Global: The Future of Capitalism

I was thinking of the G-20 meeting over the week-end and happened to think back to a book I read by Lester Thurow, a professor at my alma mater.   It is titled 'The future of Capitalism" and was published in 1996.  Here are some excerpts:

The coming economic debacle: Thurow's main analysis, and the key to his theories, is international trade and the US trade deficits. He sees this as the weakest card which will bring down the house, and result in major economic readjustments and global depression.

He wants to see a concerted effort by US capital to reduce the deficit to ease the coming crisis. . His analysis is that huge trade deficits with Japan have financed the Pacific rim economic expansion, and that this situation is rapidly coming to an end. The Pacific rim runs large trade surpluses with Japan, which Japan covers with even larger trade surpluses with the US. The US has been able to carry this deficit by selling assets and borrowing. (Whether this is a conscious policy of finance capital or just coping with the situation after the fact is not clear.) The Japanese themselves have been doing a lot of this asset buying and lending, but they cannot keep this money-losing investment strategy going much longer. When they limit such investment, according to Thurow, the yen soars and the dollar plunges.

Because of this shaky situation, the total net worth of Japanese property has dropped 36% in 5 years, and their stock market has gone from 39,000 in 1989 to 14,000 in 1992, a greater decline than the Stock Market Crash of 1929.And the depression has no end in sight in Japan -- at some point, Thurow says, the US will lose its ability to finance its trade deficit. In the end, a lower standard of living will be necessary to finance the debt.

"The epicenter of the economic earthquake will be the US, but the shock waves will be strongest on the Pacific Rim." (pg 198)

It is a worthwhile read...especially for India.  There is a significant discussion on the role of government and private sector in infrastructure creation.  And until the lesson is learned, India will continue to have sub-par infrastructure and sub-par decision making.  The following news story should make clear why the private sector cannot be the decision maker in infrastructure creation:
 Few takers for highway projects

In the last two months, five highway projects worth nearly Rs 3,000 crore could not find a single bidder.
“We have withdrawn from at least five highway packages after being qualified in the technical qualification stage in the last few months. Most of the highway projects on a BOT basis are not viable because of faulty traffic projections and high cost of construction,”

Corporations/private sector has short term goals:  shareholders must be placated quarterly and annually....infrastructure creation has 20+ year time-frames.  The government is confusing everyone with the policy of BOT in a country the size and scale of India.  Now that the private sector is not bidding and the private sector says the projects are not viable do we give up on infrastructure?

Policy is not created on the run...policy is created so that we have planned actions for panic situations...when markets and everyone else in on the run.  Government action on infrastructure development will give a clear insight into the mindset of policy-makers.  It will determine my appetite for risk taking in India.