Tuesday, October 11th 08:14 PM IST
Ten years ago, America had Steve Jobs, Bob Hope and Johnny Cash. Now it has no Jobs, no Hope and no Cash. Or so the joke goes.
Only, it’s no joke. The line is pretty close to reality in the US. The less said about Europe the better.Both the US and Europe are in decline. I was asked by a business channel in 2008 about recovery in the US. I mentioned 40 quarters and after that I was never invited for another discussion.
Recently, another media person asked me the same question and I answered 80 quarters. He was shocked since he was told some “sprouts” of recovery had been seen in the American economy.
It is important to recognise that the dominance of the West has been there only for last 200-and-odd years. According to Angus Maddison’s pioneering OECD study, India and China had nearly 50 percent of global GDP as late as the 1820s. Hence India and China are not emerging or rising powers. They are retrieving their original position.
The dollar is having a rollercoaster ride at present. Reuters
In 1990, the share of the G-7 in world GDP (on a purchasing power parity basis) was 51 percent and that of emerging markets 36 percent. But in 2011, it is the reverse. So the dominant west is a myth.
Similarly, the crisis. It is a US-Europe crisis and not a global one. The two wars – which were essentially European wars – were made out to be world wars with one English leader commenting that ‘we will fight the Germans to the last Indian’.
In this economic scenario, countries like India are made to feel as if they are in a crisis. Since the West says there’s a crisis, we swallow it hook, line and sinker.
But it isn’t so. At no point of time in the last 20 years has foreign investment – direct and portfolio – exceeded 10 percent of our domestic investment. Our growth is due to our domestic savings which is again predominately household savings. Our housewives require awards for our growth not any western fund manager.
The crisis faced by the West is primarily because it has forgotten a six-letter word called ‘saving’ which, again, is the result of forgetting another six letter word called “family”. The West has nationalised families over the last 60 years. Old age, ill health, single motherhood – everything is the responsibility of the state.
When family is a “burden” and children an “encumbrance,” society goes for a toss. Household savings have been negative in the US for long. The total debt to GDP ratio is as high as 400 percent in many countries, including UK. Not only that, the West is facing a severe demographic crisis. The population of Europe during the First World War was nearly 25 percent and today it is around 11 percent and expected to become 3 percent in another 20 years. Europe will disappear from the world map unless migrants from Africa and Asia take it over.
The demographic crisis impacts the West in other ways. Social security goes for a toss since people are living longer and not many from below contribute to their pensions through taxes. So the nationalisation of families becomes a burden on the state.
European work culture has become worse with even our own Tata complaining about the work ethic of British managers. In France and Italy, the weekend starts on Friday morning itself. The population has become lazy and state-dependent.
In the UK, the situation is worse with drunkenness becoming a common problem. Parents do not have control over children and the Chief Rabbi of the United Hebrew Congregation in London said: “There are all signs of arteriosclerosis of a culture and a civilisation grown old. Me has taken precedence over We and pleasure today over viability tomorrow.” (The Times: 8 September ).
Married couples make up less than half (45 percent) of all households in the US, say recent data from the Census Bureau. Also there is a huge growth in unmarried couples and single parent families (mostly poor, black women). Society has become dysfunctional or disorganised in the West. The government is trying to be organised.
In India, society is organised and government disorganised. Because of disorganised society in the West the state has to take care of families. The market crash is essentially due to the adoption of a model where there is consumption with borrowings and no savings. How long will Asian savings be able to sustain the western spending binge?
According to a recent report in The Wall Street Journal (10 October 2011), nearly half of US households receive government benefits like food stamps, subsidised housing, cash welfare or Medicare or Medicaid (the federal-state health care programmes for the poor) or social security.
The US is also a stock market economy where half the households are investors and they have been hit hard by bank and corporate failures. Even now less than 5 percent of our household financial savings goes to the stock market. Same in China and Japan.
Declining empires are dangerous. They will try to peddle their failed models to us and we will swallow it since colonial genes are very much present here. You will find more Indians heading global corporations since India is a very large market and one way to capture it is to make Indian sepoys work for it.
A declining West is best for the rest and also for the West, which needs to rethink its failed models and rework its priorities. For the rest—like us—the fact that the West has failed will be accepted by us only after some western scholars tell us the same. Till then we will try to imitate them and create more dysfunctional families.
