A Third Successive Blow to a Failing Global Regime

Election of Donald Trump as US President 

As we write this article the latest indications are that Mr Donald Trump will soon be anointed as the next President of the United States of America. The end of one of the most vile and controversial presidential campaigns in modern American political history has finally ended with the most disturbing possible outcome for the rest of the world. Political analysts will have a lot on their plate trying to explain how we reached there and where we go from here.

Meanwhile the markets have already reacted and the price of gold shot up – a sure sign that the markets expect instability, unpredictability and perhaps deep recession in the global economy. The Asian markets have opened up in negative territory and plunging. The effect on the dollar would at least initially be negative as analysts rely on the pronouncements of the future President regarding his economic policies especially as regards his views on international trade and immigration. His fiscal policies based on substantial reduction of taxes for the wealthy and big business is expected to further widen the fiscal deficit of the US by up to USD 30 Trillion over the next ten years.

There could be no greater testimony to the collapse of the American bi-partisan system of government than this result which has stunned the world. How could a maverick such as Donald Trump, who was not even a supporter of the Republicans only some time before engaging in the primaries, have made it to the White House? The Republicans who have preserved their control over the House of Representatives, as was expected, have also managed to obtain a slight majority in the Senate. It is therefore most likely that it is a Republican Congress that would be called upon to constrain the excesses of the future maverick President.

After the Great Financial Crisis of 2008 and the Brexit referendum in the UK, the election of Donald Trump constitutes the third successive severe blow to the global regime of unfettered market and deregulations which has been put in place over the last three decades or so. The ravages of this regime on the fabric of society even in developed countries, through growing inequality in wealth and income distribution and an accompanying sense of disorientation among large strata of the population, are now finding political expression in extremist and populist parties. One is now left to wonder whether in the same vein the next shock would not come from France with the election of Marine Le Pen as President.

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Modi Sarkar Strikes a Decisive Blow

As all ears and eyes were focused on the presidential elections in the United States, this “breaking news” from India suddenly hit the screens. In a totally surprise move Prime Minister Modi announced in a national television broadcast that currency notes of Rs500 (USD 6,50) and Rs1,000 were being withdrawn from circulation as from midnight on Tuesday (a few hours after his broadcast). In one fell swoop, the Prime Minister had delivered on one of his most important electoral promises and apparently to the delight of most of his supporters. Fighting “black money” and corruption had indeed been high on the agenda which had seen the Prime Minister’s party, the BJP, win a landslide electoral victory almost three years ago.

Those who are familiar with life, at least in the metropolis of India, will surely have an immediate sense of the kind of shockwaves which such a measure would cause. For all others it could be more easily appreciated when one knows that in India most daily transactions are in cash and it has been estimated that more than 45% are in Rs500 and 1,000 denominations. The challenge of implementation of this measure in such a vast geography is of course going to be tremendous as Indians wake up on Wednesday morning wondering what to do with the wads of notes stacked in their pockets and vaults.

This extremely bold measure to tackle the phenomenon of black money – associated in the popular mindset in India with one of the most excruciating and long standing forms of injustice in the country – will certainly have positive political fall-outs for the government. Even more so as Mr Modi and the BJP have always had a more liberal economic policy agenda. They have been perceived as close to the business tycoons of the country and indeed were openly supported by a number of them for the last elections. True to form though the Prime Minister of India has again shown that he can stick to his principles when it comes to the national interest. As the very liberal Economist magazine would put it, governments need to be pro-market and not pro-business. A distinction that many would gain to ponder.

In addition to the primary objective of striking at the malfeasance of black money hoarding, the withdrawal of the Rs 500 and 1,000 denominations from circulation also has a secondary objective. It has long been suspected that terrorist organisations have been introducing massive amounts of such fake notes into India over the years. Through this measure, the Government of India will also be inflicting a severe blow to the financial networks of those criminal/terrorist organisations.

Add the above decision to that of the Goods and Services Tax (GST) which was introduced some months ago in the Indian Subcontinent and you have a game changing situation for the economy of India.

Rajiv Servansingh