Obama's New Deal
President Obama had to muster all his oratorical skills to deliver this year’s State of the Union address, just as Americans started blaming him for their plight. He had a lot at stake. He was under pressure, this being another election year, from his own party and those who voted for him. He had to answer his critics – those who are thinking that he is trying to do too much and those who are thinking he is doing too little – and show the country that he is still in control and setting the agenda. It was, in all, a difficult speech, he had to strike a balance at every step, and he had to answer the critics and naysayers while calling for an end to ‘an election every day’ and unnecessarily divisive politics.
Clearly, his greatest worry is the economy. Justifiably so, especially as the employment figures look dismal. Even when business outlook has started looking up and other economic indicators are also on the way to recovery, there are fears that America is looking at a jobless recovery of sorts. BBC reporters talked about the dire situation with regard to jobs some parts in America, where one in four people are jobless. This concern pushed aside all the other issues from the agenda, the President did not mention terrorism in the first hour of his seventy-five minute speech and only spent a brief spell on healthcare reforms, supposedly the core of the legacy he wants to leave behind.
So, he needed to offer a New Deal, and he did. He justified the tax on banks, and pointedly connected the money recovered from the Wall Street banks to what he would give to the community banks, in order to energise local economies and small businesses. This is timely, given the reality that the inner city economies are the ones that need this support most. Besides, this is also an admission of fear of the jobless recovery, and the fact that he may be presiding over an economy, which looks up without bringing the desired political bounce.
There are many good ideas in the speech. The tax breaks for capital gains on small business investment is one of them. Tax breaks for businesses that have hired people or raised the wage look idealistic, but will possibly go down well. The acknowledgement of the role that small businesses play in economic recovery – they are the most effective tool of distribution of wealth while creating economic momentum known to us – is welcome and will hopefully serve as a call to action to governments in the developing world, which seem to get the equation completely wrong. All of Obama’s measures today assume the centrality of small businesses, something which Margaret Thatcher instinctively understood in Britain, and offer an alternative template for economic policy-making, and may even become the centrepiece of his legacy.
There are other not-so-good ideas, including the idea of using taxation mechanism to stop ‘shipping jobs abroad’. In a rather clear policy pronouncement, which is really follow up on his earlier comments, President Obama wanted to make a villain out of the companies which may employ people abroad and punish them with two sticks – withdrawal of any tax breaks they may be having and passing on those tax advantages to their competitors and other companies who may not have an offshore operation.
While the President made it sound it like common sense, one would suspect that the reality is less clear. For example, while it was made to sound like one of the attempts to reward small businesses at the expense of big businesses, the concept may be at odds with another of President Obama’s aspirations – to push American exports abroad. Let us set aside the straightforward paradigm of small factories employing local workers and big banks setting up call centres in China and India and firing their workers, and instead think of many real situations today where Google will have a research centre in a Chinese town because it may find the most talented workers there, or a manufacturing firm will use Indian designers to design their latest product because the expertise is available; the situations where the American firms must participate in a process called GLOBALIZATION which they themselves have taught the world and demanded that markets and investment opportunities should be made available to them. President Obama can not have the cake and eat it too; in this rather flatsome world, globalization does not only mean a Carte Blanche for American companies to be able to demand a level playing field in foreign markets; it means creating some of them in America too.
So, this bit is the President’s Election of the Day bit, though, wearisomely, it seems that he is serious. His New Deal is not that new at all; it is protectionist politics packaged as enthusiasm for American Small Business.
And, in summary, this is where he may come up short. His packages may appear past its sell by date, because of the fundamental misconception of fairness and justice so inherent in an America-centric view of the world. Besides, I would say that President Obama’s conception of American power is also possibly dated, because, despite its vast military arsenal, in a world that can be destroyed wholesomely, America is less powerful than the sum of its bombs. One can not protect and build with its power to destroy. America, if it wanted to build an interconnected world with shared prosperity, needs to lead by example. That is possibly the only way to fix the malaise that afflicts America of today. A higher dosage of dated thinking, along with a sprinkling of measures from Roosevelt’s time, may not be enough to save the day.