'If you owe the bank 5 million, the bank owns you, but if you owe the bank 5 billion bucks, you own the bank', apparently an ancient rule of financial life. Predominantly, we had intelligent ancestors and curiously wisdom transmitted from generation to generation through word of mouth seemingly survives the test of time. And in this world, time is the only judge.
One of my favourite "old is gold" proverbs has to do with legs, demons and talking, take a guess! Anyway, how did grandpa get this one wrong? Well not exactly his fault, it was somewhat like the clash of the Titans, and grandma proved to be all knowing, lalach buri bla hai! All the same the situation is confusing and entangled. At first sight, the rule seems to hold, a few thousand home owners who collectively owe a bank the proverbial 5 billion seemingly do own the bank, meaning that their collective failure is fatal for their creditor, baring the anomaly as to how they all got it wrong. Evidently however, a new rule crept in, if you become "Too big to fail", your debtors don't own you, bureaucrats do.
At this point in economic history, the crowd cheering from the back benches constitutes the previously silent opponents of capitalism who are quick to recite its last rites and gleefully retort, "We told you so". Let them relish this moment of short lived elation while things continue to get more complicated. Seems every one was on a binge! What happens if Governments owe the banks the proverbial 5 billion and can't pay back?
Does anybody own anything or does somebody own something or everybody owns everything or just maybe nobody owns nothing. Language is fascinating and the preceding sentence while amusing appears devoid of any sense. Unbelievingly, the sentence simplistically depicts the evolution of economic life. From mercantilist days when anybody could own anything as long as he had the might to do so, to the days of capitalism when you could legally own something, to experimenting with communism when everybody owned everything all the way to today when there is nothing left to own!
The skeptics snicker, but can even the best of them assign any value to wealth today? If gold is once again considered the only secure mode of storing wealth and in so much as gold serves no practical purpose, is not wealth a perception only. When property prices fall more than 70%, currency changes value overnight and shares are not worth as much, than how do you value government debt, especially when it's doubtful of recovery.
Typically the valuation methodology is to forecast the earning capacity of an economy, its GDP, and than determine the capacity of the government to collect tax. Today any and all financial predictions seem better suited for a science fiction movie. How do you quantify future revenue during such a recession and how do you ascribe value in the absence of a stable yardstick for wealth? And given the mass dissent do governments actually have the ability to collect more tax?
Finally, now that Governments themselves can't honour their obligations than morally can they claim ownership of their very creditors?
As always the canvas is insufficient for the artist to ossify his thoughts. Considering the quantum of material inked on the sub prime and euro debt, going of on a tangent in a short write up may be forgiven. All the same by now we are going in circles, if there is no wealth the question of ownership is redundant and this article is, well circler. It would appear we are reverting to the barter days; consequently wealth is the capacity to produce and current stock of others wants.
But assuming there is wealth and getting back to the point, if 70% of businesses are owned by banks through debt, and banks are in turn owned by government irrespective of whether due to un-payable debt or implicit guarantee on deposits, and since the only means of financing government is taxing the populace, than does everybody not own everything? Admittedly this hypothesis is provable only in extremely dire times, but as any lawyer will confirm, ownership can only be proven on liquidation.
Interestingly, for nations where tax collection mix is tilted towards indirect taxation than in essence everybody is financing everything including government debt without actually owning anything! Governments now insists that the general population has to pay more taxes to save their own deposits, but why did they need saving in the first place. Was nobody watching anything? Why anybody was allowed everything? When nothing is owned by everybody and everything is nobody's responsibility, than anybody can do anything, if somebody and something are constant!
If the above seems confusing and gibberish, welcome to the world of political economy and finance.
Recall that initially governments had a monopoly on banking, which was later privatised on the argument that public sector was strangulating private credit, considered to be the lifeline for economic growth. After the current global financial crises banking is once again highly regulated and is expected to significantly end up under government control. Which makes you wonder if anyone is in control at all?
Rumour has it that in certain planned eastern economies, everything is owned by the banks and the banks in turn are owned by the state. Deployment of precious credit therefore vests with the state which in an ideal world should result in effective utilisation of everybody's saving in the best interest of the country. But where does ownership eventually vest if governments keep changing. Critically inefficient governments end up wasting resources thereby marginalizing wealth through accumulation of excessive debt; obligations surpass wealth meaning there is nothing left to own.
While commencing this article the objective was simply to determine ownership of national assets through logic. Unfortunately, the unilateral discourse has developed into a confusing mess. The singular thought evident however is the age old principle that a nation's savings fundamentally drive its investments and unless managed diligently will evaporate into oblivion. Accordingly whether it is the public sector or the private sector, they are both only managers and custodians of national wealth and neither seems to have an unblemished record.
One can deeply sympathise and empathise with those charged with governance as the world brainstorms to find the right balance between public and private sector intervention. An optimum regulatory environment appears to be as elusive as the philosopher's stone. Nonetheless some lessons need to be learned from the Euro debt crisis. The key being, "chadar daikh ker pair philnay chaye".
Pakistan till now seems to be withering the financial storm reasonably well, considering our various other predicaments. However the margin of error is minimal. Critically we need to contain debt. We also need to remain cognisant of safeguarding our nation's wealth all of which is financed by our hard earned savings. This probably entails a stronger co-operation between the public and private sector. The right mix probably lies between private sector controlling operations with public sector monitoring the control environment and to this end there needs to be a continuous dialogue in an amicable fashion, until someone figures out who owns what.