Disillusioned

Disillusioned

We are in the grip of the worst economic crisis since the 1930s.  Though Mr Doom, Mr Nouriel Roubini, had warned us back in December 2006 that a crisis was looming, it was only after the collapse of the Lehman Brothers bank last September and the ensuing stock market crash that it dawned on us that we had more on our hands than just another irrational exuberance of the capital market manifested by the bursting of yet another bubble. This one, unfortunately, was gradually morphing into a severe global recession. As the crisis continues unabated, one thing is becoming clear, we are the witnesses of a reality that is repeatedly debunking our prognoses as being either too worst or all too optimistic. Some believe that the economy could fall back into step more quickly than predicted and they see inflation as a much greater threat. Others are predicting that the worst is yet to come; we are just at the beginning of the global freefall and we don't really know when we are going to hit rock bottom and once we reach it, how long the global economy will lie there.

   

In our desperation we are clinging to even the tiniest glimmer of hope- to the green shoots of spring, to the slightest possibility that economy is bottoming out toward the middle of next year-that the government spending for economic stimulus programs and bank bailout packages and the pumping of more and more money into the economy will rejuvenate the economic cycle. But no one knows whether this medicine actually works and if it does, when it will take effect. Indeed we are all somewhat shaken to the core, unsure of what else the global economy will churn out - deflation, inflation, mass unemployment, swine flu and what not, without ruling out the Great Depression that is creeping back in daily usage after having been relegated to the history books.

Molded in traditional laissez-faire economics and  fervent adherents to TINA-There Is No Alternative- as the only road to ‘growth and prosperity’, the implosion of neo-liberal economics has undermined the strong sense of self-confidence which used to be exuded by our supporters of the IMF/WB cum TINA economic model. The crisis has shattered some of the myths associated with the neoliberal paradigm that I have been conveying to my readers and teaching to my students. Truly, it is only when the tide goes out that we can see who had no trousers on and I felt caught up and stuck in my narrow ideological groove. Changed circumstances called for changed views. There are people who look at the future, not in the mirror; the pendulum is definitely swinging one way. Which way?  I thus embarked on my quest for the new holy grail of growth economics. Without much of an anchor now and the fact that the once booming chorus of ‘Let the Market Decide’ is pretty ragged and unconvincing these days, I thought it wise to have a try - on the other side of the fence- at the uncharted terrain of the  so-called “radical” lot that spends most of their time reading about the low wages of workers in Asia, the destruction of the environment and how corporations rake in billions of profits.

On the other side, the TIANs-the side that believes that There Is An Alternative- were engaging in a lively and quite acrimonious debate with the TINAs, the entrenched élites that have benefited from neoliberal policies. The TIANs were arguing that the current capitalist crew manning the global economy does not know whether Keynesian methods can re-inflate the global economy. Will Keynesian methods of reflation work today? The more critical thinkers of capital like Martin Wolf and Paul Krugman are not taking bets on. They doubt whether a clutch of Social Democratic-like reforms is enough to repair the global economy, or whether the crisis will lead to a new international economic order. Are the nationalisations of banks and financial institutions, rescue plans for industrial companies, strong state intervention everywhere and attacks against ‘unbridled capitalism” some kind of rearguard action from the discredited proponents of the neoliberal Washington Consensus-the policies of deregulation, privatisation and globalization ?  Or is it only the ghosts of Keynes and even Marx coming back to haunt Western leaders and neoliberal ideologues.! The market fundamentalists cannot continue claiming that markets should be left to their own devices because whatever happens, they have self-correcting mechanisms and that market failures are less costly than state failures.

The TIANs believe that we should reclaim the debate on our development from the Bretton Woods imposed TINAs. We should never accept again that others speak in our name. Genuine development is an endogenous process. No external force can bring development to our country. So, we should restore our self-confidence, trust our own expertise and promote the use of endogenous knowledge and technology. Since development should be viewed as a multidimensional and complex process of transformation, there can be no genuine development without an active state. However, the state is no longer the only player. It has to contend with civil society, which has to become a key player in the debate on our development in the areas of gender equality, trade, finance, food sovereignty, human and social rights and come up with our own development paradigm. For the TIANs, many alternatives are thinkable, possible and already exist. There is a new openness to alternatives. By deepening their analysis and presenting the positive alternatives -that shut down the global capital casino and inaugurate a New Deal which  puts the well-being of people and the planet at the centre- they hope to  show people that another world is not just possible, but needed now more than ever . 

