Thursday, December 25, 2008

Flat and Arid: Thomas Friedman's World-View

Thomas Friedman, Hot, Flat, and Crowded, Why the world needs a green revolution – and how we can renew our global future, Allen Lane, London, 2008, pp 438, 20 pounds (Rs 595); ISBN 978-1-846-14129-4.

Much contemporary wisdom, it seems, originates on dining table napkins. Fiscal policy was influenced rather inordinately and for much too long, by the mythical conception called the “Laffer curve”. That was a serious misfortune and not just for the country of origin of that theoretical artifice. And it had its origin on a dining-table napkin, where the economist Arthur Laffer sketched out what he believed, was a new way of looking at the relationship between tax rates and the resultant revenue yield.

A whole generation later, Thomas Friedman, over a vigorous lunch-time discussion with the editor of Foreign Policy magazine, sketched out what he thought was a compelling inverse relationship: between the price of oil and human freedom. The higher the price went, he argued, the bleaker was the world outlook for the fundamental practices of liberty. This most recent wisdom to dawn from modest origins on a dining-table napkin, could be called the “Friedman Curve”, though the author of this book is perhaps much too modest to claim that eponymous honour.

The point that Friedman makes seemingly has a strong empirical grounding. When oil was hovering around the $ 25 a barrel level, he recalls, U.S. President George Bush could claim to see a friendly soul in his Russian counterpart Vladimir Putin. But when oil topped $ 100, the hidden, dark depths of Putin’s soul emerged: his urge to bend every other institution of the Russian polity, including the media, to his will, and his latent hostility towards western liberalism.

Similarly, when oil was selling at a modest and reasonable level, Iran elected the reform-minded cleric Mohammad Khatami as president, one of whose stated intentions was to launch a new phase of détente with the west. But as the oil price climbed, the reformist strain was reduced to a marginal existence, culminating in the election of the fiery former Islamic vigilante, Mahmood Ahmedinejad, as Iranian president in 2005.

Three years ago, Friedman turned Copernicus on his head, by pronouncing that “the earth is flat”. He has since then, rehearsed most of the arguments he now advances, in his column for The New York Times. But reading through this latest book of his, it is difficult to avoid the suspicion that Friedman is so deeply mired in the notion of “flatness” that he cannot see the multiple complexities of the contemporary world in more than two dimensions.

To just reverse the gaze that Friedman directs at the rest of the world: between Khatami and Ahmedinejad, Iran went through a phase of engagement with the west that began with a significant act of historical accountability, even atonement, by the U.S. In 1998, the U.S. administration of President Bill Clinton declassified papers relating to the 1953 intelligence operation that overthrew Iran’s democratically elected Prime Minister, Mohammad Mossadegh, and foisted on the country a quarter-century of the quirky autocrat who called himself the Shah of Iran. That act of accountability was meant to sweep away the debris of the past and open up new possibilities of rapprochement between the U.S. and Iran.

Needless to say, the right-wing in the U.S. political spectrum took a dim view of this mea culpa, which it said, was corrosive of the entire U.S. foreign policy process. And with the right-wing restoration of 2001, Bush effectively choked off all new channels with Iran.

Similar hostile actions towards Russia, notably in the unilateral abrogation of the Anti-Ballistic Missiles treaty, could account for the relative hardening of attitudes towards the U.S. in that country. Now it is perfectly conceivable that without the rapid increase in oil prices seen over the last seven years, neither Russia nor Iran would have been in a position to challenge some of the U.S.’s more arbitrary diktats. Yet, it is a peculiarity of Friedman’s flattened perspective, that he consistently equates a country’s policy attitude towards the U.S. with its respect for human freedom, without ever turning his gaze towards the bullying, hectoring stridency of the U.S. engagement with the world under the Bush administration.

One of Friedman’s moments of revelation in recent times, was when engaged in conversation with an Indian software tycoon, who told him that the Indian industry’s success was a consequence of the “level playing field” they were given by the economic policy reforms of the 1990s. That remark was transformed into the epochal wisdom of the “flat earth”. The world, said Friedman, was increasingly being knit together by a constant striving for similar values and lifestyle paradigms, under virtually identical rules on economy organisation.

