One of the most troubling features of today’s global economic crisis is the lack of political leadership anywhere. No one has the courage to tell their people the truth. And the truth, alas, is that four of the pillars of today’s global economy — Europe, America, China and the Arab world — have, each in their own way, squandered huge dividends they enjoyed in recent decades, and now they have to dig out of their respective holes with fewer resources, less time and, almost certainly, more pain. There is no easy way out.
Let’s start with Europe. Greece, Italy, Spain and Portugal all enjoyed a “German dividend.” That is, they enjoyed German-level interest rates as members of the euro zone, even though they were not as productive or disciplined as German savers and workers. Instead of using that dividend to modernize their economies and make themselves more competitive and productive, they went on real estate or consumption binges that have badly weakened either their banks or national balance sheets. Now there is no more escaping the bill.
The Arab world had 50 years of autocratic rule in which leaders from Libya to Tunisia to Egypt to Syria to Yemen could have gradually ordered reforms from the top down. But the Arab leaders used their surpluses of power and wealth to ignore the U.N.’s Arab Human Development Report in 2002, which said they urgently needed to overcome their deficits of freedom, knowledge and women’s empowerment.
To its credit, China used its huge export dividend to build 21st-century infrastructure and to educate its people, creating a giant middle class. But the current Chinese leadership has not used this surging economic growth to also introduce gradual political reform. Corruption is as bad as ever, institutionalized transparency and rule of law remain weak and consensual politics nonexistent.
As for America, in the 1990s we enjoyed a peace dividend, a dot-com dividend and a low-oil-price dividend, which combined to sharply reduce the federal deficit. But 9/11, two wars accompanied by tax cuts, not tax increases, a Medicare prescription drug plan and a necessary bailout to prevent a potential depression put us more in debt than ever.