We need to recognise that Big Government and Big Business are twin dangers for average citizens. India faces both and they are two asuras we need to guard against. The Leftists in the National Advisory Council want all families to be nationalised and governed by a Big State and reform marketers of the CII variety want Big Business to flourish under crony capitalism. Beware of the twin evils since both look upon India as a charity house or as a market and not as an ancient civilisation.
R Vaidyanathan is professor of finance, Indian Institute of Management, Bangalore, and can be contacted at firstname.lastname@example.org. The views are personal and do not reflect that of his organisation.
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Kpganesh 10 minutes ago
Two things that has led to this kind of failure. One adopting The Keynesian model of economics and two the removal of gold and silver standards making most of the popularly traded currencies into fiat money through Brenton Woods agreement. The developed economies with geographical advantage went on printing money as if there is no tomorrow. The biggest loser because of Keynesian economic model was Japan, which is still in depression. With regard to India, though we may not be affected by global crisis we are no less suffering thanks to inflation because of import costs (fuel being highest). Corruption being another reason. And we aren't doing enough on both fronts. Though we call ourselves an agrarian country with surplus food produce, our own farmers go hungry for days together. Thanks to hoarding. The good thing about the recession in the west is it gives us a chance to fix our patchy economics and economic policies, try to make India self-sufficient and reduce the dependence on global markets. Give impetus to agriculture and healthcare. Concentrate on oil & gas by tapping deep sea explorations in Indian Ocean (China is already into it). Fourthly try to make India the financial hub... show more
AChandra 55 minutes ago
Another much informative and contemporary article by Prof. RV. A truly "WOW" read!!
What impresses me most in the article is the factual arguments supported with hard statistics which are otherwise ignored/inaccessible by the masses. Europe or in general the entire West is on the verge of sharp decline, given the series of happenings during last couple of years. And, of course, developing economies such as India and China will have more significant role in the world economy. Thanks!!
charvaak 1 hour ago
I am bemused by following sentence from the article.
"The population of Europe during the First World War was nearly 25 percent and today it is around 11 percent and expected to become 3 percent in another 20 years."
Is this problem of Europe or failed population policies of rest of the developing world? Are you suggesting Europeans should breed like developing nations?
If both big government and big business are bad then what is the way out dear Professor? Care to enlighten us mere mortals?
Do you really teach finance in IIM-B?
AChandra 49 minutes ago
I guess you missed the followed-by argument(s) which states the importance of demography in any economy. When a country has no working population, but only old/dependents to take care of, how one can expect the economy to be viable for long?
chandrabhan singh 1 hour ago
NAC is bunch of Left-Liberal retards with no understanding of economics. They want India to become a huge NGO , Off course this also helps them make money through their crony capitalists.
Look at NREGA! No sane person would have implemented it without seeing the consequences. Manmohan singh anyway was only to happy to oblige the Lordess as it ensured votes for UPA in 2009. Now we dole out Rs30000 Cr to rural population without taking care of the supply side. Result - Massive inflation (10%+)
Another bankrupt idea is the incoming Food securitybill. That will require estimated Rs100000 Cr subsidy. Govt will buy wheat at Rs12.70/Kg(current prices) and sell it for Rs1.2/KG to ration shop who will sell at Rs2/KG to 75% of rural population an 50% of urban population. Imagine what will happen if the crop fails in India? the wheat will shoot to Rs20 per kg globally.
Manmohan was a an overrated economist and underrated politician. Having the misfortune of being taught by him at Delhi University all i can say is that he ruined India story with failed western models of welfare economics.
We have always said, "कर्मण्ये वाधिकारस्ते म फलेषु कदाचना
कर्मफलेह्तुर भुरमा ते संगोस्त्वकर्मानी"
George Bernard Shaw who said that Economics was commonsense made difficult.In ordinary business if one trader face losses another will get that part of the benefit.If a business house becomes bankrupt that business goes to another business house. In Industry also the same rule.If people 's tastes change,new products enter the old products industries .face losses and get closed unless they change their line. Similarly the slowdown in the western economies will benefit India and China. India has to use this opportunity to the maximum possible extent.
u need to raise your IQ to understand the article.
And yes I agree NAC is the nonsensical committe headed by a national of such failed countries i.e. Italy part of PIGS
They want to natiionalsie the Indira Jawahar way of and let buisness boom as crony capital way so either of sections are happy and they loot the money like CWG, 2G and so on
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