In Latin America, a global alliance of centre-left is back in business proposing a mix of economic efficiency and social justice- Evo Morales (a former coca grower) from Bolivia, Hugo Chávez (a former soldier) from Venezuela, Fernando Luco (a former Catholic bishop) from Paraguay, Rafael Correa (an economist trained in Chicago, of all places) from Ecuador, Lula da Silva (a former car worker and union organizer) from Brazil and Michelle Bachelet of Chile. The latter in a recent interview in Newsweek of May 4th was categorical that “ in the future we cannot repeat the errors of the Washington Consensus, when countries in the region grew and did not redistribute. …..This country does not have a neoliberal economic model anymore. We have put in place a lot of policies that will ensure that economic growth goes hand in hand with social justice. There does not have to be a trade –off between growth and social protection”. The Time magazine of March 15th highlights “Brazil’s New Way” which combines wealth creation with wealth distribution.

With the collapse of market fundamentalism, it is the legitimacy of the entire neoliberal system that is being questioned. Even some of its most fervent ideologues are now in disarray. Some of its most sacred myths and dogmas are falling apart. Things that were unthinkable just a few months ago have become a daily reality. Spontaneous demonstrations have shaken towns and cities world wide calling for economies to be put "...at the service of social, environmental and other vital interests of women, men, girls and boys, in particular to start greening our economies and to increase local economic resilience.….also  proposing for market regulation; breaking the dominance of finance over the economy; keeping the climate negotiations on track; rethinking development finance; fairly sharing resource consumption across the globe; ensuring tax justice; and making IFIs more transparent, representative and accountable.” 

The more radical group among our local Trade Unions has also taken to the streets. Emboldened by the spontaneous support obtained at demonstrations across the country, these unions have finally found their voice of protest; they are not only calling for the repeal of the new employment laws but are also flexing their newly acquired muscles at the neoliberal policies of government; the government’s disbursement of Rs 1 billion to the private sector from the stimulus package has angered many who believe that such largesse without in return any serious commitment from the enterprise that there will be no compulsory redundancies, is unjustifiable in the current economic climate. Tax payers’ money was being used to bail out the fat cats. The anger is that bosses have been provided with the means to throw people on the scrapheap while Government continues to prioritize enterprises over workers. As top executive incomes soared – helped by generous bonuses – average employee salaries decreased in real terms. Today, jobs are a focus for fear and anxiety as recession bites and unemployment looms. The unions are feeling that if they want to save jobs, they will need a serious fight that involves industrial action.

These Unions having some five members on the NPC will be boycotting the National Pay Council which has stuck to its terms of reference of also including capacity to pay and productivity in their criteria for determining the wage compensation. The earlier wage compensation mechanism provided for a uniform wage increase across all sectors of the economy taking into account only consumer price inflation, irrespective of each sector’s financial situation and capacity to pay.  The unions refuse to be mere rubber stamps to the Government’s proposals that are not likely to be determined by the needs of minimum-pay workers but shrewdly crafted to advance the long-term economic requirements of big business and its own political needs. 

This time however the government may be caught between the hammer of its claims of the Great Resilience of the economy and the anvil of the downward-rigidity of prices. Last time they posted the arguments that continuously rising oil and food prices were a problem across the world, from Argentina to Egypt, from France to India, from Pakistan to Syria, from Australia to Thailand and from the UK to Haiti and that it was unfortunately a truly international phenomenon affecting all countries.  It will be difficult to argue along the same lines this time for besides some countries like Russia, Pakistan, India and Zimbabwe, we are one of the few which is still having a high headline inflation rate of 8.5 %. In many other economies the crisis-precipitated drop in energy and food prices has had an impact similar to an economic stimulus package, but here there has been no pass-through effect. As for our Great Resilience, we are not the exception, many Sub-Saharan African economies also experiencing the “ Black Swan” effects, but without fiscal stimulus packages or other types of pump-priming to revive sagging growth, are doing equally well.

