Monday, January 2, 2012

When the empires die

Money Life
December 31, 2011 12:59 PM
by Debashis Basu
Jeffrey Sachs captures the angst of a country in trouble but has no effective solution 
What causes nations to rise and fall, to go bankrupt or enjoy decades-long run of prosperity, is never clear. China was technologically one of the most powerful nations for centuries but, from being a superpower in the 15th century, it ended becoming a poor country by the 19th century—by the time the Europeans spread all over the world in their colonial conquest. David Landes in his majestic The Wealth and Poverty of Nations has argued that this was caused by the restrictions they put on trade. Such easy explanations are usually impossible to find.

Argentina was identically-endowed as the US in the 19th century but it has gone bankrupt thrice since then, while the US has enjoyed more than 100 years of prosperity. But all nations and civilisations decline; is it time for the US empire to go the way of Egypt, Greece, China, India and Great Britain?

Jeffrey Sachs fervently hopes not. Like most American intellectuals, Sachs has grown up to believe that “America, with its great wealth, depth of learning, advanced technologies, and democratic institutions, would reliably find its way to social betterment.” So, development economist Sachs has been focused on rescuing the rest of the world from poverty. And now, like most intellectuals, he is worried about his own country. According to him, the recent economic crisis is not a short-term businesscycle downturn. It reflects “a deep threatening, and ongoing deterioration of our national politics and culture of power.” The intelligence failure of 9/11, senseless war in Iraq, corruption of US contractors, failure of emergency response system after Hurricane Katrina, the abject failure of financial regulation, followed by unfair bailout of fat cats… America has been shamefully inept.

It is in need of social change. As Sachs argues, “the American economy increasingly serves only a narrow part of society, and America’s national politics has failed to put the country back on track through honest, open, and transparent problem solving. Too many of America’s elite—among the super-rich, the CEOs, and many of my colleagues in academia—have abandoned a commitment to social responsibility. They chase wealth and power, the rest of society be damned.”

Like many, Sachs looked up to Barack Obama as an agent of change. But Obama has continued down the same path of “open-ended war in Afghanistan, massive military budgets, kowtowing to lobbyists, stingy foreign aid, unaffordable tax cuts, unprecedented budget deficits, and a disquieting unwillingness to address the deeper causes of America’s problems. The administration is packed with individuals passing through the revolving door that connects Wall Street and the White House.”

Clearly the rot is deep. The American political system is getting more anti-people and is resistant to change. “On many days it seems that the only difference between the Republicans and Democrats is that Big Oils owns the Republicans while Wall Street owns the Democrats,” quips Sachs. This is ominous. While there is debate on what causes prosperity, there is no debate that countries, like companies, decline when they refuse to change.

The author’s mission is: “We need a return to civic virtue, in which Americans recommit to contributing to the common benefit and to cooperating for mutual gain.” How would this happen? Unfortunately, hisprescriptions are a mix of homilies and wishful thinking. He proposes that the federal government adopt ‘Seven Habits of Highly Effective Government’ such as: set clear goals and benchmarks; mobilise expertise; make multi-year plans; be mindful of the far future; end the corporatocracy; restore public management and decentralise. The question is: Who will do all this and why? There is no answer.

Indeed, policymaking that can create change must have political backing; but then policymakers are resistant to change or in the grip of vested interests. As Sachs writes: “As long as practical politics revolves around raising large sums for media campaigns, America’s corporatocracy will remain in place and the downward economic slide will continue. During the past decade, the curtain has been pulled away from the Wizards of Washington who manipulate campaign financing, lobbying outlays, and revolving doors, and the public now understands the flow of corporate money much better… Rather than despair, I therefore ask instead what might be done. How can the broken system be fixed? For that, we need to identify practical steps that could extricate the federal government from the clutches of the lobbies.”

Clearly then, Sachs has to dream the most impossible of all dreams: reforming politics itself. His prescription is to provide public campaign financing; provide for free media time; ban campaign contributions from lobbying firms; stop the revolving door for moving into and out of government and private sector and, finally, take away the incentive for corporations to corrupt the system. These are desirable goals but nearly impossible to implement. Many democracies grapple with these very issues—and manage to muddle through somehow. Maybe America is becoming more like the rest of the world and has to learn to accept it.