local moth balled plants and equipment. You will also see their (Equipment's) flight to countries with low cost labour. Because the products that are emerging out of these markets are as close to the ones that we see here currently on the market and are catching up with the specs.

Please go through the article and you will know how the multi trillion economy is developing all over the world. If you have the age and the monetary advantage on your side, you can do as good or much better in any other part of this world. So, pull up you socks and the TEE PEE and get moving.

http://www.oxfonline.com/MMR/MMR0809.html?pub=MMR&code=EMMRK824&o=22291&s=23498&u=28669672&l=39772&g=156&r=Milo

Are you ready for it now?

If not, you are just one amongst us. A spectator or an onlooker.

Freddie.

As one of my colleagues from New Found Land said "F!@# Fight or Hold the light"

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The healthcare debates is a fine example of how divided the country is currently.

Already Obama has waved the white flag of surrender and is going to dilute the health care bill.

The health care debate currently on in USA can be put as follows in simple layman terms:

The predominantly middle and upper class whites are already pissed off with the blacks who are predominantly uneducated, unemployed, involved in crimes and surviving on food stamps given out by the government. This food stamp support comes from the Taxes paid by the predominantly white people.

Now the white people feel that if further the health care is brought under the FED's like our amchi Canada, with free healthcare the blacks do not need to do anything. They can get their food on food stamps take care of their health issues with free/subsidised health care and then THERE IS NO INCENTIVE TO WORK or do something with their life.

As they say Rob Peter and pay Paul.

It is just like in Tamilnadu, India or our amchi Canada. When you file for immigration to Canada you have to do umpteen tests, fill in thousand forms, substantiate with evidence your education, skills and also show the Bank Balance for landing in Canada.

While........................ a refugee claimant lands here gets around 2500 $ as support, free housing, health care from day 1 including dental and vision. He gets all support while you the skilled immigrant has to do the dirty job and pay your taxes to support the refugee.


Or in India, with the DMK government offering free color TV, subsidized ration, free utensils, free gas stove with cylinder, free electricity, free buspass and with all the freebies while you and I have to pay all the taxes to support all these freebies.

Please tell me where will be the drive, incentive or determination to work hard and get ahead in life when you are offered all the freebies?.

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Sunny Leone a true Canadian DESI now back in India !.