By Rajendra Shende, email@example.com
29 June 2009
When markets collapsed and when most of the major banks around the world went kaput, the governments around the world rushed to bail out the market. Almost overnight stimulus packages got prepared, approved by cabinets, politburo, senates, and parliaments and even by executive order depending on the political governing system in the countries. Almost in military-like marching order, all the sermons on virtues of open market economy made a 180 degree turn around. The goals of zero trade-tariffs and the best practices of ‘leaving the markets to work upon themselves’ were found to be strategically misconceived. In near orchestrated style, the governments around the world condemned the indulgence in not regulating the markets enough and ordered the system to intervene, control and even take over and nationalize the businesses. The intellectuals in political economy commissioned research and studies on virtues of monitoring the markets and vices of ‘market based economies’ and ‘economic which can turn the world into a devastating place due to ‘economic terrorism.’
The speed of response is lightening; the amount of the packages are as impressive as speed: Read these figures and bailout and stimulus packages: USA: US $ 800 billion (7% of Gross Domestic Product -GDP) , Japan: US $ 720 Billion ( 14% of GDP) , China US $586 billion ( 20% of GDP), EU: US $ 300 billion (apart from individual EU member states e.g. France US $ 40 Billion)-3% of GDP – and the list goes on. With those packages enter the ‘new system’ -or is it old system but forgotten?-of regulated growth.
The same time when the unprecedented financial crisis arrived on the scene and when governments started bailing out banks, the unparalleled Climate Change crisis started emerging with awakening concerns. It was evident that consequences of Climate Change would be devastating. Governments commissioned the reports at their leisurely speed to find out how much it would cost to avert the crisis. Some even thought that we cannot avert it now, so why not find the cost of managing the crisis. The governments had earlier debated the ‘bail out’ package to come out of the climate crisis. There was realization that a crisis is now at the doorsteps, and the floods of impacts are sweeping the world. The most authentic report was by Lord Stern commissioned by the British Government. It proposes that one percent of global (GDP) per annum is required to be invested in order to avoid the worst effects of climate change, and that failure to do so could risk global GDP being up to twenty percent lower than it otherwise might be.
But then, there was no bailout, no stimulus package for climate crisis. The speed of response was glacial. Governments decided to simply wait for ‘Copenhagen’ hoping that there will be ‘Hopenhagen’- agreement!
I recall that after the Montreal Protocol on substances that deplete the ozone layer was signed in 1987, there was a serious exercise to estimate the size of the package needed for averting global ozone layer crisis. Financial assistance to the developing countries was considered essential for the global participation to protect the ozone layer. These estimates varied fro US$ 2 Billion to US$ 25 Billion, i.e. up to 0.2 percent of the world GDP. Some estimates indicated US$ 1.2 billion for the first 8 years. The governments moved very swiftly and came out with bail out and stimulus package of US $ 160 million for first 2 years with provision of increasing to US$ 240 million if more developing countries joined. I was there in London, as part of the Indian delegation, to witness the approval of this stimulus package. The stimulus package has since then worked very successfully over more than 20 years. US$ 3 billions are provided to developing countries so far and multibillion dollars were spent by developed countries for their own phase out of ozone depleting substances. Earlier bail out package resulted not only in setting ozone layer on the path of recovery but also reaping a multitude of other benefits.