Wednesday, January 18, 2012

How to save a sinking ship

I was seeing the news about the sinking cruise ship off the shores of Italy and it suddently struck me that this whole episode can teach us lessons on how to handle the sinking European economy.

When the ship got hit on one side and water entered, the ship tipped to that side and started sinking. The other side of the ship lifted up because that side became lighter. There was not enough weight on the other side to lift up the side which had the hole.

Currently with the European countries hit by heavy debt, it is like the side of the ship that has the hole. If we are to prevent the global crisis, then we need to put enough weight on the Asian side of the globe so that we lift up the European side of the ship that is sinking. However, what is happening is that, in fear, investors are pulling out of Asia; this is equivalent to what happened to the ship - the other side lifts up and gets dragged down.

Asian Government have a responsibility not only to their countries but to save the global ship that is sinking. They need to invest heavily in their countries - Government spending has to go up, consumption should be encouraged, and private investment should be encouraged and made easier not only for local investors but also for foreign investors. They should do so by closing the shutters on that side of the ship that has the potential to drag the good side of the ship. This means that Asian Governments should ensure that the contagion that is sinking the European side does not spread to Asia.

India has a tremendous opportunity now to show economic leadership.

Sankaran Raghunathan
Dean of
National Management B School, India