Global Economic Growth & Leadership: New Financial Intermediary a Plan for Safe Disposal Lease companies

By : Amit Bhushan Contact: amitbhushan@rediffmail.com Date: July 21, 2013

The political leadership across the globe has almost completely failed to focus on the future development agenda for the world. What is discussed at Global high forums such as G-20, G-7 etc. is the defensive agenda about avoiding bankruptcy of Financial Institutions and Governments with which the developed world is currently occupied with, rather than identifying areas of focus for global growth and creating a favourable globalized taxonomy for the same. The global financial giants too big to fail have managed to hijack the agenda in their favour, in spite of the popular negative sentiment in public about their role & disproportionate influence on the global economy. This has led to a lot of money flowing in towards recapitalization of existing institutions resulting in exacerbated risk of shrinking of global productivity and employment for the lack of capital (as well as direction) for growing the Real economy. The threats to global economy currently are multifold. It is worried about lack of economic expansion to the extent desired despite of ultra-soft and expansionary monetary policy. This is unlike past experience where monetary expansion used to translate into expansion of economic activity. Now the world needs clear driver. Many of such clear drivers such as shale gas led expansion in US have regional impact, rather than global (as in past) such as shale gas has shrunk Current Account deficit in US and cheap gas (along with cheap capital including weak dollar vs RMB) has brought back jobs to US shores from China, however it had little impact on jobs situation in Europe although the Middle East has started to reel under some pressure to develop alternate markets for its gas. In spite of shrinkage in manufacturing in China and consumption in Europe, the impact on commodity prices is minimal which is unlike as in past when commodity nations used to go bust with violent toppling of governments in Africa, Asia and elsewhere. There is no clear innovation driving productivity as was the case of Information and Telecommunication technologies which dominated much of the growth boon during last decade of 20th century as well as the first decade of the 21st century. The Bio-technology driven model led by genetics engineering is being resisted by large swaths of people both in developed west led by Europe and in other parts of the world. The ecology conservation model led growth proposed by Europe/Japan is not

cutting much ice with the United States which does not want to tax its people to subsidize conservation in Asia (plea being that people in Asia should fend for them since conservation is also good for them). The lack of clear direction for growth has resulted in increased risks and global financial uncertainty as people are confused about the business models which shall survive. So institutions seem to be curtailing growth plans resulting in overall shrinkage or stand still; of the global economic activity. The business and financial institutions unable to balance themselves with the situ are going bust and this shall continue for time to come till a clear direction becomes apparent. For this, the global leaders must rise above the situation and rather than looking at silos of non-performance in specific multilateral areas such as WTO, IMF, United Nations etc.; they should be able to look at a wholesome picture as to how these cumulatively impact the global economy and people. In past such initiatives were led by the developed West more particularly the US, and with relatively small efforts, the problems could be controlled. Off course it helped that the US could get Europe to play along and together as drivers of consumption, technology, finance as well as production they could set the terms of growth for the rest of the world as well. But now with a larger global economy where China led BRICS and other industrializing countries have an ever increasing impact as well as influence on the decision, there is need for wider consultation as well as more give & take/quid pro quo to reach amicable solutions. The developing as well under-developed part of the world must also realize that the handout culture of past has its limitations and unless they reform themselves to participate effectively in the global economy, the rest of the world would not wait perennially for them. The global leadership must also change its attitude about discussing safety of the high and mighty institutions from the world of finance to achieve financial stability followed by economic stability and have clear focus towards agenda for economic growth. The failure of high and mighty in finance to maintain stability of the financial institutions should be punished unequivocally while saving those customers who do not have a voice in running them & how this is to be achieved can be on agenda for discussions. Similarly, the leadership may discuss proposals for new financial architecture to steer global economic growth. Since there is time to absorb bio-technology led growth and global commodities companies & nations have displayed a decent pricing power as well as market making abilities affecting consumers across the world, it is imperative that the financial institutions realize the areas that have emerged as pockets of strength and areas where providing service support can be beneficial. High energy & commodity prices naturally put a premium n the efforts of conservation & recycling. The global leaders should explore the potential of this arena especially the directions required in the

