a Better Capitalism Came Out of All of This?
The
prevalent persuasion among economists is that the comparisons between
the current crisis and the Great Depression are misguided. Contraction
of production and income reached almost 39% in the 1930s. Nothing
comparable to this is forecasted to happen in 2009, when the world
economy is set to grow by around 3%. In the hardest-hit countries, the
drop in production should not exceed 1-2%.
Is this an overly optimistic scenario? Impossible to say, but it’s worth focusing on the dynamics of the crisis, which is currently accelerating. Industrial production in Japan has dropped precipitously: September data show a 3% decline with respect to a month earlier. The index of purchasing forecasts, an important barometer of growth, is now at 30, well below the 50-mark that acts as threshold between expansion and recession. Unemployment is rising everywhere: job losses could well reach 1.5 million in the US only; in Spain, it’s feared that unemployment will rise to 11% or even 15% in the next few months as consequence of the real estate crash. Retail sales have decreased everywhere.
Governments around the world have
just started to react, launching fiscal packages of unprecedented
sizes, and not only in the US, but in China and Japan as well. Europe
has taken a conservative stance, with a €200 billion recovery plan
which is just 1.5% of European GDP. An act of self-confidence or making
virtue out of necessity? Perhaps the latter, also considering the
enthusiasm with which the ECB cut rates last December and again in
mid-January. The unusual size of the cut (0.75%) betrays the central
bank’s worries. Is it all Maastricht’s fault, since the Treaty prevents
European from cutting taxes and increase spending by hundreds of
millions of euros? Possibly so, but it is to be immediately added: good
luck it is so!
It’s surprising that most people think that you
can sort out a crisis generated by excess total debt (both public and
private) by increasing government debt. An excess of debt is
consequence of the excessive amount of resources that has been spent
over the last decades. How can it make sense to get out of the crisis
by replicating and multiplying the very same logic that brought the
crisis into being? Capitalism is a good system to allocate resources.
It’s the one that has historically worked best, but has flaws. The
current crisis is the occasion to rethink its structure and correct its
problems.
This means changing governance,
improve regulation, expand the scope for the redistribution of
resources, diminishing hidden subsidies and entrenched interests. In
the economic realm there are ample possibilities for this. The
environmental question is an obvious candidate: the destruction of
natural resources has reduced the quality of life of a good part of the
population, and infrastructure is old and dangerous. Education can be
improved everywhere. To be sure, satisfying many of these needs pertain
to public intervention: this is the time to seize the opportunity
offered by the fact that aversion to public action has reached
historical lows (by necessity, rather than by conviction) to direct
resources where social productivity is higher, while preparing the
conditions for private actors to take back their usual role some time
down the line, as soon as the situation allows it.
For such an
ambitious plan two months are not enough, maybe not even two years.
That’s why it doesn’t make sense to squander public resources only to
slow down the fall in economic indicators. It’s the best to ponder, in
an international context, on future needs and deploy the best tools to
do the job. In history books, the crisis that burst in 2008 might well
be interpreted as the occasion that was taken to better the quality of
life of all. It’s an opportunity that still lies in our hands.
Source: Bocconi
Author: Andrea Beltratti
Photo: Corbis
Posted by: Andreea Hirica
Posted on: Contagious Ideas
