(This book review was published in DNA edition dated December 28, 2009.)
After everything that the global economy and financial system have been through since last year, apocalyptic prophecies now come a dime a dozen. Economist and fund manager Richard Duncan has, in fact, been making them for a while now: in his 2003 best-seller The Dollar Crisis: Causes, Consequences, Cures, he argued, with amazing prescience, that the credit-fuelled consumption boom in the US was a bubbled inflated by the financial sector, which would unravel “when the US property bubble pops”.
In his most recent book, The Corruption of Capitalism: A strategy to rebalance the global economy and restore sustainable growth, Duncan subjects the US economy, still reeling from the effect of the crisis, to more clinical analysis, and his prognosis isn’t comforting. “The US economy is simply no longer viable as it is currently structured,” he writes. “The hard truth is that the US produces very little that the rest of the world cannot buy much more cheaply from developing countries.” The economic crisis confronting the US and the world is not cyclical, but structural.
And although a massive, Keynesian government spending program may have averted a downward spiral into another Great Depression, the US economy is still on “government life support”, with the risk of another collapse if the government pulls the plug on the spending. “It isn’t going to take many more years of 10% unemployment for the US to realise that globalisation is not working out very well for it,” Duncan told DNA Money. “It raises the risk of protectionism, which would be dire for America and disastrous for the rest of the world.”
But rather than just pile on the gloom-and-doom stuff, Duncan takes the analysis forward by offering a ‘smart Keynesian’ strategy to not just support the economy but to overhaul it so as to address the problem at its core and find a “permanent solution” to both the US economic crisis and the global imbalance it has spawned.
Rather than spend trillions of dollars on fiscal stimulus to keep the economy on life support– as Japan has been doing for 20 years now – US policymakers should go in for an ambitious “government-directed industrial program to restructure the economy and make it viable again,” Duncan argues. This would entail an additional $3 trillion investment in 21st century industries – $1 trillion each in solar energy, genetic engineering and biotechnology, and nanotechnology.
Such a massive government investment – which could be easily funded (and he explains how) – would give the US an “unassailable lead in the technologies of the future” – and the US would be able to make products that the rest of the world desperately wants, “but which they can’t buy anywhere else at any price.” The kind of miracle that could be created with the $3 trillion government-directed program would be mind-boggling; no other country could envision investments on this scale, he reasons.
Duncan points out, rightly, that such a spending program would face impediments, including from vested interests with much to lose. But if Washington makes the most of the possibilities offered even within an unstable economic paradigm, and undertakes this ambitious investment program, “not only could the global crisis be resolved, but extraordinary advances in human progresss could also be achieved.”
The challenges posed by the collapse of the US’ post-capitalist economic model should not be underestimated, writes Duncan. “Nor, however, should be that country’s prospect for overcoming it.”