The Age of Stagnation: Why Perpetual growth in Unattainable and the Global Economy is in Peril
By Satyajit Das
Published by: Tranquebar Press
Price: Rs 599
The essential argument of this book is neatly encapsulated in its title. Satyajit Das argues that the recent era of unprecedented economic expansion is now definitively over, and the watershed for this was the Great Financial Crisis (GFC) of 2008. In essence, his point is this:
"The GFC showed that perpetual growth and progress is an illusion. It exposed the high debt levels, credit-driven consumption, global imbalances, excessive financialisation, and unfinanced social entitlements that underpinned an unsustainable economic model. The crisis coincided with an emerging scarcity of energy, food and water, and increasing evidence of the impact of climate change." (page 285-286)
All of these problems have reached or are reaching the point of no return, that is the point when they are no longer amenable to easy or even feasible solutions. As a result, all of us have to accept the reality of a period of stagnation, or "the new mediocre", in which fragile and volatile economic conditions will be the norm.
This argument is made sharply, in clear and approachable prose, and is peppered with striking analogies and literary quotations that drive the points home in a more persuasive way than dry analytical statements. Das also makes sweeping generalisations, some of which are indeed debatable and can be contested, but much of what he says does indeed make a lot of sense. But the overall message of gloom and doom - while compelling - is unleavened by a deep sense of history or of the specific roles played by political, social and economic configurations that need not be taken for granted as inevitable.
Das takes us through a quick and somewhat racy tour over the economic landscape leading up to and subsequent to the Global Financial Crisis, noting the role played by debt-driven models of accumulation and consumption, which must inevitably end in tears. Much of this was well-known, though it has been remarkably quickly forgotten by those who matter, especially as the policy responses to the crisis across the world have been in the direction of generating more of the same.
Das is particularly frustrated by the easy money policies of low interest rates and quantitative easing that have dominated crisis responses in the advanced economies.
He is upset with them not only because the stimulus from low interest rates tends to be temporary, but because "low rates create zombie economies. Weak businesses survive, directing cash flow to cover interest on loans that cannot be repaid but banks will not write off. With capital tied up, banks reduce lending to productive enterprises, especially small and medium-sized ones, which account for a large portion of economic activity and employment. Firms do not dispose of or restructure unproductive investments. The creative destruction and reallocation of resources necessary to restore the economy does not occur." (page 77)
They also encourage asset bubbles, which in turn create the conditions for future crises.
All this is absolutely true, but the central problem is not that of cheap money per se as the response to the crisis, but that it is occurring in a continued context of unregulated finance that is also not directed to socially important goals - neither of which is inevitable. Das notes the significance and terrible role played by financialisation, but he does not give sufficient importance to the process of financial deregulation that made it possible, or note that this can still be reversed with sufficient political will. And this makes the consequences indeed appear, as he puts it, like the global economy in a black hole, in which "(e)xcessive levels of debt deep-seated fundamental imbalances now prevent escape from stagnation or worse." (page 92)
These depressing factors are rendered even worse, according to Das, by changes in the real economy and patterns of production and investment. Das provides a correct critique of GDP as a false indicator of human or even economic well-being, but then proceeds to use it as the relevant indicator in much of the rest of his discussion. He finds that several processes that impinge on the real economy are combining to add to the forces of economic stagnation: technological change, trade patterns, environmental constraints, economic inequalities. These forces are then further exacerbated by the growing democratic deficits and social instability that they generate, in a vicious cycle.
Das notes that recent patterns of innovation have focused on "disruptive" technologies rather than sustainable and productive ones - those that create cheaper and poorer quality goods and services, thereby with limited long-term growth and productivity generation potential. So the cycle of technology booms and busts continues, but without the longer term and economy-wide impact of previous industrial revolutions. Das is also sceptical of the potential gains of the so-called "sharing economy" based on internet and connectivity. He points out that in reality it "relies on disintermediating existing businesses and minimising regulatory costs" (page 267) so that amateurs provide work previously done by professionals, and peer to peer brokers like Uber and Airbnb essentially reduce costs by depressing the incomes of the service providers. Therefore "the sharing economy exploits low-wage workers in a weak regulatory environment". (page 269).
Das also exposes the myth of the rise of emerging markets, which is now rather old news even in the world of global finance, as these countries are no longer the favoured destinations they briefly were. He points to the limitations of China's growth model, based not just on ever-increasing exports but on massive excess capacity creation increasingly financed through debt levels that are rapidly becoming unsustainable. He briefly (and it must be said, quite simplistically) outlines the problems with the growth strategies in other countries like India and Brazil. Some of his arguments read not as careful analysis so much as reiteration of trite stereotypes beloved of the international financial media, which now focus on weaknesses that they ignored during the boom.
But on a central question, that of inequality, Das is clear: "economic apartheid, in the shape of inequality, now threatens growth." (page 227) But the rest of that chapter is somewhat weak in suggesting how it can be redressed and how such inequalities can be reversed.
While he castigates Thomas Piketty for being limited only to asking for high taxes on capital and on inheritance, he himself offers no other solutions, and in other chapters he even criticises governments like those in Latin America that have taken direct and positive action, and is surprisingly wobbly on the need to curb finance and control rentier incomes much more explicitly.
On all of these issues, Das provides a clear and compelling critique of the existing system, one that can be usefully taken up to consider feasible alternative strategies (which indeed exist for each of the dilemmas he highlights). But because he does not appear to take these alternative possibilities seriously, his own thought experiment of a feasible alternative as described in his Epilogue is a stark one, unlikely to find too many takers.
Instead, readers should take note of the criticisms of existing policies and economic arrangements that Das describes, to consider how these can be changed for a better future in which at least the living standards and social freedoms of the majority of the world's poor can be improved. For that a closer look at class relations and the political economy of both policies and power in different societies and in the world economy is essential.
Some of Dr Jayati Ghosh's earlier columns:
Mr Finance Minister, "Acchhe din" is beyond your grasp
Has India become a more corrupt society?
Fault lines in Raghuram Rajan's prescriptions for India
A failed Finance Minister as President!
The scariest thing about the world economy