10 Things That Tell You The World Ain’t What It Used To Be
10 things that are not working in the global political and social economy right now or are not what they used to be.
All’s not well with the global economy we have known, since
2008 when Lehman Brothers crashed and the global financial crisis (GFC)
erupted. But we are still not accepting the reality that the system – and almost
everything in it - is broke. Conventional remedies are not working, and growth,
when it happens, is happening without jobs.
But it is not just the global economy that is broke; the politics and social processes that underpin it are also nearly broken. Consider what is not working in the global political and social economy right now.
First, and the most obvious, monetary
policy is not working. After offering near-zero cost credit and flooding the
world with printed money, the central banks are even trying negative interest
rates. This is a sign of desperation, not an astute strategy. Large parts of the financial
system are simply not working and are parasitical in nature. Excess
financialisation is killing the real economy.
Second, fiscal policy is also broken.
Most countries have excessive public and private debt, and without
deleveraging, which can decelerate growth, there is not a snowball’s chance in
hell that more debt will solve anything. Governments need to go back to basics –
earn before they spend, and save before they invest. But no government has
actually gotten around to acknowledging this reality.
Third, currencies no longer
reflect their true worth. The US has run the worst fiscal and monetary policy
in decades, but its currency is the strongest. As Eswar Prasad, author of The Dollar Trap, said in an interview, “In
international finance everything is relative. It’s not that the US has
especially good policies or growth prospects, it’s that the rest of the world
looks weaker when it comes to putting together the powerful financial institutions
that the US has.” In other words, the US gets to borrow on the cheap because
the world trusts the rest of the currencies even less. The reality is that the dollar is overvalued, and till it is dethroned as the currency of choice, this
situation will not correct itself. The world needs a new non-fiat currency – or
several of them issued by private parties, whether it is gold or Bitcoin.
India is an affected party in this. For the last four years, its
GDP has hovered around $2 trillion, even though it has been one of the few
economies with real, positive growth stories. The dollar-denominated GDP is the
villain. In terms of purchasing power parities, India is four times larger than
Fourth, the world is not creating enough
jobs anywhere. Near-free capital and major technological leaps make it ever easier
for innovators to make money with less and less people. Whatsapp, which was
valued at $19 billion when Facebook acquired it in 2014, had all of 50
engineers working for it. Uber, the world’s largest app-based taxi hailing
company, was valued at $62.5 billion last December, and it has less than 2,000
employees. All the drivers using its app are not employees.
In manufacturing companies, robots are taking over, even in
India. According to this Economic Times
report, in car manufacturing, robots have replaced workers and they are actually
doing a better job. The report says Ford’s Sanand plant uses 450 robots,
Hyundai’s Tamil Nadu plant 400 and Volkswagen’s Chakan plant in Maharashtra 123.
The violence in Maruti’s Manesar factory a few years ago would have done nothing
to make the management believe in increasing its headcount.
Fifth, even as jobs are getting scarcer, the quality of jobs available is getting worse. Jobs are turning contractual and project-oriented in many industries, and skill requirements are changing faster than ever. This means workers have to constantly upskill, and there are no jobs for life – except in some parts of the government. The idea of a fixed time cycle of education is no longer relevant beyond universal schooling for basic literacy and numeracy. Post-school education has to become continuous, skill-oriented and online, so that anyone can school or skill herself at a time of her choosing.
Our universities and higher educational
institutions are T-Rexes producing unemployable people by the million. They have
not adjusted to this change in what the job market of the 21st
century demands. Educational institutions have to be more nimble than
companies, as customer needs are changing even faster than in industry and
services. In future, you may have to alternate between work and college for a
greater part of your life, with work not marking the end of education and
skills. Educational institutions still offer multi-year courses whose content
was decided decades ago.
Sixth, like education, health too needs a revolution, As people are living longer, the world’s healthcare systems are becoming costly and unsustainable. Patent and monopoly-driven drug discovery is no longer relevant (except at the margin) as new diseases and lifestyle ailments multiply. Healthcare costs are soaring, and new drug research clearly cannot be funded purely by granting patents and monopolies.
discoveries will, in future, have to become crowd-funded and crowd-developed,
something like a Linux OS or other IPR-free processes. Aged people need
different solutions to problems related to aging, and working lifetimes have to
be steadily extended as no country can afford too many pensioners living off
the working age population.
Seventh, multilateral institutions
are becoming irrelevant, and bilateral ones based on trade and political forces
are being forged across the world. The World Bank and the IMF are becoming less
relevant to the world’s financial future, as new banks (BRICS Bank) challenge
their supremacy following the shift in economic powers to Asia from the
Occident. Global trade fora such as the WTO have not lost relevance, but the
rise of narrow trade blocs and free trade areas is shifting power away from
Eighth, the growth of global
terrorism and slower growth have made countries less willing to encourage
immigration. Labour, like capital, is a key factor of production. If capital
can move freely, labour too needs to move relatively freely. But xenophobia and
cultural factors prevent this. Offshoring and outsourcing, where jobs move to
where labour resides rather than letting labour move to where the jobs are, were
seen as acceptable alternatives to this restriction on free movement of labour,
but the big economies are growing uptight even on this limited form of labour
mobility. The world is turning nationalistic and mercantilist in both trade in
goods and in services. Countries that preached free trade are turning
Ninth, the world’s governance structures are broken even in the largest of economies. In the US, political polarisation between Left and Right has led to repeated gridlock and bad policy-making. The European Union went into a tailspin when it failed to coordinate fiscal and monetary policies after agreeing to a common currency. Semi-autocracies have taken power in much of the former Soviet Union, and China itself runs a market economy with political commissars in command. Much of Africa is ungovernable, and large parts of West Asia are heading for failed-state status, as terror defeats existing regimes. Even in Europe, Belgium is seen as a failed state, and hence ideal home for future jihadis. In India, the state is weak and uses draconian laws to prevent things from slipping out of control.
The old binaries of democracy
and dictatorship are no longer relevant to describe countries and their regimes
as democracies are acquiring more lethal powers of surveillance and pre-emptive
arrests, and dictatorships are embracing partial forms of power sharing. The
state, once seen as the ultimate invention of civilizational progress, needs
re-invention. Democracy has not progressed beyond counting votes. Asking people
to vote when solutions are complex is beyond the scope of first-past-the-post
Tenth, traditional forms of media
and communication have lost their power and influence as both news and opinion
have been “disintermediated”. Non-specialists and bloggers can create their own
news, and social media has become a publication platform that blurs the line
between fact, fiction and make-believe. This has empowered millions as the
power of the old News Ayatollahs is reduced, democratising debate and discussion.
But there is also information overload and anarchy, and this flux helps create
new social forces that we can barely comprehend. Social media brought down a
government in Tunisia, but it also empowers an ISIS to create self-radicalised “lone
wolf” terrorists whose potential violence cannot be predicted.
The world ain’t what it used to be, and we need to reinvent it.
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