By Nantoo Banerjee
The world may yet to see capitalism’s worst hour of crisis, but with its epicenter, the USA, continuously producing one after another aftershock since the 2008 sub-prime catastrophe followed by a series of bank collapse, it may be a matter of time before other major economies and non-oil- exporting countries face a severe jolt. The latest down grading of the Citigroup, Bank of America and Wells Fergo and fresh $400-billion rescue package announced by the US Federal Reserve have considerably trembled the investor confidence the world over. The Citigroup is the world’s largest banking corporation in terms of assets and service network. The stock markets across the world – from New York to London, Tokyo, Paris, Frankfurt, Hong Kong, Shanghai, Sydney and Mumbai – crashed on September 22, 2011. The average fall was four per cent. The Mumbai stock exchange’s sensitive index shed over 900 points within 48 hours. The key global stock indices were down by 3-5 per cent, among the biggest in a single day trading since 2008.
Investor confidence is the single most important driving factor and ultimate barometer of capitalism’s success. The movement of global stock indices provides the measure of this confidence level. The current global market trend points at growing crisis of confidence among investors. The slow-down in the world’s four largest economies – the USA, China, Euro-zone and India – is portentous of an evil, possibly an impending global recession. Bankruptcy of Greece, debt mismanagement by Italy, Spain, Portugal and Ireland and near devastation of a large part of Japan due to recent natural calamities and leakage from nuclear power plants are all nerve-shattering news for the global investor community. The entire 17-country Euro-zone, barring Germany and France, is extremely concerned over an unprecedented debt crisis in the region and financial turmoil threatening the future of the common currency and the trade block.
Many have been taking ‘gold cover’ to risk-shield the value of their wealth against the adverse effect of the current economic turmoil. As a result gold prices have zoomed. But, the panic investment in gold too could be risky beyond a level and period. After all, gold is no substitute for economic growth and development. People don’t eat gold. The US economy, which boasts the world’s largest gold hoard, is shrinking. Its pride of place in the global economy is under threat from emerging nations such as China, Brazil, India and even Indonesia. The unprecedented economic growth along with awesome improvement of scientific and military capabilities of the People’s Republic of China in the last 25 years, under the Communist rule, has exposed the frugality of the capitalist system, ever-championing the cause of free economy and banking on stock markets, commodity markets, free investment movement and speculation.
The century-old US dominance of the list of top multinational corporations is fast waning. Today, among the world’s top ten corporations, only three are from the USA. They include Wal-Mart, the world No. 1 and, ironically, the single biggest retail vendor of China-made products. The number of Chinese corporations in the top ten is also three, all energy conglomerates. Among the rest, two are from Japan and one each from the UK and the Netherlands. Only three of the world’s top ten banks, including the second largest JP Morgan Chase, are American. Two each are from France, Scotland and Japan and one from the UK. Now, Chinese banks are aggressively expanding abroad. Why not? The total assets of China’s top five banks, including the Bank of China and Industrial & Commercial Bank of China and the China Construction Bank, as of July, last, was Y 48.99 trillion ($ 7.65 trillion), or equivalent of over 50 per cent of the present US GDP.
Chinese banks are gearing up, for the first time, to offer tens of billions of Renminbi (Yuan) as buyer’s credit to Indian industry, importing mostly power and telecom equipment from Chinese manufacturers. Hitherto, Indian industry raised external commercial borrowing (ECB) only from top first world multinational banks.
The independent studies by the International Monetary Fund (IMF) and the World Bank have predicted a big reshuffle in the global economic order in the next four decades with the Communist China far surpassing all other nations, including the USA. The 2011 world GDP ranking puts the USA on top with $ 15 trillion, followed by China $ 6.5 trillion, Japan $ 5.8 trillion, Germany $ 3.5 trillion, France $ 2.7 trillion, the UK $ 2.47 trillion, Brazil $ 2.42 trillion, Italy $2.18 trillion, Russia $ 1.89 trillion and India $ 1.70 trillion. It has been predicted that by 2050, China’s GDP will move to the No. 1 spot at $ 70.71 trillion at 2006 exchange rate of US dollars. The US GDP will grow to $ 38.51 trillion followed closely by India at $ 37.67 trillion. Brazil’s will be the fourth largest economy worth $ 11.34 trillion, followed by Mexico $ 9.34 trillion, Russia $ 8.58 trillion and Indonesia $ 7.01 trillion. Interestingly, not a single west European country and Japan figure in the IMF list of top seven global economic powerhouses in 2050.
