On Thursday night in the US, Barack Obama gave his acceptance speech as the Democratic presidential nominee at the Democratic Party convention in Denver, Colorado. The stadium was packed and the speech was beamed live. It was an emotionally charged speech aimed at capturing the hearts of the average American. He spoke of the lost American dream, of the millions who have been affected by foreclosures of home loans, of the burden of credit card debts and of rising unemployment. He spoke about the years lost in a war that was not ending and promised to halt that. It was an appealing speech for an audience tired of the news from Iraq and Afghanistan, tired of the struggle to pay costs of education and health care and burdened with high inflation and debt. I heard it and was impressed.
Just a couple of days ago, the US government had released the results of a survey that showed that the number of people living in poverty had increased by nearly six million in the last year. Median incomes have not risen since 2001, and in the last decade, the increase in incomes of the top decile have averaged 11% a year and those of the lowest decile by less than 1% a year. The gap between the rich and the middle class is growing, and there is anxiety that the livelihood of the average American is not secure.
The speech held the right promise, of ensuring that health care is affordable and available to all, that access to higher education is guaranteed to all aspirants, and that public spending would be more focused and accountable. He has promised to tax all companies that outsource jobs and tax breaks for those that bring jobs from outside. He has promised to plug loopholes while taxing the rich and big companies, and to deal with the bureaucracy firmly to ensure that government funds are utilized effectively. He has promised to invest $150 billion in renewable energy, education and health and to recruit millions of teachers to improve education standards.
Clearly, this is a message that appealed to the entire audience and will have an emotional appeal all over the country. The problem with the message is that it is likely to make American companies wary and cautious, and the bureaucracy worried about losing control. In short, appealing to the people would mean alienating vested interests. Given these worries, his thin track record of administration, and persisting inner-party conflicts, it is little wonder that the race for President is still too close to be called. Yet there is an opportunity. Perhaps for the first time in several decades, a Democratic president would have overwhelming support in the Senate and Congress, which the Democrats are likely to sweep. One is reminded of the 1985 scenario in India.
The other problem with the promises is that they are difficult to realize. We heard a similar message in India in 2004 and there is general agreement that there is a large gap between expectation and achievement. There has been no change in the way things are done and the government today has greater regulatory powers in more areas than it did in 2004. Corporate influence is entrenched and policies appear to deal with issues of industry, and not of the citizens. For all the sincerity, it’s likely that the promises made in Denver are going to be very hard to keep.
At the same time, there are interesting economic changes that are happening in the US. Exports are booming, and an industry quite unused to exporting, given the huge domestic demand, is now gearing up to meet export commitments. There is also a significant influx of investment into the US, in real estate, commercial properties, and in businesses. There are large-scale acquisitions of US companies that are happening. These changes are likely to turn around the prospects for growth by the first quarter of next year, and hence the next president is likely to see success in the economy by the end of 2009.
From the point of view of India, a Democratic president is likely to focus much more on domestic issues, and foreign policy would be subservient to this. Multilateral trade and globalization issues, including climate change, are likely to move to the back burner and there is likely to be greater focus on the middle-class American. Most importantly, there would be a close look at outsourcing. As manufactured goods continue to pour in from China, attention on service sector jobs being outsourced is likely to be greater and India should be aware of this. China is now regarded as a country that needs to be engaged with while India is not yet as high up on their radar. The civil nuclear deal is likely to be less urgent for the new government. India will have to fend for itself much more, in external relations, in the neighbourhood and in economic policy. India needs to make quick strategic changes in dealing with a new America.
S. Narayan is a former finance secretary and economic adviser to the prime minister. Comments are welcome at email@example.com