That very rosy forecast has been transformed into a more recent mood of alarm. Friedman now frets that the world, though flat is also getting too hot and crowded; that the consequences of flatness, of everybody believing that the American way of life was their rightful aspiration, could well be catastrophic. Now abreast of findings on global warming, Friedman asks the question that has been laid down as a challenge to the conventional development paradigm by numerous proponents of an alternative path, from economists of a gentle persuasion such as E.F. Schumacher to political radicals such as Fidel Castro. What would happen if India and China, not to mention all the other countries with high levels of aspiration in terms of lifestyle paradigms, were actually to achieve U.S. standards?

The answer quite clearly, is catastrophe. Resource exhaustion was the principal worry a generation back, though climate science has today established with reasonable certainty that the ecological balances that make life on earth what it is, will snap well before that stage is reached.

Friedman’s concerns clearly, have been awakened by an amalgam of the political and the ecological. On one side, he worries that the U.S. addiction to fossil fuels is subsidising the world’s greatest despots: from Saudi Arabia to Venezuela to Russia, they all rank in Friedman’s scale at roughly the same moral level. With the whole world emulating the U.S. since there is no other model available, the coffers of the autocrats of oil are assured of never running low. This could likely precipitate a political crisis for the U.S., ruining its efforts to bring liberty to the world. And it would culminate in ecological holocaust for the entire globe.

Is Friedman then, out to save the world or to retrieve American leadership? Seemingly both, since the well-being of the planet is bound in his perception, with the good-sense and the benign sense of purpose that only the U.S. can bring.

The way forward then, is to embrace a “green strategy” in energy, which would of course have ramifications in virtually every other domain of human endeavour – housing, transportation and numerous others. Friedman recalls with some degree of triumphalism, that the energy efficiency standards that were introduced in the U.S. after the first oil shock of 1973-74 “not only weakened (the oil exporters’ cartel) OPEC but also helped to unravel the Soviet Union”. But then, the virtual repeal of these efficiency norms when prosperity returned to the U.S. in the 1990s, shifted the geopolitical balance yet again.

A relentless sense of U.S. exceptionalism and primacy stalks this book, permeating the strategies that Friedman has in mind for mitigating the planetary ills he lists. With all the mixed record of implementation of the Kyoto protocols on global warming, world governments still remain engaged with the task of working out an agreed, common strategy. By December 2009, the global community is committed to agreeing on a treaty that will supplant Kyoto, addressing the key weaknesses in both its conception and implementation. Friedman remains indifferent to this project, since he does not see very much utility in global treaties. Rather, he would like to see the U.S. set off on a green crusade of its own, transforming itself within a generation into the most ecologically friendly nation in the world. The rest of the world, already inured to the idea that their well-being lies in emulating the U.S., would then voluntarily follow the same path, since “a truly green America … would be more valuable than fifty Kyoto Protocols. Emulation is always more effective than compulsion”.

Friedman’s strategies embrace a wide range of options, but they are derived in essence from what he portrays as the vast innovative capacity of the American people, their ability to contribute in many diverse ways to “nation-building at home”. The ideas are there; they just need to be tapped. The multiple missions that the U.S. needs immediately to embark on, include the replacement of fossil fuels (evocatively referred to as "fuels from hell") with renewable sources like wind and sun ("fuels from heaven"). This would require, for a country where lifestyles are built on wheels, the rapid adoption of electric engines by the automobile industry.

A technical hitch arises right here. A switch to electric automobiles would not in itself make much of a dent on the problem of climate change, since the car batteries would still need to be powered by an electricity grid that runs on fossil fuels. It may well aggravate the problem by bringing in one additional stage of energy conversion into transportation – from fossil fuel to electricity and then into motive power -- with all its problems of efficiency loss.

To get around this problem, the electricity grid itself would need to make the transition to renewable sources. And that problem appears fairly intractable, since there is no way that wind and the sun – which are intermittent and relatively low on energy density – can power an electricity grid that dispenses concentrated energy at virtually all times of the day. This has been part of the common sense thinking on alternative development paradigms for at least two generations. Friedman, obviously, does not get it, since he is obsessed above all, with preserving the American way of life and global leadership.

