The Winner

Gopal Ranganathan
GM, Jet Airways
 

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The financial destruction in today’s worldwide recession is matched only by the Great Depression of the late 1920s. The most powerful financial institutions of the capitalistic modern world have been rocked and brought down. Nations across all the continents (except Africa), which have been tethered by international financial flows, have been plunged into economic hardship. Corporates, governments, households and equity markets have taken a beating in their financial positions. The world has gone back about 30 years in terms of wealth per capita. How did all this happen when capitalism was run by the most sophisticated financial brains? What are the learnings from all this? Will life be the same or have we learnt something profound that changes everything going forward?

It is easy to think that we will absorb all the lessons from this crisis and avert the next one for a long time. But history teaches us otherwise. The strength and pride of Western capitalism will preserve the fundamental flaws in the market system so well that we will move on from this to a seemingly new world order, one that can stop any financial malaise. It is really foolish to dwell in that bubble.

Instead, what will happen in the near future is a token change in the new financial order. Investment banks will be required to label themselves as just banks. Greater financial regulation will be deemed necessary from governments to not allow market forces to wreak havoc periodically on the global financial system. Central banks will have less autonomy in setting the monetary policy for countries, and indeed, for interconnected global markets. Free trade will be restricted somewhat in a bid to put checks and balances in foreign-debt ownership of advanced economies. All this is no more than a cosmetic change that the new world order will put in place in the immediate years following this prolonged global recession. But real change will come about around seven years after the end of the current recession.

The first few years after the current recession will see the continued emergence of giants from Asia. China will become the most powerful military and economic power after the United States. Japan will recede in its clout and will have a very small recovery. India will see steady GDP growth, which will catapult it among the five most important economies of the world. Traditional European powers—UK, France and Germany—will start losing clout in the world economic discussion exactly like Japan. Indian and Chinese business houses will begin to exert global confidence and takeovers.

Five years after the current recession, it would seem that the capitalistic society is sound and resilient. Consumer confidence will be at an all-time high. Societies from the Middle East to Eastern Europe to South Asia will start resembling their affluent western counterparts. Once again, excesses will slowly start building up. Savings will reduce and good credit will start to chase weakening demand. At this juncture, seismic global economic shocks will recur. A second recession will be forced on the global community. That will hit home hard and reveal the true transformation we need to establish. American capitalism will be irrevocably diminished as a beacon for world economic order.

Keynesian economic principles of State establishment of order will be embraced. Most governments will put in place stringent financial controls and transparency requirements. Complex financial instruments will be disallowed. Production-based economics will replace today’s credit-based economic order. The Reagan-Thatcher doctrines on economic policies will give way to the more comfortable policies of Lincoln, Roosevelt and Keynes.