Gabriel’s Tsunami

An analysis of the economic crisis

by Gabriel Timar

Part 2: How do we climb out of the crisis?

It won’t be easy. The production capacity of the global economy is larger than the solvent market. To keep every factory working and churning out goods, the hardhats working on new houses, and farmers growing organic food in sufficient quantities, the market needs a continuous infusion of credit. Unfortunately, this carries in itself the seeds of the next crisis.

Actually, balancing production and market capacity is necessary if we are to climb out of the current quagmire. Mammoth corporations led by tsunami-rider CEO’s don’t even understand the concept of market balance, let alone try to make it happen.

Conservative politicians will cry foul and claim that I am attacking the free market principle. I offer no defense. The free market was all right as long as the general population could distinguish between needs and wants, captains of industry were smart and behaved responsibly, and the development of technology more or less kept pace with the intellectual evolution of society.

But now things are completely out of whack, and the world’s economy must shrink about twenty-five percent in order to balance itself. That cannot be accomplished by stimulus packages enticing a society already in debt up to its eyeballs to borrow and spend more. We might achieve a temporary upswing in employment, nothing else.

This is the time for retrenchment. We must keep economic growth at zero. Rein in the development of technology. Outlaw certain automated processes, because they kill jobs and are grossly inefficient.

For example: forbid automated telephone answering systems where the caller must keep pressing buttons or converse with machines — and not get the call through. Allegedly, several people have suffered heart attacks while talking to computers on the telephone. Whether that’s true or not, everyone can sympathize.

We should support brand-new industries generating clean energy, even though certain internal protectionist measures are essential to keep these firms alive. For example: the government should levy an extra tax on gasoline to keep biofuels competitive.

We should repatriate some of the jobs our profit-hungry mammoth corporations have exported. How? I do not know, but do it gently, because nations are often willing to go to war for market share. As Americans are unable to win, they must be careful, because San Marino might decide to attack them and take over the world’s tomato market.

Seriously, guiding the U.S. economy out of the crisis is a Herculean task. There are many adverse interests at work. In order to tackle the problem painful operations are necessary if we want the patient to recover.

Cut the corporations down to manageable size.

At the heart of the problem are the mammoth corporations headed by tsunami-riders hell bent on growth. Somehow, we must break them up and force them to slow down.

Profits are the main motivation to buy shares in a corporation. However, in the last few years, all profits went into growth to increase the share price — to assure the CEO’s bonus — until a crisis ensued like the one we are having now.

Share prices collapsed, and the investment as well as the earned profits of many years nearly went down the drain. However, the CEO kept collecting his bonus. I would make it compulsory for all corporations to distribute at least seventy-five percent of the profits, leaving it up to the shareholders to spend or invest it.

Operating on a cash basis is one of the tools that keep a firm on solid foundations. Monster corporations cannot do that. Why can’t they? The reason escapes me. At the end of the year, most of them show a profit, but before the stockholders’ meeting the company is usually in the red. This is due to poor organization, nothing else.

Although I am not a professional manager — only a dumb engineer — I managed a fair-sized engineering consulting firm in a foreign country on a cash basis. I accept the fact that it’s much easier to have a small firm operate on cash basis, but the CEO’s of GM, AIG, etc. are supposed to be smarter than I am, therefore they should be able to do it. Perhaps this is another argument to trim large companies down to manageable size.

As long as a banker has personal contact with the borrower, the account is rarely in jeopardy. We should simply forbid the bundling of loans into funds, and that should force considerable decentralization. Eventually, instead of monster banks, banking franchises should appear.

The monster automotive firms looking like drunken giants should trim down to size. For example:

Merge the Research & Development and design departments into one or two independent engineering firms.
The assembly lines should develop flexibility. They should be able to turn out trucks today and sports cars a week from now. The engineering talent and the technology exist, but it is under-utilized.
Limit production. The corporations should police themselves by not permitting the introduction and sale of a new model year if they still have a certain number of last year’s units in stock.

The electronics business is tougher. The technology grows in leaps and bounds. The firms should not introduce new versions of a product within, say, two years. This should apply to hardware as well as software.

All software programs should be fully compatible with all earlier versions. This way, only the people needing the new features would buy the latest version. Such a rule would be an incentive for the software designers to make meaningful improvements to their programs. The resulting control of the current free-for-all should keep the electronics industry in check.

