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The United States is at the end of an era that began in the early 1980s. Over this period, financial corporations—banks, investment houses, and insurance companies—steadily increased their share of total U.S. corporate profits, rising from below 20 percent and peaking at above 40 percent. The financial corporations lobbied for a series of legal changes that enabled them to grow richer; they did so by propagating the ideology of free and efficient markets. As has happened throughout history, financial markets went into a speculative boom using borrowed money. Now the speculative boom has met the same fate as all its predecessors, and suddenly the United States has become what Indians call a mixed economy. The revolution in political economy that will follow will be profound. American politicians will be held accountable for personal economic outcomes in much more detail than before.

The financial debacle has destroyed trillions of dollars previously in circulation. In theory, by creating and distributing new money, the U.S. government can restore some of the destroyed money without setting off inflation. A deeper problem remains, however, which is the global imbalance of production which the financial system had nurtured. The United States could run a massive trade deficit because foreigners had faith that they could safely keep the money America gave them in the U.S. financial system. Hopefully, the U.S. economy can be reflated, and the imbalances of production can be resolved over a longer period. Unfortunately, that is not assured because production and finance are tied in many unseen ways.

All this is happening while the U.S. is on the verge of a historic election. The election is historic not only because the candidate leading in the polls, Barack Obama, has African ancestry. Rather, it is the unprecedented political mobilization of African-Americans and other groups that has given this election its historical significance. African-Americans received the right to vote in all states in 1965, and they immediately became a marginalized group in American politics. Republicans have won seven of 10 presidential elections since 1965 while ignoring or baiting African-Americans. There has never been more than one African-American Senator out of a 100, or one elected governor out of 50, even though African-Americans form close to a third of the population in several southern states. The 2008 Democratic primaries saw the first real empowerment of African-Americans. The pro-Obama social coalition of the Democratic Party is the first in which the African-American community has not been relegated to the role of followers, but is at the forefront. This social coalition will promote significantly different priorities in both domestic and foreign policy than previous Democratic coalitions. Obama himself may not fully realize the consequences of the coalition his candidacy has mobilized.

India cannot wholly avoid the consequences of the financial crisis or, even worse, of a deep recession in the rich countries. Nonetheless, India should remain among the fastest growing economies. It can stimulate its domestic economy. Inflation is now declining as the prices of oil and other commodities drop sharply. This allows the Indian government to reverse the restrictions on bank lending it had imposed earlier to fight inflation. India’s contribution to the global economy is, at present, its rapid import growth. Indian imports other than oil have grown by 28 percent per annum in the last four months, with total imports set to exceed $300 billion. India’s final imports, items and materials that are not inputs for export goods, are about half the value of China’s. Indian banks have been prohibited from doing the things that have gotten American banks into trouble, and Indian corporations are less indebted in proportion to their size than most companies in developed and fast-developing countries. These facts should prevent the financial crisis itself from spreading to India. During the Great Depression of the 1930s, Germany, Japan, and the USSR all grew rapidly. While other aspects of these countries left much to be desired, they at least demonstrated the possibility of rapid growth during a global economic depression.

If Obama wins the presidency, there is a good chance that the United States will make large reductions in its global military presence in order to deal with the economic crisis. John McCain would likely have to do the same a few months later. The United States will not just have to leave Iraq and watch the rise of a powerful Shia bloc spanning Iran and Iraq. The situation in Afghanistan is also acknowledged to be deteriorating. A temporary redeployment of some troops from Iraq to Afghanistan is necessary, but it will only slow down the Taliban onslaught. The Afghan Army was neglected by the U.S. until recently, and now needs to be expanded at the fastest possible rate. It offers the only hope for the long term containment of the Taliban. This is a situation in which India is helping, and the country can and must do more in some respects.

By coincidence, the India-U.S. nuclear deal was completed just as the financial crisis broke out, and a large Indian purchase of American fighter aircraft is coming up. There are substantial overlapping interests between India and the United States, and U.S. strategic self-sufficiency is in decline. India and America are cooperating in Afghanistan already, and the Indian role will undoubtedly increase. India can help with the training and management of the Afghan Army, but India should not replace the U.S. and NATO forces with its own.

Sanjoy Banerjee teaches International Relations at San Francisco State University.

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