Meghnad Desai
[dropcap]A[/dropcap] hundred years ago, there were few nations. There were large empires — British, French, Austro-Hungarian, Romanov dynasty of Russia and the Ottoman Empire. The US was an independent republic but not a power to reckon with at the international level. The Great War forged a revolution.
The maritime empires of Britain and France survived and the other three disintegrated. Russia became the powerful Soviet Union. The US emerged as the leading capitalist nation. The capitalist system went through the crisis of the Great Depression, while planning and growth flourished in the Soviet Union. The future seemed to be red.
The next World War led to the dissolution of the British and French empires. Only the US and USSR survived as global powers. This seemed like a mighty duel between capitalism and socialism. My generation grew up unsure about which side would win. But before the century ended, only the US was left as a world power.On the centenary of the First World War, where are we now? The global economy has been through a huge financial crash. Asia has emerged as an economic miracle. Ten years ago, BRICS was hailed as the new group of powerful economies that would form an alternative centre of economic gravity to the US. The developed economies have been through a crunch and have faced severe problems of deficit and debt reduction. Who will survive at the top when the centenary of the World War II comes in 25 years?
Crystal gazing is better left to astrologers, but some guesses can be made from lessons of the past. We know the Soviet Union collapsed due to the weight of its military ambitions as these were not matched by its economic capacity. Even since the collapse of the USSR, Russia has failed to tackle its economic weakness. It relied too much on its oil reserves and now, with the steep drop in oil prices, the rouble has collapsed. Russia’s strong-arm tactics in Ukraine have proved costly. Sanctions are hurting and capital is leaving Russia fast. When the old Communist system dissolved, Russia failed to build an alternative sustainable system. It did not reform its political system either. The KGB remained in power and now it is in a mess. It will no doubt blame the West for its problems but when the money runs out, hard questions will have to be posed.
Western nations are going through a different sort of crunch. Decades of prosperity built up many entitlements. Growth was taken for granted, consumption was expected to rise year on year. Since the 2008 financial crisis, few economies have been able to grow. Debts have been high and unemployment rising. The UK has put itself through a harsh deflation to cut the deficit, pruning the welfare expenditure and increasing taxes. Five years of austerity have now begun to restore growth but, even so, the old expectations of continued expansion of living standards have to be revised downwards. The Eurozone countries are mired in a depression which is likely to last a decade at least. They have been slow to cut expenditure and reform in flexible labour markets. What then works to deliver prosperity and keep it? Japan, South Korea and China have shown that it is hard work, high savings, cooperation between the business and government sectors and a smart State which compose the necessary ingredients of sustained prosperity. They invested in health and education, let their entrepreneurs innovate and backed them to the hilt. China saw what was happening to the USSR and abandoned socialist economics overnight. These Asian economies have a national solidarity which they have been able to make into an economic asset. India imported much of the British social legislation. Its political elite was hostile to business. It has been in too much of a hurry to create entitlements before building the economic capacity to deliver them. It lacks the solidarity of the East Asian countries. Why else would Mandal be needed? It has yet to learn that economic growth requires constant reform and renewal, fiscal discipline and monetary rigour. The opportunity has now come to get out of the old mindset. India can fulfill its promise. Will it grasp the opportunity?
Courtesy: The Indian Express
