It's the politics, stupid
The G20 is a nascent body without even a secretariat. It reflects a shifting international power situation.columns Updated: Jun 16, 2012 22:34 IST
In preparation for a meeting with a hard-nosed Hong Kong investment banker recently, I mugged up various statistics on the Indian economy. It proved to be an exercise in wasted time. "It's all about politics nowadays," she said.
The market having been perceived to have failed, the struggle worldwide was now over which interest groups got how much of a pie that was presumed to be shrinking or what recipe was needed to make the pie grow again. In other words, politics.
Consider what is taking place economically here in our home, in the western extremity of the Eurasian landmass and in global decision-making.
Three moments of truth will or have taken place in a span of about a week. At the local level, India's presidential race has clarified to the point where Pranab Mukherjee is pretty much certain to give up charge of the finance ministry and allow someone with an interest in reviving the Indian economy to take over. And the disastrous cabal of bureaucrats who presently run the finance ministry can be exiled to the corners of the world inhabited by the enemies of India - let them wreck their economies.
At the continental level, Greece will be holding general elections. If they fail to get a government honest enough to accept that their incomes will fall by a quarter no matter what they do, Greece will head for default and probably euro expulsion. If the contagion spreads to Spain and Italy, Europe will plunge into depression and the world into recession soon after. Barring divine intervention - and it is noticeable no sacred text speaks of god changing the direction of the market - the Greeks must compensate for decades of frivolity. The politics is all emotional. Ageing voters who fear the return of the drachma versus angry young men who fear the loss of their future. This is political economy, the first word is in capital letters.
Finally, the G20 summit is taking place in Mexico from tomorrow. The world's most powerful multilateral economic pow-wow will have to see whether it can solve the thousand problems afflicting the globe.
In the past, for example in the wake of the Lehman Brothers' collapse, what these country leaders said mattered, representing about 85% of the global GDP. At Pittsburgh in 2009, they all said, "we pledge to print money". Everyone in the world stood up, saluted, changed their market outlook and put off credit rating downgrades.
Today, their collective voice is being drowned out by a leftwing firebrand like Greece's Alex Tsipras. He doesn't contol even a smidgeon of the global economy - one reason he is prepared to gamble with it - but he can capture and verbalise the anger of the Athenian street. Politics, not economics. Put it another way, the problem at all three levels is not money.
India is the wealthiest it has ever been. Its corporations are sitting on billions of dollars of cash reserves. Europe, taken as a whole, is solvent and still remains the world's wealthiest region. The G20 countries should have enough clout to do almost anything they want. Commodity-rich economies like Saudi Arabia and exporters like China have huge dollops of money that just need to be recycled somehow. But it's not about the money, honey. When it should be their time to shine, the political class is failing. Hence the curious sight of a Cornell professor on loan becoming the only credible voice in the finance ministry. Or Barack Obama declining to meet none but one of his peers at Los Cabos in Mexico this week. He's realised none of them are worth rubbing shoulders with. Better talk to some schoolchildren in Indiana.
India's government is paralysed by the lack of a coherent leadership at the top. The result is the collapse of investment as investors, domestic and international, refuse to put their money long-term. Capital flight from India is now a big fat stream of economic reality. Standard and Poor's was on the button in saying the economic problem lay in New Delhi and the government. The European Union is so badly structured it cannot use the resources of its rich north to solve the problems of its indebted south. German chancellor Angela Merkel cannot argue to her people that the austerity game is, in the long term, self-defeating without watching her popularity evaporate.
The G20 is a nascent organisation without even a secretariat or a leadership that meets very often. It reflects a shifting international power situation but lacks a history of collective action. And politics is the most difficult thing to resolve, because it depends on so many variables and a degree of leadership that is presently lacking at all three levels.
The apocalypse should not be expected. But nor should redemption and salvation. India, Europe and the world will just muddle through again.