Correcting the spinners: U.S. government interference was root cause of global crisis
Monday, October 20, 2008 Free Headline Alerts
Sol Sanders writes the "Asia Investor" column weekly for EAST-ASIA-INTEL.com.
In times of heightened crisis, societies and individuals tend to fall back on articles of faith, sometimes rejecting the most obvious logic or reforms to change the patterns of their livelihood which have gone astray and to rely on atavistic impulses.
Nothing could be more characteristic of this reaction than the rebellion of the American citizenry to the intervention of its government into the entrepreneurial sector to attempt to right the wrongs of a massive failure of that very system. Americans carry in their gut the steadfast belief that private initiative with all its hard work and pitfalls is the road to prosperity and "the pursuit of happiness" enshrined in the Declaration of Independence. And the Bush Administration which had been elected as a right of center government was having a difficult time persuading the electorate that government intervention on an unprecedented scale was the way to get out of the morass of bad debt and failed credit.
Hardly noticed in the circus of an election year — and certainly unacknowledged by the critics on the left always infatuated with government solutions to social as well as political and economic problems — was that contrary to the leftwing mainstream media's pronouncements, the crisis did not arise from massive deregulation of government in the financial world. But, it was created by attempts to regulate. It was government fiat directed at banks and lending institutions — not the least semi-government housing subsidy organizations — in order to correct presumed prejudices and inequalities against poorer candidates for loans that is at the origin of the crisis. Those government directives forced — and then made profitable in the short term — lending to borrowers who would otherwise have been poor or failed prospects. That was "regulation", government instruction to the private sector, not "deregulation", a government hands-off policy. The corruption of public officials and bureaucrats complicit in implementing these "regs" and Wall Street executives' greedy snatching of personal income are only the trimmings on the cake.
At that moment, the Europeans first retreated into their centuries old nationalist pattern of beggar-your-neighbor. Newcomers to the world economic scene like the Irish tried to suck in all the stray capital with new guarantees for their banks. But when that game began to ricochet across the Continent and obviously wasn't going to solve the crisis, France's frenetic Nikolas Sarkozy, temporarily chairman of the EU, supposedly a recent convert to pragmatism, reverted to traditional French 18th century statism. And then he even tried to cross the Atlantic to sell it as an international solution to beleaguered President George W. Bush. Sarkozy was proposing, in effect, a complete rewriting of the Bretton Woods agreements which had set up the post-World War II world economic framework. But renegotiating it now in the midst of the crisis would be like trying to redesign the Titanic in the immediate aftermath of it crashing into the iceberg. Hopefully, Bush will have none of it even against the chattering classes' demands for "multilateralism" beyond calling a talkfest of the world's political leadership to wring their hands while the bankers and speculators get on with the real world.
Looking around Asia at the ripples of the international financial crisis and the caterwauling of the analysts around the world, the impact on the individual countries is much the same.
First of all, of course, "Asia" is a concept that is more non-Asian than it is indigenous to the region. Remember there was no Chinese ideogram for "Asia" until the Japanese invented one, not so long ago in terms of Sinitic civilization. And in the Hindu cosmos, little existed outside it worthy of note unless it came bounding over the Himalayas in in pursuit of conquest. It's easily forgotten that for all its vagaries and mistakes Washington has tried for almost five decades to create an Asian version of the old Organization for European Recovery transformed after its initial success into the now virtually moribund Organization for European Economic Cooperation, a stepfather to the European Union. Nothing like that has ever really taken hold in Asia, much less an "Asian NATO" which would have guaranteed the ability of trans-Asian economic organizations and trade and investment to survive in a troubled world.
The Chinese, themselves, profiting from an incredible bubble created by the multinational investment and creation of markets for products in the U.S. and the EU and Japan, were in the midst of reexamining their options as the crisis struck. For the more serious internal critics of the system — always muffled in a one-party state dictatorship even at the highest levels — the growing disparities of profit-taking inside the urban elite, between that urban population and the falling living standards in the countryside, the systemic corruption which was making the system increasingly dysfunctional — had led to as much debate as is permitted.