The “bottom-line” as he puts it, is that “America needs an energy technology bubble just like the information technology bubble”. This would require that the government make it “an absolute no-brainer to invest in renewable energy”. The reference to a “bubble” is interesting, since Friedman’s book arrives in the market at precisely the time when the adverse effects of the housing bubble burst are beginning to kick in.

Contrary to all his dark forebodings about the autocrats of oil seeking to destabilise U.S. leadership with their windfall earnings, he concedes that “sovereign wealth funds” based in these countries “have played a very healthy, stabilising role in the 2008 American subprime mortgage crisis”. One could well ask: what then is the problem? If the autocrats of oil are finally doing the U.S. a favour by recycling all the superprofits they make into Wall Street, what really does Friedman have to complain about?

The worry, it seems is long-term, since “over time” it is difficult to believe that the “economic clout” of the autocrats “will not get translated politically”. But Friedman seems to omit one matter of crucial detail: that the money has always been held in dollar assets and in many ways has served to keep the U.S. economy afloat.

Here is where Friedman’s most illustrious predecessor as a dispenser of napkin wisdom kicks in. The “Laffer curve” originated in a particular economic conjuncture in 1974. The U.S. was in desperate economic difficulties. The Arab world, with Egypt and Syria in the lead, had just been beaten back in a war fought to reclaim territories seized by Israel in the 1967 war of conquest. The oil-rich elements within the Arab world had joined the campaign for the liberation of Palestine by imposing an oil export embargo on nations seen to be supporting Israel’s occupation. Prices of oil spiralled upwards.

The U.S. was then in a conjuncture of declining manufacturing competitiveness and uncertainty about the future global role of its currency. The dollar had been delinked from gold convertibility and was in free float, seemingly unable with inflation rampant, to find its true level. At the same time, the federal government found itself over-extended on the fiscal front. Tax rates had been steeply raised to support welfare programmes launched in 1960s, and the Vietnam war, though winding down, was still claiming large outlays.

Times were difficult, calling for extraordinary measures. And Arthur Laffer in a moment of epiphany saw the pathway out of the morass. Tax revenues are not proportional to rates, he said, since rates that are seen as excessive have the effect of diminishing the instinct to innovate and produce. Low rates in fact, may be the key, since they would restore entrepreneurial incentives, contributing to a significant increase in social output. When output itself is growing rapidly, even sharply lower tax rates would yield higher revenues.

When this wisdom known as “supply-side economics” became official policy with Ronald Reagan’s revolution against good sense in 1981, the U.S. slipped rapidly into a massive external payments deficit. The economy from then on, was kept afloat by infusions of funds from abroad. The dollar came unofficially, to be premised upon the “oil standard”. Borrowed funds became the basis of economic growth for the U.S. First it was the federal government, then the corporate sector and finally, the household sector, that took on this debt.

Friedman’s insistence on a “green technology” bubble in this context is arresting. By definition, a bubble is known to form when values of assets – such as shares and real estate – far outrun their true long-term utility. A bubble is typically a consequence of concerted action by a large number of people with power to move finances into particular sectors, which boosts asset values in those sectors and induces more investors to enter. A bubble creates assets that do not improve overall national productivity. Though there have been some claims that the information technology bubble of the 1990s did contribute to productivity growth, the consensus view emerging today appears to be that it did not.

A “green technology” bubble would in these respects, be a worthwhile successor to all its predecessors, in sucking in volumes of global savings into the U.S., for no discernibly useful purpose. This does not mean of course, that the rest of the world can remain unmindful about the imperatives of a greener future. The options available have been much talked about and even hesitantly tried out in many parts of the developing world. If anything, they have been abandoned because of the power of the conventional wisdom, that emulating the U.S. is the only way to go. As a recent reviewer put it, Friedman represents the advance guard of the conventional wisdom, exploring pathways where the “group-think” of the U.S. establishment will reach in relatively quick time. His work offers abundant reason why the developing world should awaken to the compelling reality of today’s crisis-wracked world: that emulating the U.S. is perhaps the surest pathway to collective suicide.

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