The current economic crisis has a fatal attraction for economists. It creates in them an urge to write about it or some aspects of it. But then, the earliest victim of the crisis was the profession of economists. With all the sacerdotal wisdom at their command, they had failed to foresee it. Small wonder, there has been an explosion of writing on the crisis, though it has abated somewhat recently.
The book under review is by three economists who were working with the International Monetary Fund (IMF) during the worst years of the crisis, with Adarsh Kishore serving as India's Executive Director and the other two being his advisers.
Going by the rather tantalising title of the book that promises a view of the crisis “through an Indian looking glass,” this reviewer had hoped that the authors, having had the unique advantage of working with the IMF when the crisis was imploding, would offer an Indian perspective from their perch in Washington. Earlier, we have had the benefit of the views of the likes of Y.V. Reddy writing from Indian shores.
As it turned out, there is no Indian perspective in the book, except of course in the title. There is a chapter on “Impact on India”, which merely gives a descriptive account of the monetary and fiscal conditions prevailing before and after the crisis, and of the government's policy initiatives; it makes no evaluation.
The “Pre-Crisis Big Picture” depicts how India was “preparing for an acceleration of its growth trajectory on the basis of sound fundamentals and reasonable stability.” In the authors' assessment, the crisis is a hiccup which “appears to have been an interruption in the secular upward drift of the economy.” They hope for the restoration of healthy market institutions and “business as usual.” But they have gnawing doubts, and their ideological moorings are unclear — neither Left nor wholly Right, but somewhere in between.
Origin of crisis
The book has seven chapters, with the earlier ones discussing the origin and proximate causes of the crisis. The authors blame it more on global imbalances than on the failure of the free market or the “efficient market model.” There are references to the damage caused by derivatives, structured products, etc., but only a weak reference to regulatory failures. The “policy capture” made by Wall Street in deregulation finds no mention. The approach the authors suggest is one of willing to hit, but unwilling to hurt. In all this, one finds no ‘Indian looking glass'!
The chapter discussing the impact of global economic crisis on several countries provides the aggregates on GDP, etc., but leaves out the real side or critical parameters such as unemployment, poverty, and loss of income. What is on offer are watered down editions of IMF documents. There is no effort to examine the welfare indicators.
The chapter on ‘Policy Response' describes the responses of many countries, groups and agencies, and they are drawn from secondary sources. While the authors provide a wealth of material, they make no attempt either to look at it in an integrated fashion or test the validity of the data against their own norms.
Lack of coherence
They dismiss the “new recipe for reforming globalisation” offered by the U.N. Commission headed by Nobel Laureate Joseph Stiglitiz for lack of coherence among the IMF, the World Bank, the G-20, etc., over the principles for reforming the international financial system. But they fail to admit that this lack of coherence was at the root of the crisis and needs to be remedied.
This book was written in 2009, when the crisis seemed to have abated somewhat and there were signs of “green shoots.” At many points, the authors refer to signs of revival and hope of early recovery. They warn against the risks of early withdrawal of ‘stimulus' and the need to strengthen banks through measures such as cleaning up toxic assets, and recapitalisation. These are IMF shibboleths that have been given up in the second round of the economic crisis, which threatens to bring down the euro and the European Union and destabilise the U.S. banks. The authors, who have made a feeble attempt to update the book to mid-2010, could have revised the earlier draft or added a postscript to cover some of these developments.
The last chapter is in the nature of reflections on the lessons learnt from the crisis. Some of the comments are valuable and provide an insight into the working of the IMF. However, they are stray musings, not properly integrated with an over-arching economic philosophy, Right or Left.
Overall, this book is a pedestrian contribution that hardly advances our understanding of the complex issues.