Maravi

(TRINICENTER) Collapse of 'Reaganomics' and 'Thatcherism'

Collapse of 'Reaganomics' and 'Thatcherism'
By Raffique Shah
September 28, 2008

Over the six decades I've been on this here Earth, more so during the latter four, I have learned to be wary of the very wealthy. Not all, mark you, but most. Some decent people earned their millions through sheer hard work and wise choices. Others educated themselves and used their professions to become rich. Among the aforementioned, you usually encounter nice men and women who just happen to be rich, and who see their wealth as a means to live comfortably, even to help the less fortunate in their communities and countries.

I detest those who, by whatever means, usually foul, found themselves swimming in money, and who generally have much more dollars than they do sense. They believe their wealth automatically elevates them to fountainheads of knowledge and wisdom. They behave boorish when they are drunk, which is most times. Worst of all, they feel their money gives them the right to urinate or defecate on us lesser mortals. I tended to react quite violently to this lot, as those I encountered over the years, especially during my earlier life, will admit.

I got around to thinking about the local "Dollarati" as I watch with great interest developments in the global financial crisis. In the USA, where the free market system was proclaimed the unholy grail to capitalist growth, big bankers are begging the government to bail them out to the tune of hundreds of billions of dollars. In Britain, a few smaller banks have collapsed, but fears are rising that many more could go down the drain soon. The dollar-plague has also infected Europe. I read today (Friday) where Ireland, which was seen as a model of capitalist-steriod-super-growth, has fallen into recession. The latter is pronounced after two quarters of negative growth-don't ask me how the economists worked out that formula.

I know this is a serious crisis. It has the potential to affect the world, T&T included. Still, I can't help but burst into guffaws when I reflect on the genesis of the crisis, which did not begin last year. It was Ronald Reagan who invented "reaganomics", and Margaret Thatcher, whose showpiece came to be named "thatcherism". What these two promoted when they ruled the world, almost literally, was privatisation as the panacea to all their countries' economic woes. They all but formed a club of free-enterprise acolytes around the world, including here in the Caribbean.

In both cases, Reagan and Thatcher sold off everything the state owned. In Britain Thatcher privatised the postal service, schools, public transport, hospitals, airports, airlines. If she'd had a few more years in office, she might have privatised the monarchy! Reagan, meanwhile, was busy dismantling the health system that had served Americans well. He sold off any and every thing the government owned. The mad selling-spree was inherited by their successors, the most startling being George W privatising warfare! Truly! There are more mercenaries (they call them contractors, but what's the difference?) in Iraq and Afghanistan than there are men and women in uniform.

Blackwater's mercenaries earn many times what regular soldiers do, they are not restrained by military codes, they cannot be court-martialled, and they can fire the job whenever they choose to.

While all of this load shedding of state enterprises was taking place merrily, across the globe, everyone, especially the wealthy, swore that Reagan and Thatcher were godsends. Our Caribbean leaders became not acolytes, but bishops of free enterprise. They wanted to outdo the architects of this system, especially after the Soviet Union collapsed, and socialism was classified a cuss-word that went extinct with the fall of the Berlin Wall.

Now capitalism has turned upside down: mega-banks, the very symbols of free enterprise, are collapsing like ninepins all around us. Worse, they are begging the very people they fleeced as they enriched themselves, to rescue them. In America's case, Bush wants US$700 billion to bail out bankers who, up to a few months ago, earned many millions a year in salaries, and even as they led the institutions down the path-of-no-return, got bonuses that boggled the ordinary mind. "Help!" they bellow. "If we go down the drain, you do, too!"

As I write (Friday), I don't know if the lawmakers Bush summoned to Washington will agree on the gargantuan bailout he is seeking. Ordinary Americans are understandably angry. When you were making your millions off us, they scream, you gouged out our eyes, charged us all kinds of spurious fees, and now you want us to help you? Madness, they shout, from all sides of the political fence. Barack Obama and John McCain are in a pickle. If they support the bailout, they will alienate more voters than they will win. If they allow market forces to work, and the institutions collapse, America will plunge into depression.

No new president wants to start his term in office labouring to lift his country from its knees. In the UK, Gordon Brown faces political death. Europe is trembling with fear. The Far East is buckling at the knees. Only the smart will survive this crisis.

