Home » Opinion » Book review
Let's not squander the crisis and ignore hidden fractures
By Wan Lixin |
October 23, 2010, Saturday
|
Print Edition
Print Edition
WE are beginning to view the global economic and financial crisis as something of the past, the crisis that some economists compared to the "Great Depression."
How alarmist their predictions turn out to be.
But their apocalyptic warnings did serve useful purposes.
There were clamors for bailouts, followed by stimulus packages, a quick recovery, and return to status quo ante.
The key to pulling off this trick is, instead of punishing the perpetrators, rewarding them generously for their excesses.
The crisis afforded us the last chance for corrections, but the stimulus packages frustrated attempts to correct.
As Raghuram G. Rajan claims in "Fault Lines: How Hidden Fractures Still Threaten the World Economy," there is something seriously wrong with the US and the world economies.
Some sober economist once pointed out, it is too good a crisis to be squandered.
By squandering the crisis, the chance to address the underlying imbalances is lost.
These weak spots tend to be less visible in prosperous times, but become obvious during crises.
"Deep fault lines ... have developed because in an integrated economy and in an integrated world, what is best for the individual actor or institution is not always best for the system," Rajan observes.
A topical example would be the ongoing global game of competitive depreciation of currencies in a bid to sustain export performance.
There is clearly a lack of responsible governance transcending narrow national interests, a regime that can be trusted to arbitrate for the common good.
This shortsightedness, or reluctance to address inherent structural imbalances, can be explained in two levels: elected government's natural affinity to big capital, and a political system hypersensitized to public opinion polls, surveys, ratings, mid-term elections, and so on.
These limitations are inherent in Western democracy that many are eager to advertise and spread as universals.
According to the classic "Shiji" ("Records of the Historian"), over 2,300 years ago one of China's best-known reformers, Shang Yang, had to defend the reforms he initiated in the State of Qin.
He said that outstanding administrators are bound to be slandered, and those aspiring for great achievements would not consult popular opinion. In other words, he already realized the danger of government dictated by popular opinion polls.
The concern about "what voters will say" makes it impossible to address fundamental issues.
Although China is accused of oversupplying the big spenders with cheap goods and easy credit, the problems confronting the US and China are rather similar.
The US is facing growing income disparity, as illustrated by top earners' widening share of annual earned income.
According to Rajan, the top 1 percent of households accounted for 8.9 percent of the total income in 1976. In 2007 it soared to 23.5 percent.
Though China does not usually publish that percentage, that gaping gap in the US is clearly something China cannot gloat over.
Another fault line in the US includes a weak (often no) safety net for the jobless and the government's insistence on shoring up the housing market, in the belief that a softer landing would be less painful.
China has been much more enthusiastic in propping up its own housing market. For some policy makers, one of the most important lessons from the crisis is that correction in the housing market is too horrible to contemplate, and thus should be avoided at all cost.
Some local officials believe that forced relocations can fuel construction, and thus becomes prime driver of local GDP.
For the past decade, greedy property developers and reckless home speculators (euphemistically known as "investors") have had an enormous ideological impact, so much so that only the most naive still believes that success comes from hard work.
When we understand the nature of China's heady growth, it becomes easier to see why China needs to slow down first before it can hope to achieve "restructuring."
"Many of today's wealthy nations are rich ... because they grew steadily for a long time, not because they grew particularly fast," Rajan observes.
In this "miraculous" export-oriented growth, one of the poorest countries in the world works hard to administer to the comforts of some of the wealthiest nations.
It is a positive sign that no one finds the situation satisfactory, including the supposed beneficiaries.
"It is a fool's game to succumb to the temptation of cheap goods and easy money: Rapid debt-fueled spending invariably ends in tears," the book warns.
The trouble is that we do not have a regime that can address these problems seriously.
"Change, whether attempting to enforce global discipline with a stick or encouraging citizens to push for it from below, will not come easily for the multilateral organizations," Rajan sums up.
