The New Nation - Internet Edition

Abid Shah

Barack Obama has completed 100 days in office but the economy's fallen face betrays no signs of cheering up

The world economy's journey from boom to doom has turned out to be surprisingly short. But there is little for those on the sidelines to do but wait until this bizarre economic switchback is over.

Barack Obama's 'We can' philosophy ensured a successful ride to the White House. With jobs disappearing, banks going bust, loans turning unserviceable and scores of workmen and women moving from homes to car parks, dumping their precious belongings in the backseats of their vehicles as the new president concluded a successful campaign brandishing hope and promise before the electorate.

The world economy's journey from boom to doom has turned out to be surprisingly short. But there is little for those on the sidelines to do but wait until this bizarre economic switchback is over.

Barack Obama's 'We can' philosophy ensured a successful ride to the White House. With jobs disappearing, banks going bust, loans turning unserviceable and scores of workmen and women moving from homes to car parks, dumping their precious belongings in the backseats of their vehicles as the new president concluded a successful campaign brandishing hope and promise before the electorate.

Obama has just completed his first 100 days in office, but the economy's grim face betrays no signs of cheering up. About four-and-a-half-million people have lost their jobs in the U.S. alone and the figures elsewhere are no less daunting.

Transforming itself into the financial engine of virtually the whole world, the United States saw to it that smaller economies got hooked into this economic powerhouse as it hurtled along, creating a market magic where goods and services knew no boundaries. Businesses have been breaking out of their traditional confines, losing domicile, causing vast shifts in not just enterprises but also taking workers to strange lands and climes to rev up growth and push global against local expansion - whether products, services, or their dispensers.

A high salary regime backed by high credit limits ballooned as projections further fed the merry go round that the swelling of easy credit created, feeding and sustaining new homes and hearths. Loans and purchases through it were made easy. New enclaves were propelled by new businesses or through aggressive marketing propped up far beyond world business hubs. Taken together it became a marketers' paradise. The state's role shrank as companies and their conglomerates were allowed unquestioned sway. From Boston to Banglore bank ATM machines ceaselessly vomited cash on demand, creating what looked like perpetual conviviality through the better part of the world.

This was so until September last year. But soon the world heard Lehman Brothers had gone bankrupt. This was on September 15, 2008 to be exact. But a week before that the U.S. Treasury took over the $5.3 trillion mortgage exposure of Fannie Mac and Freddie Mac. Seven-and-half months after this Freddie Mac's 41-year-old acting chief financial officer David Kellermann was found dead at his home on the morning of April 22, 2009. His death is suspected to be a suicide owing to the deep mess into which the mortgage giant had plunged despite its takeover by the government.

So the September crisis appears to be far from nearing an end. In fact its first indications had come in December 2007 while large scale job losses began in January 2009. Of the 4.4 million jobs lost thus far (ever since recession hit America), 3.3 million have gone in the past six months alone, says The Economist. Most of the retrenched workers are victims of the bubble that went burst without warning and creating the worst ever financial crisis since 1929.

Increased financialisation of the economy where finances could be considered a product without producing anything or having a real basis of value contributed to the crisis. This is more so because between 1945 and 1975 growth was mainly driven through the reconstruction of Europe and East Asia where governments preferred greater control over the market and its manoeuvres, including the labour market and wages. The latter were often raised to stimulate demand. Inflation and a rising oil price, besides the increased competition faced by U.S. companies and their declining profit, started crippling their growth through the 1970s.

It was at this point that a restructuring of the economy was seen as salvation. And when it came in the 1980s as neo-liberalism, state controls were touted as ills of the worst order vis-à-vis the economy and this had the effect of redistributing wealth upwards.

Alongside this the process of globalisation started the process of removing trade barriers and integrating all economies around the world, including that of the communist China. The magic largely worked through the 1990s and thereafter except for intermittent crises such as those faced by Mexico in 1994-95, Asia in 1997-98, Russia 1996 and Argentina 2002. Wall Street itself and stock exchanges elsewhere faced a crisis in 2001. And there was a technology crisis from the late 1990s to 2001 when several internet giants could not attract further investments and went bust.