With Ronald Reagan now dead and Margaret Thatcher barely alive, I shall resist the urge to blame this global financial crisis solely on them. In many ways, they cannot be blamed for today's debacle. Some enterprises Thatcher divested should never have been state-owned: a trucking business (National Freight Corporation), 27 railway hotels, carmakers Jaguar and Rolls-Royce. Why would any government engage in such ventures?

But in her zeal to shed government load, she sold off the country's silverware. People may not remember the British Government owned in strategic companies like energy giant BP, Cable & Wireless, British Telecom, British Gas, British Airways, British Steel, and the regional water and electricity distribution companies. What her divestment frenzy did was give many Britons who acquired shares in these companies a false sense of security, of ownership of profit-making enterprises that brought them some gratification by way of share-price increases and dividends. But they soon realised they did not control these companies, especially the really big ones. The majority shareholders who "called the shots" were all corporate fat cats who cared nothing about the small fries.

Deregulation, liberalisation and privatisation fuelled a kind of wild consumerism the world had never known. Like the current Trinidad and Tobago Government, the mantra among those who thought the party would last forever was "have money, will spend". Even the crash of October 1987, in which the Dow Jones fell by 23 per cent in one day, failed to drive home to British and American consumers (in the main) that the spending-party could not last forever.

Banks were no longer the conservative institutions that the middle-classes and the poor had loved to hate. Buoyed by deregulation, they began offering a range of financial services hitherto unknown.

Insurance companies, already profitable from underwriting life, health and corporate insurance, spread their wings so wide, they themselves did not know what their real assets and liabilities were.

AIG, for example, when the recent crash hit them, first asked Washington for US$20 billion as a bailout. That number soon went up to $85 billion. Huh? The world's largest insurer did not know its precise financial position?

Here in the Caribbean we have much to worry about: our biggest worry must be the Government and many financial wizards telling us we have nothing to worry about! All around companies and countries are falling into financial pits-but we must rest easy.

Put our faith in Patrick Manning and Ewart Williams and Karen Nunez-Tesheria. They will see us through this global crisis, manage our funds wisely, keep us insulated from a world ravaged by rising poverty even in developed countries (don't even bother to add poorer states). Well, I have news for the Prime Minister and the genial Central Bank Governor, who, to be fair to him, has sounded some alarm bells within recent times.

Already the housing market has slowed to the proverbial crawl: those who were lucky to get their houses sold at highly inflated prices can count themselves lucky. It's the poor buggers who bought those properties that will suffer if a crash does come. Bank interest rates are climbing, which signal higher monthly payments for million-dollar mortgagees. Inflation is at an unacceptably high level. Consumer spending has slowed considerably, certainly among those who can ill-afford high food prices. This in turn could adversely affect businesses, with small retailers feeling the heat most.

Those of us who were around in the early 1980s when oil prices plummeted, we saw the sad fallout and would not want to go through that experience again. Middle-class people who bought houses they thought were bargains ran into the two-headed monster of higher repayments and lower salaries or even loss of jobs. Many simply abandoned their dream homes. Today, downsizing has begun as corporations seek to trim their staffs to cope with falling profits. People will lose jobs, Mr. Manning. When government's construction frenzy slows down, unemployment will rise even higher. The downward spiral has begun.

It is not that we can't stave off a recession. I am yet to be convinced that oil prices will drop lower than the budgeted US$70 per barrel. The energy guzzlers are shifting from the North to the South, keeping demand at a steady, if not rising, rate. Our downstream products will enjoy healthy markets for many years to come. But drilling for more oil and gas, whichis an imperative, is increasingly expensive.

The Government will have to offer generous incentives to attract further exploration.

Our laid-back approach to food production is what bothers me most. There is much talk but little action. If government diverts 10 per cent of the resources it has put in its chase for a new POS skyline into agriculture, we could increase food production to a level where it dampens inflation. If we join hands in the Caribbean, embrace our brethren in South and Central America where land space is not a problem, then food inflation would subside.

First, however, we must have a vision of where we want to be in 2050 (not 2020), and visionaries to take us there. That is a very tall order in a country where mediocrity thrives.

Labels: NEOLIBERALISM

posted by MrK @ 7:37 AM