taxonomy, legal structure as well as financial architecture to support this activity as an area of future growth. The global leaders should realize that such direction only means that this would give time for other growth areas such as bio-tech/genetics, some time to mature and improve their acceptability since beyond a point solving the growth puzzle would require considering all productivity improvement proposals in a rational manner and biotech/genetics is certainly one of them. Other significant areas being nuclear technology and shale gas that remains some of the important energy alternatives, in spite of confused opinions in certain parts of the world. If such growth proposals are not considered then global economy has chance to remain direction-less for more time and will cause further pain barring to those pockets which have shown some localized resilience on the base of local factors. For present, the leaders may consider blending Finance with conservation with support of taxonomy and supporting legal structure which can be acceptable to most of the important players so that the direction for real economy is set clearly for the coming years. One of the ways to do this is by a creating a positive domestic tax bias for the energy/ecologically efficient products that are bought by the domestic as well as international companies that are leased further for use and guarantee is provided for safe disposal including reuse of parts/conservation of energy. The concept is that a lot of energy/ecologically efficient products have high initial cost even though they save running & disposal expenditure and thus their Total cost of ownership is same or even lower than comparatively alternatives which may not claim such features. Off the nearly 60-70 trillion dollars estimated value of the world economy such energy/ecology inefficient products will easily constitute anywhere between 1.5 to 3.5 trillion dollars, although no clear estimates are available. If all such goods are replaced by energy/ecologically efficient goods, the economy will rise from 1.5-3.5 trillion to 2.5 -8.5 trillion dollars. The global leaders have tried efforts such as ecolabel-ing, carbon credit transfers amongst others. There seems considerable divergence of views amongst nations on how they would want to achieve this goal for their population. Among developed nations, the US has not shared the enthusiasm for the transfer of grants to support technology needs of developing countries in this regard which had the favour in Europe and Japan. The developing world especially E-7 can bring to table a proposal for technology/product leasing by the companies of developed world for such energy/ecologically efficient products on the back of a favourable taxonomy and legal environment. This can be basis assurance that the developed world itself would also maintain a favourable taxonomy for energy/ecologically sensitive products. The lease companies in developing world can be partly or fully funded by developed world companies who will gain chance to deploy their capital profitably while supporting the needs of developing world to develop further to raise the quality of life for their populations.

This may then give rise to a large number of leasing companies across the world who can emerge as favoured buyer for the energy/ecologically efficient products due to such companies attracting somewhat lower taxes for such goods. Their responsibilities will include leasing of the goods to users/consumer of services. They will have rights to easy repossession of goods in case of failure of user to pay rents on the back of a suitable & efficient legal structure. The companies will guarantee safe disposal of goods including reuse of whole/parts etc. contributing to overall conservation efforts of the world. Consumers will benefit due to energy/ecology conservation while producers will get monies from the lease companies. Any losses of the lease companies will be absorbed by the favourable tax bias. Eventually such companies will have to master art of controlling effects of seasonality of usage and theft including assessment of information imperfections amongst consumers. The proposal has possibility for increasing jobs in production and services across the globe. The developed world will probably be able to raise tax resources basis the proposal so that they can restructure their economies which have been besotted with irrational tax/subsidy structure rendering them unable to compete. The tax bias as well product disposal rules can be basis domestic situation prevailing in different countries and can be basis some agreed formula to support future growth. The ecology related proposals of developed world necessary for their economic/ecological sustainability have not been supported by developing world (sans grants/subsidies) while their barriers of developing world products (as well as services) basis a host of sanitary/phyto-sanitary legislations as well as datasecurity/labour/Visa/animal rights legislations are seen as protectionism. This would also allow developing world to gain finance support in a new form via the lease companies and equity of developed world in such companies. If debated and refined further, this has chance to create a strong basis for enhancing global growth for a few years to come.