Job losses in all these crises were marginal though all of them had the forebodings of an impending larger crisis. Yet somehow the world feared the worst because of the U.S. engagement with its allies in Afghanistan from 2001 and in Iraq two years later. And the big financial crisis of today was preceded by other western crises like the food price crisis, the fuel crisis and the sub-prime mortgage lending crisis. The first of them prompted former U.S. president, George Bush, to attribute it to 'Indians eating more', which caused some concern in New Delhi. This was about a year ago and, in fact, served as a warning for Indians about a big crisis coming throughout the world via Western countries.Soon certain Western companies that had set up offshore shops effected austerity drives, putting curbs on privileges like air travel and entertainment allowances given to the managers of these setups. This still continues with an increased degree and most company executives do not mind their perks being taken away for they value their professional address, work stations and defined remunerations more than sops, frills and appendages that are a thing of past. Yet the fear is that the real impact of the financial crisis is going to be on jobs ultimately. Thus, to survive in one's job is being taken by most employees as the prime task, particularly when scores of peers are the facing axe.

India's case has been worsened because of its competition with China. Yet it takes pride in low levels of retrenchments thus far when compared with other Asian giants like China and Japan. Since the country is right now going through the motions of electing another set of parliamentarians, the full extent of job losses have been getting lost in the overstated rhetoric of its leaders vis-à-vis a lesser impact on jobs back home than other economies that were thriving until recently. Before the elections were declared the job crisis that had been under wraps showed its ugly face when the chief executive officer of a multinational company was lynched by an angry mob of laid-off workers at Noida, a Delhi suburb on the south-eastward borders of the capital.

Moreover, the colour classification of the jobs going down with the downturn has also been helping in keeping the issue of jobs losses out of electioneering or and from larger public attention. The rural base with its oversized, unorganised sector of blue collar workers has not been part of the urban-centric financial crisis originating from far off west though the long standing farm crisis has been aggravated in certain pockets of India more because of globalisation and genetically modified seeds than the fiscal downturn. Farmers have been committing suicide in these pockets when cost intensive, credit-backed crops failed. This has been going on since before the financial crisis surfaced. The latest downturn's impact is thought to be thus far confined to the educated middle classes who are in white collar jobs.

Export-oriented industries, including information technology, travel, aviation, financial service providers, business processing call centres, real estate businesses and media are thought to be the worst affected throughout India.

The reason for this is simple, because these trades have been more intimately linked with the world economy where investments have been coming from abroad or the goods and services were bought by far off lands.

Towards the end of the last year when retrenchments were first resorted to by certain companies, the Union Minister of State for Labour, Oscar Fernandes, had put the number of jobs that were lost through the crisis at about half a million.

Now the total number of jobs thus far lost is estimated to be about two million. These estimates are based upon a survey conducted by the Labour Bureau and they are most likely on the low side compared to the actual position. Most of these were contract jobs for a limited period extending from a year or two to, at the most, three years' duration. They do not bring any compensation in the case of termination of the job contract except for a month's salary, and that only if the termination is opted for by the employer.

When large-scale retrenchments began in October-November last year, Oscar Fernandes advised six months' salary as compensation to be paid by employers in the wake of termination. Often workers could get two or three months' salary after a bit of wrangling with their employers. Thus no clear policy regarding terms at the time worker parts ways with the company could be formulated and now this has to wait at least until the next government is formed.

This is how even white collar workers in India are at a disadvantageous position than their counterparts in America and Europe. Job insurance schemes, pension and social securities are offered in better off parts of the world in the wake of joblessness which India does not have to offer despite its zealous support of neo-liberal policies and, to some extent, globalisation of trades and services.

(Source: Asian Affairs)