Government decisions are being dictated by popular polls, not the menacing fundamental fractures, least of all, hidden ones.
How alarmist their predictions turn out to be.
But their apocalyptic warnings did serve useful purposes.
There were clamors for bailouts, followed by stimulus packages, a quick recovery, and return to status quo ante.
The key to pulling off this trick is, instead of punishing the perpetrators, rewarding them generously for their excesses.
The crisis afforded us the last chance for corrections, but the stimulus packages frustrated attempts to correct.
As Raghuram G. Rajan claims in "Fault Lines: How Hidden Fractures Still Threaten the World Economy," there is something seriously wrong with the US and the world economies.
Some sober economist once pointed out, it is too good a crisis to be squandered.
By squandering the crisis, the chance to address the underlying imbalances is lost.
These weak spots tend to be less visible in prosperous times, but become obvious during crises.
"Deep fault lines ... have developed because in an integrated economy and in an integrated world, what is best for the individual actor or institution is not always best for the system," Rajan observes.
A topical example would be the ongoing global game of competitive depreciation of currencies in a bid to sustain export performance.
There is clearly a lack of responsible governance transcending narrow national interests, a regime that can be trusted to arbitrate for the common good.
This shortsightedness, or reluctance to address inherent structural imbalances, can be explained in two levels: elected government's natural affinity to big capital, and a political system hypersensitized to public opinion polls, surveys, ratings, mid-term elections, and so on.
These limitations are inherent in Western democracy that many are eager to advertise and spread as universals.
According to the classic "Shiji" ("Records of the Historian"), over 2,300 years ago one of China's best-known reformers, Shang Yang, had to defend the reforms he initiated in the State of Qin.
He said that outstanding administrators are bound to be slandered, and those aspiring for great achievements would not consult popular opinion. In other words, he already realized the danger of government dictated by popular opinion polls.
The concern about "what voters will say" makes it impossible to address fundamental issues.
Although China is accused of oversupplying the big spenders with cheap goods and easy credit, the problems confronting the US and China are rather similar.
The US is facing growing income disparity, as illustrated by top earners' widening share of annual earned income.
According to Rajan, the top 1 percent of households accounted for 8.9 percent of the total income in 1976. In 2007 it soared to 23.5 percent.
Though China does not usually publish that percentage, that gaping gap in the US is clearly something China cannot gloat over.
Another fault line in the US includes a weak (often no) safety net for the jobless and the government's insistence on shoring up the housing market, in the belief that a softer landing would be less painful.
China has been much more enthusiastic in propping up its own housing market. For some policy makers, one of the most important lessons from the crisis is that correction in the housing market is too horrible to contemplate, and thus should be avoided at all cost.
Some local officials believe that forced relocations can fuel construction, and thus becomes prime driver of local GDP.
For the past decade, greedy property developers and reckless home speculators (euphemistically known as "investors") have had an enormous ideological impact, so much so that only the most naive still believes that success comes from hard work.
When we understand the nature of China's heady growth, it becomes easier to see why China needs to slow down first before it can hope to achieve "restructuring."
"Many of today's wealthy nations are rich ... because they grew steadily for a long time, not because they grew particularly fast," Rajan observes.
In this "miraculous" export-oriented growth, one of the poorest countries in the world works hard to administer to the comforts of some of the wealthiest nations.
It is a positive sign that no one finds the situation satisfactory, including the supposed beneficiaries.
"It is a fool's game to succumb to the temptation of cheap goods and easy money: Rapid debt-fueled spending invariably ends in tears," the book warns.
The trouble is that we do not have a regime that can address these problems seriously.
"Change, whether attempting to enforce global discipline with a stick or encouraging citizens to push for it from below, will not come easily for the multilateral organizations," Rajan sums up.
Government decisions are being dictated by popular polls, not the menacing fundamental fractures, least of all, hidden ones.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