The phenomenal rise of China challenges the very relevance of the laissez faire theory, the supremacy of popular democracy as a political system and the free world myth which puts individual before society. The communist ideology is just about the reverse, putting society before individual. The country comes first. The growth and development of a country, the prime focus of the centrally-controlled socialist system, automatically benefit individual citizens by ensuring a reasonable scale of distributive justice. In 1982, when China opened its domestic market to foreign investors, the main policy focus was on export. Thirty years on, China is the world’s largest exporting nation, far ahead of traditional global export giants such as Japan and Germany. China has the world’s largest dollar hoard, estimated at $ 4 trillion. It is also the world’s largest exporter of labour.
Much of the current economic strength of India is derived from its semi-socialist economic policy and the earlier focus on self-sufficiency, which created a giant public sector generating atomic energy to crude petroleum, defence equipment, aircraft, earth movers, telecommunications equipment and services, merchant marine vessels, railway and power equipment, space and satellite equipment, electronics hardware and equipment, and, even consumer goods such as textiles, automotive tyres and bicycles. Restrictions on foreign investment in low-technology areas and the financial services sector and import control protected the somewhat weak and capital-starved domestic private sector.
India’s economic liberalization, which began in 1991 exactly 13 years after China went in for a selective opening-up of its market, has loosened much of the government controls over industry, investment and corporate ownership pattern, still provides a lot of room to the government to steer the country’s economic growth. The government and the public sector continue to be largest driver of the country’s economic growth. Although India’s pluralistic society and democratic system may never allow the introduction of the Chinese economic model for growth and distributive justice, the country will make a big blunder if it surrenders its semi-socialistic economic and industrial policies under the pressure of some failing capitalist economies looking for easy access to India’s vast and fast growing market of various goods and services for their survival.
India must carefully craft its next phase of economic liberalization programme and focus on technological capability, infrastructure, strong banking, insurance and investment regulations, agriculture and export capability, if it wants to exploit its full potential to emerge as a leading economic power in the world after China. Stock indices must not be allowed to take an upper-hand on the Indian economy. Most large foreign direct investors are not even members of Indian stock markets. If IBM, Microsoft, GE, Philips, Haier, Mitsubishi, Ford, GM, LG, Daimler Benz, Volvo, Sony, Hitachi, Panasonic, etc. can do huge business in India without paying any attention to its stock market, why should the latter be so important to the Indian authorities to be used as a tool for hot money inflow from foreign investment companies and for cheaply taking over good Indian public companies by overseas competition?
If the growing Chinese economic supremacy is built around economic subsidies, currency control and protection to domestic industry, exports, local jobs, agriculture and export, why should India shun these time-tested socialist growth tools and ignore its domestic agenda to follow the outdated capitalist model built to promote and protect selfish motives, speculation and uneven competition? If the free-pricing of petro-products is causing inflation, hurting domestic industry and the common man, the policy needs to be reversed and the duty structure on these products revamped. Similarly, food, fertilizer and export subsidies must continue until the economy becomes strong enough to withstand their gradual withdrawal.
India’s economic policy must be more concerned with the price and poverty indices than the stock index and the number of its billionaires on the Forbes list. The fabrication and implementation of an exclusive Indian economic model are the need of the hour. Corruption has to be severely punished. The country must stop at all cost the massive flight of private capital and private earning through hawala and other routes. The cost of subsidized food, fuel and fertilizer is rather miniscule if compared with the gigantic loss of government revenue on account of the burgeoning domestic black economy and illegal transfer of funds to outside tax havens by Indians. A confident, competent and socially responsive India alone can command the long term respect and confidence of the external world and of its genuine investors. (IPA Service)