Depression 2008: an Essay on the Situation

INTRODUCTION

The emergence source of the Depression 2008 is American economy where the free market capitalist economic system prevails. Every system is a network of certain dos and don’ts. There exists no economic, social or religious system in the world without certain don’ts or the preconditions necessarily required for its smooth running. The American thinkers mistakenly took these don’ts or preconditions of capitalism as unnecessary or unwanted restrictions in the way of making the capitalism an ideal and humane system as against socialism which they discarded because they thought it nothing more than a bundle of checks on the freedom of human life.

REFORMATION OF CAPITALISTIC SYSTEM

The American thinkers and policy makers advocated a capitalistic economy for America with a free market system characterized with a least government intervention and, thence, made efforts to slacken the restrictions, by and by, which were the part and partial of and embodied in the theory of capitalism. The process of so liberalizing the economy, having crossed the boundaries of America, not only spread to almost all the European developed economies but many other capitalist democratic developing economies also started adopting it on account of the leading and effective position of America in the world economy and politics. Moreover, the international financial institutions too agreed the American paradigm of liberality and started exerting pressure on member developing countries to make them to workout the same. This all resulted into a wide spread move driven in the capitalistic democratic world to lead the economies towards free market economic order. However, these efforts aimed at making the economy not an absolutely free market economy but only within the ambit beyond which the fallouts start engendering vested wealthy interests and the government intervention becomes justified. All the same, since the recipients of the profits from leading the economy towards the said free market settlement, in beginning, being either from the policy makers or from the socio-economical and political elites capable of affecting the policy making, the desirably equitable limit became crossed on account of vested profit greed. This veered the capitalistic world economies to the wrong direction of making the people solely profit motivated and greed based.

EMERGED CONSEQUENCIES

The economies went on advancing in that direction and the consequential demerits went on emerging and being nourished. There became lack of coordination among businessmen and producers whereby the economies became like ‘automobiles without driver’. Economic inequalities became as broad and widened as capable of producing harmful repercussions. Smaller firms became suppressed by large and oversized concerns whereby oligopoly or even monopoly emerged in the economies to the utter detriment of the consumers and the workers. Competition, the important feature of capitalism, attained such an unhealthy and undesirably high level that rival producers started spending huge funds on advertisements and salesmanship to attract the custom of potential buyers for merely ousting rivals from the field. This resulted into the duplication of staff, duplication of industrial equipments and wastage of valuable resources. Industrial peace became disturbed on account of rising lockouts and strikes. The businessmen resorted to unscrupulous practices like price leadership, market sharing, forming trusts and cartels, price agreements etc. for achieving the objective of profiteering. The profiteers indulged in amassing maximum profits without devoting any thought to the community welfare (merchants started mixing stones and pebbles in wheat flour, coloured saw dust in genuine tea, brick dust in turmeric powder etc.). The over stretching provision of private property, right of inheritance and market mechanism created and rather perpetuated economic inequalities. This gave birth to social parasitism by enabling certain sections to live at the expense of others without making any physical contribution of their own. For example, several people became capable of living luxuriously on the exorbitant rental income derived from the tenants of their owned land.

The whole system became complicated by lack of transparency. Hedge funds started being cloaked in secrecy. Intelligent corruption and abuse of power started prevailing. Handing out as big amount as 23 million dollar by Lehman Brothers to its three executives just before its collapse, going up of the pay of the CEO of American Express by more than double despite the share price abruptly plunge downward and earning almost 100 million dollars in total payments by Hewlett Packard CEO even when he destroyed half the wealth of her investors, are some of the examples of showing how CEOs of big concerns became enormously high paid executives getting their compensations allowed to spiral out of control by the board members taken on an all-expenses paid trip to a five-star international resorts. Loan facilities became widely extended and advantages of loan facilities and low interest rates (especially for houses to be owned by people at low income group) were supported and largely propagated among the people. This brought about enormous marketing effort to dupe people. The extremely clever inculcation through media advertising made people’s thought process clouded and made them, thereby, to tend towards more personal interest, freedom and power than social responsibility. The high level of inequalities made rich people so rich that it brought them beyond the point of finite material needs. They started embellishing the material requisites instead of and rather than consuming the same. Going further to it, they rather began to distort the material needs in a way compatible to their own distorted and disordered desires. The use of bra and panty by gents in Japan is the outcome of such distortion and disorder. These rich fellows live in trophy homes when billions of people are striving to afford even a shanty.

STUBBORN DEPRESSION

As a result of the above discussed consequential demerits and the shadowed face of the resultant capitalism in the world economy we came to the juncture of facing an awkward turmoil which emerged in the form of the presently ongoing ‘depression 2008’.          

The governments are helping the depression stricken banks, financial companies, service companies and manufacturing industrial units survive by large bailouts. All the same, almost every morning a new company knocks crying for help. The monster of depression is going on advancing on its path to erode employment and income of the world economies, one after another, despite that the governments are doing there best to deal with the situation. Mr. Juan Somavia, the Director General, ILO also holds, in the ILO report entitled the Global Wage Report 2008-09, that difficult times lie ahead for the world’s 1.5 billion wage earners. Some big organizations like World Bank, IMF and the leading organization of American economists, National Association of Business Economists, have revealed in their separately carried on surveys that the prices of necessary commodities would go down by up to 23 % in 2009. First time in the last two and a half decades the world may face a decrease in the world growth rate and the trade pool. On the basis of a survey of 185 countries, the World Bank has estimated in its report entitled titled World Economic Situation and Prospects that in the first half of 2009 unemployment would be the biggest problem before the world.  

