Business Page – November 21, 2004

Four more years for George Bush: the prospects

Introduction

Whether the world likes it or not George W. Bush will run America and at least influence the way the rest of the world is run for the next four years. Unlike the 2000 elections, the mandate was clear and unambiguous. A post-election edition of the Economist featured the re-elected American President on its cover with the call "Now Unite Us." That is wishful thinking at its most fanciful, and the evidence is striking. The second Bush administration will be the most conservative that country has seen in decades, and the policies will be shaped by the neo-cons in the Republican Party who took a largely back seat in the elections, and will be influenced by the fundamentalists in the Bible belt.

I recall speaking with a friend only a couple of days ago and suggested to him that the real aim of the fundamentalists is the undoing of Roe v Wade (the landmark case on abortion in the USA). Already there is evidence of the rolling back with the House and Senate negotiators tucking in a potentially far-reaching anti-abortion provision in a recent spending bill. The provision appears to be an early indication of the growing political muscle of social conservatives who provided the winning votes for President Bush in the election.

No lame duck

The US Congress and Senate are supposed to be in lame-duck mode, but President Bush and the Republicans are obviously fired up by his re-election. They are making full use of the time when the Democrats are licking their wounds and wondering how long their sojourn in the wilderness will last. The Democrats' difficulties will make it all the easier for Bush to have an easy run at pursuing his domestic agenda, and this column predicts that by 2006 Bush will have irreversibly altered the social landscape of that country.

Further permanent tax cuts that will benefit the rich but which will offer some crumbs to the poor will become firmly entrenched. Who else but the rich will benefit from cuts in capital gains tax and further savings for those who earn in excess of $200,000? The country's social security system will be substantially privatised, justified by the persuasive argument that the people should have a say in how they save for their old age. For many 'social' will be taken out of 'social security,' and the possibility of the system going bust will become even more likely.

But that is okay - the administration can always borrow and bail out the system. And who will pay for it but those who bear a disproportionate share of the tax burden and whose support John Kerry felt he could count on, ie the middle class?

And in addition to the issue of abortion rights we can expect some strong and popular measures when it comes to the matters of gay rights, gun control and personal liberties which have been contracting in the wake of 9/11. Expect the Supreme Court to be packed with conservative judges who will shape the country's landscape in the mould of the conservatives.

And then Rice

There will be no Colin Powell to caution restraint among secretaries of state, all of whom so far are definitely Bush insiders. Alas, his replacement, Dr Condoleezza Rice, was appointed not because of her brightness - she speaks four languages, is a competent pianist and well-respected academic - but because she is another insider who is unlikely to challenge hardliners like Cheney and Rumsfeld the way Powell did, but which finally wore him down and then drove him out. That relationship alone will guarantee that Dr Rice will not be warmly received in European capitals, a rapprochement critical to rebuilding the Atlantic alliance so badly scarred by the invasion of Iraq. France can sneer and snigger as much as it wishes, Bush knows that he can count on the governments of new Europe - as opposed to Rumsfeld's 'Old Europe' - who are ever so thankful to another American conservative Ronald Reagan for their freedom, and his soul-mate Tony Blair in the UK.

Militarily, America will maintain its supremacy with Putin's Russia pre-occupied with Chechnya, economic reforms and rolling back some of the 'democratic' gains which have permitted the kind of scandal epitomised by that country's privatization programme that made billionaires of some low-level administrators in the system. China's agenda is to continue its increasing economic dominance, the like of which the world has never seen - sustained growth of close to 10% for almost a decade! India too will be similarly occupied partly as the Congress Party sees to create the resources to enhance the status of its poor, partly to stay in the economic race with China and partly to finance the millions it spends on maintaining its territorial integrity.

Can do anything

North Korea and Iran - the remaining limbs of Bush's axis of evil - will be major headaches, but the President knows only too well that his country cannot stomach opening another war front without a draft because its military is stretched so thin.

He knows that any attempt to destabilise North Korea would have catastrophic consequences for South Korea and Japan, two of America's very close allies, and he would therefore be quite prepared to continue the multilateral negotiatiations with Kim Jong Il.

Iran is a slightly different matter, although whether there is any liklihood that the American military will carry out bombing raids to neutralise that country's nuclear ambitions is difficult to say at this stage.

So Bush clearly has a lot going for him. He occupies the White House and has the freedom of not having to bother about re-election; the Republicans control Congress and the Senate which are likely to install a conservative Supreme Court. Republicans hold the governorship of most states, including bastions of Democratic support such as New York and California, and have such a stranglehold of the south that John Edwards who promised so much could not deliver either of the Carolinas where he was born or which he represents in the Senate. Bush's swaggering walk and trademark smirk seem more than vindicated. He can do anything - well almost.

His unilateralist instincts and doctrine of pre-emption are not under threat from any internal or external sources, although a terrorist attack with indeterminate consequences could derail the most cautious predictions. At least he knows that the number of countries which can harbour terrorists have diminished, even though the cases of terrorist attacks have climbed substantially since Afghan-istan and Iraq. Successful elections in Iraq in January will offer some marketing material to justify the invasion of Iraq and will give him something to throw back at the world.

Dark clouds

The inauguration come January 2005 will be celebration time indeed. So where are the clouds? Unfortunately there are quite a few. The war in Iraq is not going to end with the elections allowing America to declare victory and pack up and go home. They are stuck in that country for a long time yet, burning billions in war expenditure that could have been better spent on the country's failing social security and health care systems.

The budget deficit is widening, jobs are not being created as fast as the country needs, imports are rising while exports lag, the foreign debt continues to soar, oil prices are at historic highs and that symbol of American economic supremacy, the greenback, has plunged. Inflation seems to be returning with its twin, higher interest rates. These are not insubstantial items to have on the debit side of one's balance sheet, even if Bush famously said he communicated with a father greater than his earthly and natural dad.

Even Alan Greenspan, the revered Federal Reserve Chairman is now perhaps belatedly suggesting that things are not rosy on the economic front. In recent days he has expressed doubts that the US dollar will bounce back any time soon (which is probably a way of saying that it is still on the way down) and has sounded a warning over the country's huge and climbing trade deficit both of which he opined could adversely impact on the flow of inward foreign investment. But having gone along with Bush's tax cuts which exacerbated some underlying weaknesses in the US economy, Greenspan can hardly be too critical now, particularly if he wishes to exit with his reputation intact rather than in tatters. The dollar has fallen by more than 30% against the major currencies over the past two years, and is expected to decline even further. The value of America's production falls short of expenditure by more than US$600M annually, all financed by borrowings from abroad.

The rate of borrowing is so rapid that before going off for an overseas visit, President Bush had to hurriedly sign into law a new debt limit increase of US$800B to $8.184 trillion (a million million) to allow for further borrowings and prevent the risk of default.

Limited options

Bush's options when it comes to the economy are fairly limited but having promised his constituency so much it is hard for him to retreat. Bush's conservative instincts for low taxes, small government and the individual looking after himself have run headlong into the other conservative value of not spending more than you earn. But he seeks refuge in the belief that the tax cuts will fund new investments, provide more jobs, taxes, etc, and thereby reduce the budget deficit. John Snow, his Treasury Secretary, and his team of economic advisers seem to have bought into this idea which many thought had failed and died since Reagan. The current team still believes in it even if it is only because that is how the boss wants it.

But there is more to Bush's problems than just flawed theories and poor and objective advice. Issues such as energy, the environment, outsourcing and globalisation are assuming urgent proportions. How significant are these and how is Bush likely to respond in the next four years?

Let's start looking at these next week.

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