Rajiv Dogra: Do we have the leaders to pull us out of recession?

Addressing the fractious members of England’s rump parliament in April 1653, Oliver Cromwell said; “Depart, I say; and let us have done with you. In the name of God, go!” He could scarcely have imagined that his words would echo four and a half centuries later in the Indian Parliament. But why make it subjective; if one looks around, the situation is ugly the world over.

The Arab spring had promised some hope but the fizz went out of the revolution even before democracy could get a look in. Gaddafi remains defiant in Libya. Syrians are no better; they are being crushed by Assad, who is a product of modern education.

Education, unfortunately, is hardly the point. Money is the issue. Over the last 25 years, even the western world seems to be floundering; and it is not just a matter of the hopeless state of affairs in Greece. The developed world has been following the overriding policy of avoiding recession. Whenever the markets wobbled, they slashed interest rates and resorted to fresh debt financing.

That was the economic side of missteps. But prosperity also leads to behavioural shifts. The western world relished the luxury of plenty after the misery of the World Wars; consequently the post-war generation wanted to enjoy life here and now.

As with the avoidance of recession, the guiding principle for individuals was: since you live only once, why multiply. The result is an ageing population today, ageing and unproductive. A by-product of this desire to relish the age of plenty was a conscious shift away from manual industry. Slowly, but eventually hugely, large pockets of industry shifted out of the West to China.

So even as the means and sources of governmental revenues were decreasing, and as the manufacturing industry was being transplanted massively out of Europe, governments were busy increasing expenditure on social welfare schemes and consequently the fiscal burden on the state exchequer.

It is good to be generous, especially with one’s own, but it is equally necessary to have the means to fund that generosity. Sadly, there lay the rub. Since much of the state sector had been privatised, the governmental side of revenue generation was in a shrinking mode. Moreover, as the manufacturing sector continued migrating to China, its contribution to national budgets began to stagnate and even diminish.

Then, there were the compulsions of war. The West was engaged in multiple wars or war-like situations; Iraq and Afghanistan in particular required huge financial commitments year after year.
These warning signals should have been heeded; but political compulsions demanded that the pretence of all is good had to be maintained.

There were other distortions too. To take just one example from America, from the early 1950s to the mid-1980s the share of the richest 1% had never exceeded 10% of the national income. These were also the years of great overall prosperity there.

Then the picture began to change; by 2007, the share of that richest layer had increased to 18.3%. The last time it had done so was in 1929 when this share was 18.4%! It was an ominous coincidence but it was politically expedient to ignore it.

The question that must be asked as the world plunges into a financial storm of uncertain proportions is whether it could have been avoided. What seems certain is that the current crisis is largely man-made, one that was thrust on people by the miscalculations of its political leaders.

Look around you; do you really feel inspired by the leadership the world has today? In the US, Barack Obama procrastinates till decisions become a muddle — he took three months to announce the surge in Afghanistan and the recent haggling over deficit further dented his ratings. Italy’s Berlusconi is so busy planning the next bunga-bunga party that he can hardly be expected to give the national economy a raise. In neighbouring France, Sarkozy is still on honeymoon mode.

Alas, the global hope is in retreat. There may be pockets of prosperity like China, but for the rest of the world it is hard times ahead. Sadly, we do not have inspirational leaders like Thatcher, Kennedy or Indira Gandhi to pull people out of this economic morass.

As we get sucked deeper into an economic crisis the question that may be asked increasingly is this; if human miscalculations cause recessions, what triggers an economic boom?

A former ambassador, the writer is a novelist, columnist and an artist