As far as energy is concerned, coming close to national energy independence in every country is most important. This would run afoul of major oil and gas exporters such as Russia, Saudi Arabia etc. Diplomacy and a united negotiating front are essential, because nations often go to war for a share of the market.

It is not inconceivable that the Russians would attack the European Union. As the Saudis have no army to speak of, they are liable to refurbish the equipment of Al Quaïda and similar organizations.

Granted, it is a long process to attain energy independence. However, when it comes to negotiations with the oil giants, one should explain to them that the consumers’ gradual reduction of fossil fuel dependence is in their interest too, as it stretches the life expectancy of the Russian and Saudi oil reserves.

As substitute energy sources are slowly surfacing, taxing fossil fuels should render clean technologies competitive and accelerate the conversion.

Health services must be nationalized. No matter how unpalatable it seems to some people, socialized medicine — at least in primary care — would benefit the majority of the people. Alas, it would not make insurers very happy.

Nevertheless, the extent of coverage in a National Health Primary Care System should leave room for supplementary coverage. The insurance companies could pick it up. As far as jobs are concerned, this move would be personnel-neutral, perhaps requiring more administrators. The decentralization of services would be essential to maintain contact with patients and a high level of efficiency.

End the war on terror.

There are two ways:

Negotiate. First, find out who controls the terrorists. Evidently, every fighter must have at least five civilians to feed, arm, clothe, comfort, and indoctrinate him. Without them, he could only throw stones. We must persuade the civilians not to support the terrorists. If negotiations do not work, let’s go to plan (b).
Let’s face it; the terrorists speak the language of violence only. They do not seem to understand anything else. Therefore, to terminate the war on terror the Americans should give up the Geneva Convention and adopt the terrorists’ own rules of engagement.

Such a move sounds cruel and uncivilized, but I do not see any other way. For example: to stop the Hamas rockets raining down on Israel would be easy: simply dump a few tons of high explosive on Gaza indiscriminately in the same manner as the enemy fires the rockets. The often touted claim of “we will not stoop to their level” does only one thing: it assures the enemy’s victory.

Last but not least, Americans must balance their wants and needs with their wallet, and learn that the claim You can accomplish anything you want is false. As a three-foot tall midget will never become a guard in the NBA, there are things that the average Joe Citizen will never be able to afford.

The international considerations

The rest of the world justifiably blames the U.S. for the crisis. However, the U.S. could not have induced the crisis alone, nor can it get out of the quagmire on its own. As no country is immune to the crisis, getting the world’s economy back on its hind legs is not going to be easy.

Unfortunately, the U.S. must take the lead. In World War Two, if the U.S. had faltered or made a wrong move, it would have dragged down all the Allies. This time, the allies are all the nations on the planet.

Protectionism would solve the problems of the U.S., but the backlash might push it back into the isolation that persisted before the First World War. In the age of the jet aircraft and roaming bands of terrorists, isolation would be untenable.

International consensus-building must take place before nations can introduce synchronized remedial measures. The stabilization process will be slow. Countries having only subsistence-level agriculture and minimal industrial development will suffer the most, because they rely on foreign aid, which is going to dwindle.

To a certain extent, that is the developing countries’ own fault. In the days of practically inexhaustible aid, they misused international assistance. For example: The developing world constantly clamors for safe drinking water, among other types of help.

I doubt there is anybody on this world more acutely aware of the need for clean water than I am. I spent decades in Africa, Asia, and the South Pacific islands constructing rural water supply systems. Since the late 1960’s, the industrialized world has spent billions of dollars aiding water development — to no effect. Those were the good old days, when the U.S. dollar was worth four Swiss francs.

The following story demonstrates why I lost sympathy for some people in the Third World. In a small African village, using aid funds provided by a Scandinavian country, I managed to drill a well in the middle of the village and installed a hand pump. My team and I thought we had solved the community’s water supply problem; the women would no longer have to carry water from five miles away.

Two weeks later, I returned to the village to see how they were doing. To my surprise, the locals had managed to damage the hand pump and the borehole beyond repair. I inquired but did not receive a satisfactory explanation.

In the end, the schoolteacher — a CUSO volunteer — dropped a hint: “The men in the village damaged the well because the women were at home all day bossing them around.” With the well destroyed, the ladies were back to spending most of their time carrying water over a distance of five miles.

The global village behaves like that in many other sectors. Corruption, senseless traditions, and incompetence create problems, and freeloaders bank on the generosity of softhearted Americans.

Proceed to Part 3…