Why 2011 was the year of losers - and bad karma

Everything that could go wrong went wrong in 2011. It was a lost year. 2012 could be the year we turn the world around.

R Jagannathan December 28, 2011 14:23:06 IST
Why 2011 was the year of losers - and bad karma

When the definitive history of the 21st century is written, historians will wonder what to make of 2011. Nothing seemed to go right for anyone.

In one way, 2011 is The Lost Year, or The Year of Losers. Even the few winners looked like losers in the end. It was a year in which the whole world took sadistic pleasure in washing all its dirty linen in public.

The year probably represented a phase in our collective karmic cycle where each country and every person had to live out its bad karma.

Of course, we didn't begin the year thinking about it that way. At the turn of 2010, the assumption was the world was slowly going to return to normal, driven by China and India, the two countries that clearly avoided the post-Lehman collapse.

Why 2011 was the year of losers  and bad karma

Most people's revolts everywhere are heading nowhere. The Anna wave has run into the sand. Occupy Wall Street has failed to occupy anyone's mind with new ideas. Reuters

What we saw instead was a further collapse of the world economy, with Europe joining the gloom in the first half, and China and India in the second. America lost its Triple A credit rating, and Europe invited its credit raters for an alphabet festival. If America's buccaneering Wall Streeters looked like villains in 2008, Europe's welfare mafia and debt marauders didn't fare any better in 2011.

Neither America, nor Europe, nor China nor India won the 2011 growth debate - for all are slowing down and fighting to keep their heads above water.

Ideologicially, every known idea lost out during the year. Capitalism, always prone to manic-depressive phases, booms and busts, came into disrepute in that Mecca of capitalism: America. And state spending, that ultimate Keynesian remedy for slow growth and recession, came into disrepute in Europe - the Mecca of welfarism. Germany now wants to shove austerity down unwilling Greek, Italian and the rest of the Club Med throats. Europe will never be the same again.

All currencies lost out - even though the dollar seemed to be holding up. The euro is on its deathbed, the yuan and rupee have been wayward, and the yen and the dollar have been gaining for the wrong reasons. If this continues, the possibility of the US returning to higher growth will be killed. If the dollar lives it up, the US economy will have to live it down.

The Asian economic model is dying. The rise of Japan and the Asian tigers - Asean, South Korea, Taiwan and Hongkong - was built on the basis of high domestic savings and export-led growth. With the rise of the biggest Tiger of them all - the Chinese - this model collapsed under the weight of its own contradictions. When the world's second-biggest (and future biggest) economy wants to export its way to growth, every other nation has to be a net buyer - which is unthinkable. The same foolishness - export-led German growth at the cost of the rest of Europe - is what is bringing down the eurozone.

The other leg of the Asian model - super high investment ratios of 40-50 percent of GDP - is also falling apart. Any economy needs two legs to stand on: investment and consumption. The balance can be broken for a short time, if the rest of the world is consuming while you are investing, or vice-versa, but imbalances cannot continue forever. This is why China has to shift its focus from exports to domestic consumption. Ditto for Germany.

The only counter-weight to the Asian Tigers approach is the Indian model - the middle path which balances investment and consumption better - but poor governance and an inability to push reforms faster has sunk this model too - though it might still find new life in future.

The democracy versus authoritarianism debate also threw up no winners in 2011. If the Arab spring raised huge hopes for the rise of democracy in Islam's heartland, the election of Islamic parties - though not fundamentalists - raises questions about what form this democracy will take. But the authoritarians did not fare much better. As the year was ending, China was grappling with a thousand mutinies of its own and Putin's Russia was facing crowds on the street. India's muddle path - democracy in form but authoritarian in party structure - did not have better answers to offer the world.

It is tempting to say the people won. Everywhere, from Tunisia to Wall Street to Moscow to Ramlila, the people poured out in their thousands to challenge their rulers for various reasons. But as the year-end Anna Hazare fast at Mumbai's MMRDA grounds showed, the people don't know what to do after having raised the banner of revolt.

Most people's revolts everywhere are heading nowhere. The Anna wave has run into the sand. Occupy Wall Street has failed to occupy anyone's mind with new ideas. The Tea Partyists know their party is over. The protesters in Egypt are turning violent and some groups are turning on the Christian Copts. "The people" are not going to win a war in the street when they can't win the war for ideas.

The question arises: why did we have a year studded with losses and losers?

The answer: 2011 has been a year in which the lessons came fast and thick - and we have not had time to assimilate the knowledge and learn from it. Too many ideas came too soon and too fast.

These are some lesson and observations:

One, democracy is not an end in itself. Nor is electoral democracy enough. People want more regular consultations, and they also want results. All democracies have to be rejigged to make their current structures work better. This is the message coming from the Anna movement, the Arab spring, Occupy Wall Street and Tea Party activism.

A two-party choice between Tweedledum and Tweedledee is not working even for America. Nor is India's incoherent coalition culture the answer. Team Anna mirrored the impatience of middle India with politicians, but it had no real answers. Jan Lokpal is a very minor part of future nirvana on corruption.

Two, neither capitalism nor communism nor systems in-between have delivered. What the failure of both systems suggests is that success is always temporary. It is wrong to elevate any system or ideology to the level of eternal truth the way religious books pretend they have all the answers. Depending on culture, circumstances, and the will of people to make their systems work, each country has to find its own right mix in terms of policies and choices. There is no magic bullet that can solve all economic, political or social problems.

Three, democracy and authoritarianism are not polar opposites. Democracies have to be supported by strong institutions which may themselves be undemocratic (courts, Election Commissions, Lokpal, etc). Similarly, authoritarian systems are not always undemocratic: China may stamp out political challenges to its system, but it allows huge economic freedom. India is a democracy, but its democracy is run by parties that are largely undemocratic. The corporate sector - which is again run fairly undemocratically - is the key to ensuring growth.

What mix of democracy and authoritarianism works in which country or economic system depends on the players, the circumstances and the problems we are trying to address.

Four, the world's problems cannot always be solved in isolation. The single biggest economic lesson of the last decade is that the burden of economic adjustment should not fall on weak economies - the rich have to also bear their share of the burden. China and Germany ran export surpluses only because they ran undervalued exchange rates against the US and southern Europe, respectively. Correction means both parties must do opposite things: austerity in the losing nations must be matched by greater spending and consumption in the previous winners. Else, both will go to hell in their own way.

The same logic applies to global issues: if we want to address climate change, the rich must conserve more than the poor - for the poor have to expand their energy usage to become less poor.

There are surely many more lessons. We can go on and on. But perhaps the right way to look at 2011 is this: there are no right answers that work in all situations and for everybody. Right answers emerge from the kind of problems we face.

The failures of 2011 were a vital part of learning the lessons in 2012. This is why 2012 is likely to be a year of hope - when new ideas will be tried everywhere.

We should look forward to interesting times.

Updated Date:

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