The possibility of a new spurt in agricultural productivity and income through a basic return to individual land ownership was being considered at long last as was an expansion of the so-called democracy within the party through local elections. But as this is written, the reaction to the financial crisis has been to postpone if not kill the land ownership question. Any expansion of the so-called village democracy would simply be a further charade in which only Party members would participate. In fact, it could be argued that the loosening of the central government's bonds on the local Party cadre has, if anything, increased the level of oppression and corruption. And that has been reflected in official statistics of the growing number of public disturbances, including police bestiality and gross malfeasance, so apparent in last year's earthquake disaster.
So it is probably back to whatever forms of Marxist-Leninist-Maoism still can be reconstructed as window dressing for what will soon be a crippled export-led economy as foreign markets erode and that peculiar penchant for massive saving of the Chinese diminishes what little growing internal market had developed during the prosperity.
In India, still struggling to escape the heritage of more than three decades of Soviet-style planning on a patchwork of British Indian Colonial license-permit raj [as old C.R. Rajagopalachia used to call the Indian mock socialism], was tempted to visit its old vomit. When its pseudo-government ICICI Bank had a run based on erroneous rumors of massive involvement in the American mortgage disaster, the old state economy crowd was in full cry. Better to have huge, government-owned dinosaurs which did not produce and which soaked up whatever capital was generated by the society, than the wild fluctuations of capitalism. After all, the great liberalizer, Prime Minister Manmohan Singh spent a near lifetime as a drone in the fetid Indian planning bureaucracy before he saw the light when the Soviet Union imploded. The necessary move to liberalize Indian financial markets to continue the reentry of flight capital and investment by NRIs [Non Resident Indians, many of them in America's Silicon Valley] was in full retreat. The foreign office hacks who had tied India to a bankrupt Soviet alliance which had wasted the long years spent in "Hindu rates of development" were at it again. Never mind that the Russians were in deep do-do with a flight of capital and the crashing worldwide hydrocarbons spike which have temporarily filled the foreign exchange coffers and permitted the Russian Vodzh Valdimir Putin, his 15 minutes of world history.
The Japanese, still the world's number two economy, was sitting in the catbird seat — even if it was on the prow of a very rocky boat with some question about whether the bilge pumps are really working. Having come through their own bubble bursting in the early 90s, and a purgatory of a decade of stagnation, the Japanese had recapitalized their banks [if not reduced their growing internal government debt]. Those banks [along with insurance companies] facing an abysmal growth rate, a rapidly ageing population with the need for higher investment income, and the probability of a domestic recession in a still export-led economy, had money to invest. And they have gone after the remains of failed U.S. international financial houses and equity in American banks like a buzzard after carrion. That's the way the Japanese have always operated since they emerged into the modern world in the mid-19th century — copy the mechanics of the Western financial and manufacturing world as fast as you can in the hope that somehow the mores and folkways of the system that created it would somehow mesh in your own highly traditional [again borrowed] Confucian system. But now that they have entered the world of high technology which requires inherent innovation and improvisation, and international finance and other "service" industries, the Japanese role in the world is going to be more difficult and more demanding and the call on what that fading old humbug Singapore's Lee Kuan Yew calls "Asian values" may not be enough.
Straddled between Asia's two most important economies, the Koreans, too, have reacted to the crisis in their own traditional way. In fact, South Korea, despite its miraculous climb into a position of one of the world's most important trading nations, has never recovered from the East Asia Financial Crisis of 1997-98 which found its own credit and financial structure overly leveraged. The road back has demanded a new push not only in productivity of its manufacturing sector — and it has done that in electronics and steel and automobiles — but a new fillip from foreign investment and its attendant worldwide liaised technology. There even the conservative, businessman's administration of President Lee Myung-Bak, which came into office with a large majority rejecting two terms of the Korean left, was having a rough time even as the worldwide crisis descended. Now, the old call of the Hermit Kingdom, xenophobia and isolationism, is sabotaging Lee's efforts to restore his country's credibility with potential Japanese, American and European investors.
The ebb and flow of cultural currents is a standard fixture of history. But they are as difficult to predict as any of the other events that are likely to be just around the corner in the wake of the financial crisis is which of the many strands of our past would be dominant in the demanding period just ahead for the world as a whole. But Asia, where tradition holds a higher priority than it does in the West, will not meet the need for flexibility in the continuing crisis with great alacrity. And that may mean its recovery will be all the more retarded even as it holds increasing amounts of paper representing the debt — and the failure — of the U.S. and European economies to meet their obligations.