Four legs good, two legs bad!

That quotation, as many readers will know, comes from George Orwell’s great political satire “Animal Farm.” It is the slogan invented by the pigs as they mobilise the other farm animals to revolt against their human owners.

Having four supports ensures that things are much more stable, balanced, assured; it is hard to knock a four-legged item down, whether it be a table or a carthorse. Two-legged critters are far less sturdy and reliable. (Of course, once the pigs gain absolute control and learn to walk on their hind legs, they reverse the slogan, as any good Leninist would. But that is a different story.)

Still, there may be a lesson to glean from this tale as we look at today’s battered world economy, with no countries really escaping from the international financial credit crunch and the dramatic slackening of demand for goods and services, but some looking better than others. If, as is the case, certain economic sectors have been hurt more than others, surely it is better to have one’s national welfare based upon various sources of income, rather than just two, or even one.

I was provoked to this question when recently clearing away some older statistical data, and recalling how my interest in what makes for a healthy economy had been piqued some 20 or so years ago when I came across a World Bank table of national GDP per capita that showed that Switzerland and Kuwait, both at the top of the list, enjoyed almost exactly the same income per inhabitant.

Kuwait’s high per capita income derived, of course, entirely from one source: oil. By contrast, the sources of Switzerland’s ample wealth derived from at least four flows of earnings: its strength in banking, insurance and investment services; its array of high-quality (i.e. high-added-value) manufactures, especially engineering and pharmaceutical products; its income from tourism; and its highly protected and high-income agricultural sector. Four sturdy legs indeed.

Now, there are another 175 or more countries in the world that would have loved to have had Kuwait’s oil revenues over the past few decades; yet it is fair to say that such an overwhelming reliance upon a single valuable product brings with it two great risks:

The first, to which we pay less attention, is the way in which a gushing new source of wealth has an insidious way of driving out, or weakening, other sources of national income.

Men no longer wish to work for traditional industries (fishing, farming, forestry) but for the oil industry. The vast inflow of oil income dries up prices, but, hey, that can be afforded. Foreign-made items — automobiles, electronic goods, hotels, airports — sprout up, but oil pays for it. There are no gasoline taxes, and prices at the pump are artificially low. Unless national governance is strong and responsible, corruption reigns and the economy is twisted; just look at Nigeria and Venezuela today. Even Norway, with its traditions of public service and fiscal prudence, struggles to handle the “Midas curse” of a single flow of wealth.

The second risk is one we are more familiar with today: It is the peril of a sudden collapse of the world-traded price of your precious commodity. This was not just the case of the plunge in oil prices this past year but also of the value of almost all raw products — bauxite, copper, timber, rubber and so on.

Many developing nations, their hopes raised by higher commodity prices, are now reeling backward. One might be pleased that such uncomfortable nations like Russia, Venezuela and Iran are hurting from the collapse of oil prices, but one can hardly be delighted at the profound cash-flow crises affecting numerous Third World countries; be careful what you wish for when you pray for a fall in raw-material goods!

Those nations whose economies rest upon four or more legs, and are inherently more stable, should also pay attention to the “Animal Farm” chant, though for a slightly different reason.

Switzerland, the model balanced economy cited above, is itself hurting right now because it allowed its banking/investment “leg” — specifically the careless, massive investment actions 
of a few leading banks — to have 
disproportionate significance, with nasty effects upon the country’s reputation as a bastion of solid, respectable finance. Even more sobering is the dramatic reversal of fortunes of the Republic of Ireland over the past two years. The “Celtic Tiger” has enjoyed many advantages over the past decades: membership in the EU and the Euro, a growing assembly/manufacturing base, a flourishing services industry, solid agriculture and high tourism.

But it has squandered much of its gain by a disproportionate tilt into reckless investment banking and a grotesque expansion into untenable property mortgages. In other words, one leg of Ireland’s economic “table” grew so fat and so tall that it actually bent the table itself; right now, the crockery is sliding off the far edges, with painfully loud crashes.

Neither George Orwell, nor the rapacious pigs of “Animal Farm,” were trained economists, but in their observation about “Four legs good!” I think they were on to something. What has been happening in today’s epic financial turbulences should bring us all back to a few basic verities about life and money: Don’t put all your eggs in one basket; cover your bets; seek, if you are a political leader, to get a grasp of your country’s array of strengths and weaknesses; and avoid the fast-cash Midas curse, if you can.

What does this say to the world’s most powerful economy, America’s? The United States has entered the 21st century at a time when the longer-term global balances are shifting from a so-called uni-polar system to more of a multi-polar order; in that sense, there is no real contest over America’s relative decline — the power balances are always on the move. Yet it is also true that the pace of that shift has been increased, unnecessarily, by years of excessive military actions abroad, a blatant disregard for sensible fiscal policies, and unbelievable stupidities in the real-estate/mortgage markets, all of which leave President Obama with an awful lot of smashed china that has fallen off America’s twisted table.

But Obama also inherits a nation with a lot of residual strengths, if he can activate and orchestrate them. America is not a country with a singular dependency like Kuwait, nor is it as distorted by financial excesses as (help us) Ireland. It has enormous natural resources, from agriculture to energy supplies of various forms; incredibly favourable demographics, compared with those of any of the other big Powers; vast R-and-D and research-university strengths; and remarkable labor flexibility.

Of course, it has many domestic sores: the twin curse of poverty and under-education; blighted cities and weakened infrastructure; sclerotic, interest-influenced politics; and a landscape presently choked up by half-built McMansions and foreclosed condos — not a pretty sight. The prospect is not grand. It is, also, not hopeless.

How any country, its leaders and its people respond to today’s challenges will depend upon themselves, their insight, resolve and determination to make hard choices. Whatever they do, they might recall Orwell’s pigs: having four (or more) supporting pillars is a better framework for a national economy than resting upon two legs, worse still, upon only one.

Paul Kennedy is the J. Richardson 
Professor of History and the director of International Security Studies at Yale 
University. He is currently writing a 
history of the Second World War.

Source: Khaleej Times