India, China and Japan are carrying out coordinated rate cuts. Every nation is pumping liquidity, and making sure no more banks collapse. Everybody realises the two blunders that enabled this crisis to spin out of control: the fall of Lehman Brothers, and the bankruptcy of Iceland. Since then, no other dominos have been allowed to fall. Pakistan is being bailed out by donor nations and the IMF, and now Washington has extended a $30 billion swap line to some central and eastern European nations with tight liquidity.
India was the most pro-active in making a public statement that it would vote for Pakistan at the IMF and there wasn’t even a whimper of protest in a country where Gandhi was assassinated for insisting that Pakistan be merely paid what was its share of the kitty being partitioned. Two weeks from now, heads of states and finance ministers of G-20 will gather in Washington to brainstorm a more durable solution, and to search for the lessons and correctives.
And once again, when these 40 most important people in the world meet, they will not be debating any second or third alternative. They will only be sharing their ideas on what went wrong with globalised capitalism, and how to fix it. Nobody is throwing the baby, or even the bath-water. Yes, many aspects of capitalism will be fine-tuned, modified and made less prone to shocks. One truth this crisis has brought home to the most ardent fundamentalists of market capitalism is that you cannot wish the state away even from a most pristine free market. In so many countries the state has had to step into the breach, ring-fencing its banks, buying troubled assets, even guaranteeing corporate debt. No entity other than the stable, sovereign state could have stepped in to rescue the markets — and thereby modern capitalism — like this. Even capitalist ideologues, therefore, have to now acknowledge the power and vital need of the state. Not a control-freak, interfering state, but a vigilant, paternalistic one that trusts the markets and is willing to protect them when they are threatened by their own aberrations or excesses.
All systems would have their crises. Those with in-built openness and the ability to self-correct will emerge stronger. Others, more dogmatic and closed, would go into terminal decline, and die. That is essentially what happened with socialism. Its economics died a long time back, but because socialist states owed their power to ideology, they sought answers in distortions ranging from “fixed” but mythical currency values to “dollar” shops where foreigners could buy “essential” goodies like decent coffee, cheese and cigarettes, and then use it to bribe local officials. When wet-behind-the-ears German pilot Mathias Rust landed his tiny plane at Red Square, beating the entire Soviet air defence system, the joke in Moscow was he did not have to do very much: he merely painted the logo of Marlboro on the belly of his plane and every radar controller just waved him on. The Soviet system collapsed under the weight of these contradictions.
The Chinese have done better. They were more practical, embracing pure capitalism in their economics, and retaining socialism of sorts to maintain the Communist Party’s hold over power. Inevitably, however, they have created their distortions too. For example, one-country, two-systems, when they absorbed Hong Kong, but didn’t quite do so fully, allowing it not only free economics but also politics. As they deal with Tibet in years to come, maybe it will become one-country-three-systems, and then four with Taiwan, and so on. It will get much too complicated to be sustainable. Free market without democracy is one oxymoron and if a nation embraces one and abhors the other, something will have to give. So you can see the Chinese leaders, who have enormous wisdom and foresight, beginning to democratize, make adjustments.
That is because in this world, nobody wants to rock the boat. If a bank fails in Iceland, interest rates go up in India. If a company goes bankrupt in the US, all of the world rush to their banks to pull money out and bury it under their pillows. That is why they have all got together in a global meeting of minds — and commonality of national interest — never seen before in human history.
Postscript: There has been much talk on the “exotic” financial instruments that the hot dudes of the global financial herd created and that ultimately led to this collapse. But if you look back, perhaps the most exotic financial instrument ever invented was the Soviet rouble. Officially, its supposed value in the bank was 1.6 dollars. Of course no bank in Moscow would give that to you. But in Arbat, the tony shopping street, you would get 150 roubles to a dollar. No wonder then that not even a restaurant waiter or taxi driver would accept tips in his own currency.
Mercifully, barring one or two islands of such currency curiosities now, the rest of the world has moved on.
S.G - Indian
