Earlier this year, I called the Union budget myopic (see Down To Earth, March 31, 2008). Let me reiterate why. The Union budget did not take into account the fact the world was beginning to face new challenges, all of which were devastating, and related. One, the rising cost of our food—you will recall subsequently prices did go up and food riots took place in many parts of the world. Two, the problem of ‘peak’ oil prices—which, again by mid-year, touched an astounding us $140 per barrel, and despite a present downturn remain quite volatile. Three, the devastating impacts of climate change, visibly on crop productivity because of water scarcity or untimely rains or the growing frequency of natural disasters. Four, a possible, us-led global recession.
Well, that recession has, since then, blown up in our faces as companies, banks collapse and governments rush with billions of dollars to their rescue. And myopia seems a global malaise. What should astound us is not the crisis, nor its scale or its devastation, but the response of our financial and political managers. Remember, these are people who have all studied alike; who all speak the same words and do the same done things. All of them believe they know their world and can come up with answers quicker than you can say ‘meltdown’. So, even as they are completely lost in this world today, their arrogance persists. First, they said, “Don’t worry, it won’t touch us”. Now, they are saying, “Don’t worry, it will pass”.
The fact is they don’t have a clue of what is happening. They also refuse to accept this crisis is actually inter-related crises linked to the way we have managed growth till date. The fact is we have been taught, and have practised what has been preached, we can consume our way to growth and consume our way through and out of any slow-down period. “Don’t worry, just consume” is the mantra. If we cannot ‘afford’ to consume, then, too, we should not worry. The financial systems will ensure we get cheap loans to buy homes, cars, washing machines, or anything else we may not need but desire. After all, it is only if we consume that growth indicators will look rosy again, and the world will remain happy.
The problem with this model is that we do little to ensure we can bring the cost of the product down so that it is affordable. In other words, we do not plan, design, manufacture and sell products and services that meet the purchasing abilities of people. We don’t demand technology to work for affordability. We also don’t share wealth so that more can afford this growth—afford the house or the car—without the loans that will make the banks boom and then go bust.
The sub-prime crisis that hit the us, is precisely because of the fact that banks loaned quickly, cheaply to people who could not afford the housing. Worse, the market gained, if the house was more expensive—conversely, less affordable.
The other way to growth is to subsidize the cost of producing the products we should consume. Take the ‘Nano’ example in India, where every car manufacturer is in a scramble to get public largesse—from land at throwaway rates, interest free loans to free or nearly free water and power. This is all to reduce their cost of manufacture, to place the car we cannot buy within our reach. It is another matter that in this economics, the cost of our consumption has been subsidized. It is a story uncannily similar to how food in the rich world is grown—farmers (most agri-businesses) are loaded with subsidy dollars to grow cheap food so that its consumption (and over-consumption) can grow, even as obesity takes the form of the world’s most deadly disease. It is also a fact it is the same consumption-led economic growth that has brought the world to the climate change precipice. The point still is: are we beginning to make these connections?
Clearly, no. In fact, there is only one way to crawl out of the current hole–do more of what we have done till date. The us $700 billion bail-out package was explained very succinctly by us president George Bush in the interest of the ‘poor’ worker. “The banks needed to loan, as otherwise ordinary Americans would not have money to buy the car and this would mean that the factory workers in Detroit would lose their job.” Simple logic for simple economics: buy and buy to make the economy go around.
In this way, the vicious circle will go, on and on. We will consume more, because it is the only way we know to economic growth. Even if it costs us a bank or the Earth.
We will not talk about this. To do so would mean we would have to change our fundamental understanding of what constitutes growth; to what leads to happiness and what results in employment and well being for all. It would mean changes in how we measure economic growth—junking or going beyond the gross domestic product (gdp) indicator to one that is much more comprehensive in assessment of these needs.
As of now, we will not change. The world is still in the hands of the same men who put us in the mess in the first place. It is their limited imagination and enjoined ideology that has got us here. It is their lack of imagination that first pushes airlines to believe they can be as cheap as railways. Then pushes for public largesse to fund what we can’t afford. So don’t expect any change. This financial crisis may go away. But the storm is still to come.