The superabundant capitalism of the post-WWII era in the USA and Europe is screeching to an end. That is not the rant of an old-fashioned radical economist of the left, but by the 2001 Nobel laureate in economics, Prof Joseph Stiglitz. He made the assessment in an under-reported analysis of the world economy last week at an investment forum of the Unit Trust Corporation.The Columbia University economist, when asked frontally if he was projecting the death of capitalism, qualified his statement by saying that the consumption-led growth US style and the notion that the market should do it alone without meaningful state involvement are no longer sustainable.He believes that Europe and the USA are too steeped in the over-consumption model with its hope for a trickle-down effect, which he says has not worked, to take any of the radically transforming initiatives required to prevent the inexorable rise of Asian economic power with a different model for development.The Stiglitz analysis is interesting and ironical as it reverses the prediction by the Japanese-American state official, Francis Fuku-yama, who, at the fall of the Berlin Wall, the removal of the communist regimes in eastern Europe and the crumbling of the Soviet Union, announced the "end of world history.""What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalisation of Western liberal democracy as the final form of human government," stated Fukuyama.
It was a statement not just on the political organisation of the state, but also on political economy. It was a moment of triumphalism for the West. Here is Stiglitz, just 20 years later and in the midst of the possibility of a double-dip recession (to follow the recession of 2008-2010) in Europe and the USA, which he says has a 30 per cent chance of occurring, saying that the political economic model which has ruled for the last 50 years is about to crash.His basis for predicting the fall of the capitalist model of growth is founded on over-consumption, which cannot now be sustained. He notes the lack of demand from US firms by consumers; the unsustainable housing bubble in the US; the dramatic fall in employment, in food production in the US (down from 50 per cent to three per cent); the fact of a minute per cent of the American population being able to consume 40 per cent of national income, and a middle class whose income today is lower than that of 1997.His estimates are that the real rate of unemployment in the US is between 16 and 23 per cent instead of the official nine per cent and that an average of 40 per cent of the present unemployed population is in long-term unemployment.Meanwhile, the US Government has spent trillions on the "war on terror" in Afghanistan and Iraq.The vaunted "trickle-down effect" of capitalist accumulation and consumption has not worked, says the respected American economist.Stiglitz notes too that the low interest rates of the present and even lower into the future will not spur investment as consumption is down and six-seven per cent of Americans have lost their homes and the export market remains uncertain. What is needed is a second round of investment stimulus by the Government.
In Europe, he notes that the euro may not survive the coming crisis.As to how the emerging world will be impacted, the economist expects exports to suffer, tourists from middle and low income groups are not likely to travel as frequently while oil prices will remain high-bad news for eastern Caribbean countries which have to purchase manufactured goods from T&T, and so indirectly this country's manufacturing sector will take a beating.As to the future, Stiglitz advocates that the developing world learn the lessons of the Chinese model which creates room for government and gives greater controls to the state in matters such as financial markets.On what to do, small developing countries should look towards the strong-demand countries in the East, China and India. The old challenge of diversification away from dependence on one or two major exports remains an option.One major piece of advice, one that has been given if not followed over the last 50 years, is to convert the wealth taken from beneath the ground to the production of wealth above the ground as those countries which do not do so are likely to be poorer.Obviously quite an amount of good analysis and advice as could be expected of Stiglitz.But there were a few untouched issues that he perhaps did not think through or did not have time to present. While saying that the bottom-up approach is likely to be taken by the emerging economies and the fact of greater government involvement in economic planning and production, he does not say why the new capitalism being pursued by countries such as China and India will be any less oriented to over-consumption by the few.
On the sustainability of the model, already China and India are producing carbon at levels that are already quite high. In both countries the rural underdeveloped regions are vast; the populations in those areas number hundreds of millions who are living at consumption levels of perhaps 100 years ago. Political pres- sure to bring these hundreds of millions into the 21st century is going to be enormous: how is China to avoid ramping-up productive capacity?Critically, how are small developing economies to break into the Chinese and Indian markets and compete with the vast productive machineries of those countries? Prime Minister Kamla Persad-Bissessar made the point, noting that China's exports to the Carib-bean recently totalled US$5.9 billion while the Caribbean exported US$300 million. How is that gap to be closed?So with great respect to the internationally renowned economist, he did not go the distance in his analysis especially with regard to how small developing countries are to survive and how the capitalist model of China and India is to be dramatically different.