INCOMPATIBLE MEASURES

The observed ineffectiveness of the so far taken remedial measures to check advancement of the depression 2008 provides sufficient grounds for us to apprehend that the so far taken remedial measures are perhaps either insufficient or incompatible. The strategy of lowering interest and other rates, such as CRR, REPO rate, SLR etc., is not being proved fruitful in pushing up the credit demand to the desired level. The large money bulks of bailouts are disappearing, as if slinking, without any effect on the economy as regards to the control over depression.

The news appearing in the news papers in India (for example, ‘a survey by FICCI regarding manufacturing companies reveals that even the considerably a large bailout package of Rs 3000 billion declared jointly by the Central Government and RBI on December 7, 2009, could not return confidence of the companies’, ‘the companies are talking about 50 % cut in production to be made and up-to 30 %  cut in the number of their employees to be most probably made in the next two or three months, the industrial sector feels all the so far taken measures, including the last bailout of Rs 3000 billion on December 09, 2008, too, insufficient and therefore is demanding one more package’ etc.) reveal and rather confirm the ineffectiveness of bailouts in India.

Block-closers in manufacturing companies (especially the automobile manufacturing companies) are not making good the deficiency in demand. In India, Tata Motors had to declared a fourth block-closer, within a period less than two months, in its heavy vehicles plant at Jamshedpur from 28th to 31st December 2008 on account of the rapidly decreasing demand of its vehicles. Its production has come down from 500 to 100 vehicles per day in December 2008. TELCON (Tata Construction Equipment Co. Ltd.), a company with 60 % partnership of Tata, also had to declare a second block-closer in its Jamshedpur plant, within a period of one month, for three days from 25th to 27th of December 2008.

Interest and other banking rates are going downer and downer but credit demand seems still going down. In India, RBI decreased the REPO rate from 7.5 to 6.5 % and the Reverse REPO rate from 6 to 5 %, Yes Bank declared a cut of 0.5 % in PLR and ICICI Bank declared a cut of 1.5 % in PLR and BPLR in the first week of December, 2008. The nationalized banks declared on 15th of December a cut in interest rate on home loans. The interest rate on home loan was revised as 8.5 % on loan amount up to Rs 5 lakh (0.5 million) and 9.25 % on loan amount from Rs 5 lakh (0.5 million) to Rs. 20 lakh (2 million). The industry sector but termed the cut in home loan interest rate as inadequate to deal with the depression. Mr. Sajjan Jindal, the chairman of ASSOCHAM, held that interest rate should be 6 % on loan amount up to Rs 30 lakh (3 million) and 8.5 % on the loan amount exceeding Rs 30 lakh (3 million). Similarly, Mr. Amit Mitra, the general secretary of FICCI, also advocated the applicability of the lowered interest rate of 8.5 % on loan amount up to Rs 30 lakh (3 million). As per the news in the last week of December the economic sector in India was expecting a further cut in interest and other banking rates to be declared in the 1st week of January or so.

UN-SUSTAINABILE PREVAILING SYSTEM  

As regards to the above discussed ineffectiveness of the remedial measures in controlling depression, I think the measures are incompatible instead of being inadequate. The logic is that on account of the notion of making the prevailing capitalistic system ideal and humane an impermissibly high level of market freedom stands brought about therein whereby the system though walked towards the idealism but became impracticable. That is why the prevailing form of the capitalistic system has become unsustainable. Respected thinkers and scientists also have pointed to this reality stating that present model of capitalism cannot be sustained for environmental and social reason. Neither the purely ideal capitalism nor the purely ideal socialism is a practicable economic system since both are the extreme positions. Both of them have their own merits and demerits. To avoid demerits and enjoy merits of both the systems up to the maximum possible extent, a legitimate mixture of the two, called the mixed economic system, has rightly been suggested by intelligent economists. Therefore, I have no hesitation nor any doubt in straight forwardly hold that the ongoing stubborn depression is not the recessive phase of any trade cycle which can be taken lightly on the ground that trade cycle of different time periods generally go on appearing in a capitalistic economy. I would like to comment here with ample stress that the root cause of the depression 2008 is our stepping far from the mixed-economy system prevailing before we started the so called reformation to make it to resort to un-accomplishable idealism and humaneness.

CONCLUSION

A number of writers are now talking about and rather advocating that a new, balanced, conscious, active and sustainable, both socially and economically, global system should be searched. They suggest also the features and characteristics of their desired system. Going through the same I surprisingly found that the suggested features and characteristics were almost identical to those pertaining to an economic system comprised of about fifty-fifty amalgamation of the capitalism and the socialism. Why there should search for a new system, then? We need not to workout a search but need to step back to the sound mixed economic system created by amalgamating the capitalistic economic system and the socialistic economic system in such a legitimate ratio that demerits of both the systems are mitigated and merits of both the systems are infused to the maximum possible extent. The so maneuvered system will be proved sustainable on all economical, social, cultural and even political fronts. Thus, it can well be regarded as most desirable, economically sustainable, socially adoptable, culturally appreciable and politically justifiable system. There will be no room for mass unemployment, starvation, privation, black marketing, economic exploitation, financial scams, corruption, economic and social disparities, political instability etc.

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