THE CHANGE WE GOT!

IIPM set to beat economic slowdown

Most probably by the time you are reading this feature, Barack Obama might have stepped into the White House as the new American President. But is he the much needed saviour of the sinking US economy as people in America, and for that matter, across the world are hoping? 4Ps B&M’s Pawan Chabra analyses…

“The road ahead will be long. Our climb will be steep. We may not get there in one year or even in one term. But, America, I have never been more hopeful than I am tonight that we’ll get there. I promise you, we as a people will get there.” Barack Obama, America’s first black president spoke these optimistic words in his winning speech in Chicago.

As Obama takes charge of the White House on January 20 (where more than 2 million people are expected to attend the event), America, and the world, waits with bated breath to see whether an Obama term does actually bring all more smiles than his election did. “Obama will face more obstacles than expected to generate ‘change’, from inner rivalries within his team, vested interests within the military-industrial complex, et al,” asserts Simon Shen, Director of International Relations Research Programme, Hong Kong Institute of Asia-Pacific Studies. And honestly, Obama will have to take some very bold steps to ensure that America is a better place to live in before his term ends. At a time when the unemployment rate is looming over 7% (highest since the Second World War) and financial markets are seeing stars in broad daylight, Obama must get the money flowing in fast.

The US economy accounts for almost quarter of a trade that happens within all the global economies and “once the US economy is stable so will be the case with the other developed markets and the emerging markets,” avers James Michael Poterba, President, National Bureau of Economic Research, US. Obama’s plan could create up to 4 million new jobs in the US economy by 2010 but if no step is taken on an urgent basis and the Congress doesn’t agree on the package, the unemployment rate can reach 10%. If the proposed stimulus package is accepted by the Congress, the federal deficit for the fiscal 2009, ending September 30, is likely to triple to $1.2 trillion, or 8.3% of GDP, far above the 6% in 1983. And if we include Obama’s stimulus package, which would bring the deficit to a shocking $1.8 trillion or 12.5% of GDP. On one hand, Obama has promised a tax structure to cushion the middle class Americans to deal better with the recession, on the other, he is looking for sustained investment in infrastructure to create jobs for the long term.

Obama has already made the right noises with his support for an auto sector stimulus. But he is not going to be strict on top executives of bankrupt companies. There have also been some voices of discontent with respect to his proposal for ‘say on pay’, which will give shareholders a nonbinding proxy vote on executive pay. The new President elect has also suggested supporting small businesses by offering more lending and cutting taxes. He is also advocating removing tax cuts for oil companies. He has repeatedly lamented America’s reliance on Middle East oil; and the need to bring in a new energy economy; with alternative sources being explored in a big way. So investments in green technology could increase substantially. He could however set a dangerous precedent with his ‘protectionist’ approach (as indicated by his campaign speeches) towards Chinese manufacturing and Indian services in particular.

Time is short and choices are hard for Obama as he sets about delivering on the promise that brought him to power. And what makes it tougher is the fact that Obama’s Presidential term would have a historical significance that far outweighs that of his election. It’s a daunting challenge, but also an exceptional opportunity.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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