Obama’s tough challenges

[arsa]

Dr Manzur Ejaz
Many of Obama’s staunch supporters from the left-liberal sections have already been disillusioned by some of his appointments. They feel betrayed by the way he is accommodating conservatives, and fear that the Obama presidency may turn out to be more of the same

By the time this column is published, Mr Barack Hussein Obama would have settled down in the White House as the 44th president of the United States. It is a great moment in the history of race relations in America. The question is: will he will reverse the course the US has pursued for the last 28 years after Ronald Reagan took over or will he be content with cosmetic changes?

The change of colour or gender of the person at the helm of affairs does not automatically guarantee remedies. Pakistanis already know that, as the replacement of General Pervez Musharraf with President Asif Zardari has not changed anything or repaired the credibility of state institutions.

Besides dealing with ongoing wars in Iraq and Afghanistan, President Obama will have to deal with depression-like economic conditions in the US. Not only does he have to find remedies for the prevalent economic disaster, he also has to root out the causes of this debacle. In addition, President Obama will have to attend to the fading power and sinking American image abroad.

For the American public, dealing with the ongoing economic devastation is the most important task: they can hold their breath on the resolution of wars and other international problems, but they can hardly wait on pocketbook problems. Therefore, President Obama has been preparing an economic package from the day he was declared elected. He has assembled an economic team that comprises people who had served in President Bill Clinton’s two-term presidency. The apprehension is that these old hands will again employ an ideology that is Reaganism with a hint of liberalism.

Up until now, the collapse of the US economy has been conceived as a minor failure in the market system. In other words, the US establishment believes that current economic model, based on the free market system, is sound but something has gone wrong in its implementation. This is the reason that to fix the problem, the bailout money has been handed over to the financial institutions which were cause of the colossal failure to begin with. The US establishment has not come to grips with the failure of the economic model adopted by Ronald Reagan and upheld by every administration that followed, including Bill Clinton’s.

The basic Reagan model was to transfer wealth to the upper-most segments of the society and to reduce the size and regulatory powers of government. This strategy appeared to be successful for a while but only through creating bubbles in the economy. As the richest 5 to 10 percent of America accumulated wealth at an unprecedented rate, the markets became prone to speculators and hence the emergence of economic bubbles became a recurring phenomenon.

On the contrary, the income of the rest of the Americans stagnated and their real purchasing power diminished. The majority of Americans made up their waning purchasing power through credit cards, generously given out by financial institutions. In short, it was an era of insatiable economic greed sustained with a financial system built like a house of cards.

In addition, the US labour force was made to compete with their counterparts in the newly industrialising economies like China and India. The labour costs in countries like China and India were way below the US and therefore most of the production migrated to these countries. The US manufacturing sector shrunk significantly, displacing large chunks of labour. The US shifted its economic base towards producing high-end technological goods and brokerage rather than mass production.

However, the US could not maintain its monopoly over high-end technological goods either because countries like China and India caught up with the US even in the human capital required for these enterprises. The US’ position as the world’s broker has also deteriorated because of its weakening economy and fading influence in international affairs

The US lost its economic edge gradually while its economy depended on consumers who were maintaining their consumption with borrowed money. They became oblivious to rising income gaps because their dreams were coming true through credit cards and unaffordable home mortgages. American society became a victim of amnesia and could not register the meaning of rising number of people with no health coverage, increasing poverty and homelessness. They could not calculate the cost of the military adventure into Iraq, cronyism, corruption and illegalities committed by their government.

Such a system could not last very long and it crumbled. No one saw it coming because the guardians of the system were either sleeping or having fun with little time to ponder hard issues.

The task for President Obama is extremely difficult. In order to rehabilitate the US economy and narrow the income gap — the basic cause of derailment of economy — he has to undo most of the things done in the last 28 years. He has to put a system in place where the income of majority of Americans grows and the rich pay their due share to sustain the economy. Furthermore, he has to find a way by which the US shifts its role from mere brokerage to the production of goods and provision of services.

All these things are very difficult because the supporters and beneficiaries of the old system will resist at every step of the process. Obama will face pitched opposition from the Republicans as well as from within his own Democratic Party. Faced with such hardened opposition, he may choose to leave the current economic model intact and work with cosmetic reforms. That is not going to work, and his popularity will plunge to levels comparable to the outgoing Texan.

Many of his staunch supporters from the left-liberal sections have already been disillusioned by some of his appointments. They feel betrayed by the way he is accommodating conservatives, and fear that the Obama presidency may turn out to be more of the same. But the jury is still out, and we will have to wait and see if President Obama delivers on his promises.
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