REGIONAL ECONOMIC OUTLOOK: SUB-SAHARAN AFRICA

Real GDP Growth (Percent )	2008	2009	2010
Middle-income countries	3.1	0.8	2.5
Botswana	2.9	-10.4	14.3
Cape Verde	5.9	2.5	3.0
Lesotho	3.5	0.6	3.0
Mauritius	5.3	1.5	1.5
Namibia	2.9	-0.7	1.8
Seychelles	0.1	-9.6	2.6
South Africa	3.1	-0.3	1.9
Swaziland	2.5	0.5	2.6
Low-income countries	6.9	4.5	4.8
Benin	5.0	3.8	3.0
Burkina Faso	5.0	3.5	4.1
Ethiopia	11.6	6.5	6.5
Ghana	7.2	4.5	4.7
Kenya	5.0	-0.2	2.0
Malawi	9.7	6.9	6.0
Mali	5.0	3.9	4.1
Mozambique	6.2	4.3	4.0
Rwanda	11.2	5.6	5.8
Senegal	2.5	3.1	3.4
Tanzania	7.5	5.0	5.7
Uganda	9.5	6.2	5.5
Zambia	6.0	4.0	4.5
Sub-Saharan Africa	5.4	1.5	3.8

Given our Great Resilience and an adjusted 2006/07 Household Budget Survey average household disposable income (1.8 income earners per household), the Unions are demanding a strict minimum compensation of Rs 560 across the board for all workers that earns up to Rs 8,000. Over the past there years employees have been compensated cumulatively by only 21 % resulting in a loss of purchasing power up to June 2008 of around 5.3% on the average. If the inflation rate for 2008/09 turns out to be 7%, it will mean that wages will need to catch up by around 12%. 

%	2005/06	2006/07	2007/08
Inflation rate	5.1	10.7	8.8
Wage Compensation	6.2	5	8.7

As their real wages continue to tumble, the unions have fought back stalling the move of employers to impose a pay freeze. Trade unions also want to see policies that ensure extensive job guarantees from employers.  In light of the depth of the crisis, the government needs to improve its stimulus efforts and change its focus. With a penchant for more local solutions to our economic constraints, the Unions have criticized the stimulus package for not showing any clear intention to resolve the current structural imbalance in the economy which is so dependent on external markets and capital. The exposure ratio is such that any demand stimulating scheme by the government would be inadequate. The measures- especially the debentures, equity, asset buy-back schemes- of the Stimulus package only reflect the aim to keep the engine running until external demand picks up again- in other words it is only providing short-term liquidity to the failing big enterprises. It amounts to a transfer of wealth from the public purse to the private sector, bankers and parasitic enterprises and institutions – with absolutely no influence over what they do. This shortsighted strategy of an elaborate package of dole-outs that are palliatives at best might lead the country to disaster if the global crisis is prolonged. The nonstarter-the workfare programme -or the provision of funding to retrain workers for an eventual economic recovery has been vastly inadequate. Equally inadequate was the credit to small businesses; a snap poll carried out by the Small and Medium Enterprises Federation revealed that the Stimulus package has not had any beneficial impact on the SMEs. 

The "social contract" of the stimulus package now sounds hollow. To the Unions, the reality is that at every stage of the unfolding crisis Government has stepped in to help keep bosses’ profits up but not to help ordinary people. Mr Cassam Uteem, an avid defender of the cause of the poor, had recommended that “In time of economic crisis, like the one we are going through, a caring government would make a special effort to reach out to the very poor. A survival package destined for the extremely poor individuals and families should be set up…If a stimulus package for sick industries and to save jobs is necessary, a survival package for poor persons is of vital importance”. The scale of the protests and the momentum for a boycott of the NPC and for an industrial strike mean the model of social contract is dead. Many labour leaders are warning that social unrest is lurking around the corner and in the next two to there months, it could get explosive if people see no help for an improved situation and  get  disillusioned with the government’s handling of the crisis.

M.K