Wanted: a new surfboard to negotiate the new world order of constant risk
This is a new world of serial crises. Of constantly changing assumptions, of high opinion volatility, and intense changes that threaten to hit our livelihoods, our assets, our very lives in ways never seen or understood before, writes Gautam Chikermane.business Updated: Sep 13, 2009 20:51 IST
A quiz: what’s common to:
Lehman Brothers bankruptcy
Drought and climate change
Swine Flu and AIDS
The answer: these, and a dozen or more such financial and physical events, are part of an emerging new world order. An order that we, who neither have anything to do with those events nor are part of fixing them, have to learn to live with. This is a new world of serial crises. Of constantly changing assumptions, of high opinion volatility, and intense changes that threaten to hit our livelihoods, our assets, our very lives in ways never seen or understood before.
It is about marrying an entity called risk, through a ceremony called globalisation, in which man and nature tango on the still waters of stability, predictability, security. Anyone — least of all economists but equally politicians, businessmen and scientists —who believes that an unstable financial world will vanish once governments across the world find fiscally-debilitating parachutes after the world fell of the financial cliff following Lehman’s bankruptcy, is living in a past that’s never going to return.
We watch as perplexed bystanders, who dare not set foot on this global highway of crumbling institutions. With one change — the cracks on the highway are spreading under our feet, hurting our jobs, our businesses, our homes, our investments in ways we have never experienced or expected. When least expected, the markets across the world tanked by half. And when real recovery is still a mirage with analysts holding on to and groping with ‘green shoots’ that could for lack of water dry up, the markets have doubled.
Apart from giving false hopes through great oratory, the solutions that the G20, for instance, is heading towards in its September 25 and 26 meet in Pittsburgh are nothing but an extension of continuing with this risk, this new order.
No problem in that, except that the solutions largely being bandied about can be summed up in a single line — the wealth that belongs to you, me and six billion citizens of this planet is being systematically handed over to a small band extreme-pay financial engineers, legal contract cobblers, skilful board managers who caused this crisis in the first place.
Not to forget the political economy behind it. Unlike Congress President Sonia Gandhi, however, US President Barrack Obama may be wary about calling this transfer of wealth ‘nationalisation’. But using taxpayers’ money to finance the million-dollar bonuses of rogue bankers without any significant change in the way banks or bankers are to be regulated is throwing good money after bad, not fixing the world’s biggest financial crisis. Likewise, without cracking the incentive system that encourages risk-taking such that the risk-takers win either way — in a world-be-damned conduct — is nothing but lending this behaviour a political legitimacy.
I am unable to fathom how governments across the world — where millions of citizens are facing the insecurity of job losses, real asset destruction and an overall sense of economic ill-being — have the audacity to do this. The Mexican economy is expected to shrink by more than 7 per cent in 2009; Russia, Germany, Japan and Italy are expected to contract by more than 5 per cent each. Iceland could see as much as one out of its every 10 krona of GDP disappear.
And while China (expected to grow by 7.5 per cent) and India (5.5 per cent — Finance Minister Pranab Mukherjee puts the figure at 6 per cent) will drive global economic growth, they may not lead a global recovery when the three largest economies of the US, Japan and EU are expected to contract by 2.6 per cent, 6.0 per cent and 2.0 per cent respectively.
As a result, countries that are dependent upon them either as markets or for trade finance — smaller ones like Hungary, Turkey, Ukraine but equally the growth engines of China and India — will see either a contraction or a slowdown in their growth rates. Add to that the trade restrictions, including that of the US on Saturday when it slapped a 35 per cent tariff on Chinese tyres; predictably, an annoyed China which on the same day announced that its industrial output had risen by 12 per cent in August, reserved its right to retaliate. Such wars of protectionism — Prime Minister Manmohan Singh had warned the G20 in the November 2008 Washington Meet and again in the April 2009 London Summit — could increase, resulting in a race to the bottom.
And while the impact will be lesser, even the oil exporting countries including United Arabs Emirates are unlikely to be spared, with growth rate expected to fall from 6.1 per cent last year to 3.9 per cent in 2009. The case of Dubai with images of dusty cars, dilapidated homes and silent construction cranes tell the story of a slowdown that has got the expatriate community to exit in droves.
This world of high and constant risk is here to stay. The stable climes of predictable interest rates and inflation, of reasonable volatility in property markets and stocks, of foreseeable incomes through skills acquisition is over, as is the stable climate, disease, terror. It will take its time reaching here, but for a young, and by definition, a dynamic India, it is time to study the ground under our feet. Once we know and accept that we stand on shifting sands, all we need is a new surfboard to negotiate this new world with.