More ques­tions than an­swers

Con­spir­acy of si­lence con­ceals next big cri­sis

Finweek English Edition - - In The Spotlight - HOWARD PREECE howardp@fin­

THE BIG LOOM­ING GLOBAL eco­nomics ques­tion is sim­ple enough: Where, and when, will the next shoe fall? It is, of course, the an­swer – or more ac­cu­rately, the mul­ti­ple dif­fer­ent an­swers – that is so dif­fi­cult. I’m talk­ing of the world econ­omy, with all its im­pli­ca­tions for South Africa, af­ter the cur­rent in­ter­na­tional cri­sis has passed into his­tory.

Al­though that as­ser­tion may seem grossly pre­ma­ture, I’ve no doubt that there will be res­o­lu­tion – with many ma­jor flaws, nat­u­rally – of the cur­rent cri­sis. How­ever, I’m equally sure there will be other pe­ri­ods of mas­sive tur­bu­lence ahead.

In­deed, the seeds of some of those calami­ties have al­ready long been sown. They’re also the con­se­quences not of fail­ure but of un­prece­dented so­cio-eco­nomic suc­cess world­wide – with some ap­palling ex­cep­tions. The suc­cess is re­flected in the ex­traor­di­nary rise in over­all in­ter­na­tional real liv­ing stan­dards over the past 50 to 55 years.

That surge in the wealth lev­els of bil­lons of peo­ple has nec­es­sar­ily brought im­mense gains with it. But those gains soon be­came largely taken for granted – and fo­cus nearly ev­ery­where has un­der­stand­ably been not on what was achieved but on how much more was needed, or at least de­sired.

How­ever, even if – and I don’t re­motely ex­pect it – there were se­vere and sus­tained re­ces­sion in the United States in the com­ing years, peo­ple there gen­er­ally would re­main bet­ter off than they were only 20 years be­fore. But if that puts the cur­rent eco­nomic sce­nario into bet­ter per­spec­tive it doesn’t touch on the colos­sal is­sue that be­comes more so­cially and eco­nom­i­cally threat­en­ing by the year but which few politi­cians wish gen­uinely to con­front. That re­lates to three di­rectly as­so­ci­ated facts. • Peo­ple through­out the world – with a few very spe­cial and wretched ex­cep­tions, par­tic­u­larly in sub-Sa­ha­ran Africa – are hap­pily liv­ing greatly longer than they did 50 to 60 years ago, let alone a cen­tury or ear­lier. That’s in part a prod­uct of vastly higher global wealth, en­abling bil­lions to en­joy lev­els of food in­take, health­care and ba­sic shel­ter than would once have been pos­si­ble (with key lim­i­ta­tions) for only a priv­i­leged few. But even those for­tu­nates were still deeply vul­ner­a­ble to ill­nesses that to­day can be sim­ply and widely cured. When Nathan Roth­schild died in his fifties in 1836 he was prob­a­bly the world’s rich­est man. The cause of death was blood poi­son­ing that could to­day be quickly and ef­fec­tively treated by a cheap and eas­ily ob­tain­able an­tibi­otic. So the plus side is that to­gether mod­ern medicine and money have brought about pro­por­tion­ate enor­mous ad­vances in longevity – apart es­sen­tially in those de­vel­op­ing and emerg­ing mar­ket coun­tries rav­aged by Aids. But that broadly won­der­ful sce­nario doesn’t come for noth­ing. It im­poses im­mense fund­ing costs in terms of pen­sions and med­i­cal care, in­clud­ing long-term hos­pi­tal­i­sa­tion and sim­i­lar nurs­ing. But politi­cians are nearly all ex­tremely re­luc­tant to face up to the awe­some fi­nan­cial con­se­quences.

Robert Samuelson, eco­nomics colum­nist at The Wash­ing­ton Post, be­lieves nei­ther Barack Obama nor John McCain is spell­ing the ul­ti­mate truths about pen­sions and health­care costs in the US. But that’s pri­mar­ily be­cause the Amer­i­can peo­ple don’t want to hear them.

Sim­i­lar ob­ser­va­tions are made by other economists about all big-league po­lit­i­cal leaders and po­lit­i­cal par­ties in the Euro­pean Union, Ja­pan and other de­vel­oped na­tions.

The rea­son for this con­spir­acy of si­lence? There are few votes in tak­ing lots of money from vir­tu­ally the en­tire elec­torate – no mat­ter the cush­ion of pro­gres­sive tax­a­tion – to fi­nance de­vel­op­ments that will show few if any di­rect re­wards for any- one for many years ahead.

Politi­cians rather pre­fer to go the other way. For ex­am­ple, in 1997 Gor­don Brown, then Chan­cel­lor and now Prime Min­is­ter of Bri­tain, im­posed spe­cial levies on pri­vate pen­sion funds to pro­vide “stealth fi­nance” for Gov­ern­ment spending. Ac­tu­ar­ies es­ti­mate the cu­mu­la­tive cost to Bri­tain’s pen­sion funds now to­tals £100bn to £150bn. That’s cri­sis in gi­ant cap­i­tal let­ters down the line.

In the Euro­pean Union and many oth­ers, not least Rus­sia, fall­ing pop­u­la­tions are sub­vert­ing the out­look for so­cial wel­fare by a de­mo­graphic in­verse pyra­mid. The per­cent­age of those work­ing in re­la­tion to those who have re­tired for health and/or age rea­sons keeps on de­clin­ing.

But where then will the money be found to pay for ever-ris­ing pen­sions and state health­care needs? On cur­rent trends, it won’t.

SA’s judges can or­der the Gov­ern­ment to make medicines for Aids (and what else?) freely avail­able to all. But the judges can’t whis­tle up the money.

So don’t think for one mo­ment that once this cur­rent global eco­nomic cri­sis is off the front pages it will be the end of bru­tally dis­turb­ing fi­nan­cial news. It def­i­nitely will not be – in­ter­na­tion­ally or in SA.

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