Keynes redivivus (I)
The financial crisis is causing misery and creeps around the world, forcing governments to nationalize significant parts of the banking sector and central banks to inject huge amounts of liquidity into the financial markets. Some hurried to say this crisis demonstrates the lack of viability of capitalism, while others accused the governments for introducing socialism. Both judgments are wrong in my opinion.
The economic freedom and the entrepreneurial spirit, which are the base of innovation and economic progress, feed themselves from the free markets; this is a fact and it explains the collapse of the communist economies. But it is false to say that free markets are synonymous with unregulated markets, with the actual disappearance of the public sectors and policies. The Modern economies and societies need regulations and policies to ensure public goods that should limit the negative externalities, the cost of the business that the society pays for. And there is also need for a moral compass, without which everything stops sooner or later.
The crisis in Asia in 1997 was caused mostly by the premature opening of the capital accounts of economies in the region. Likewise, a rush to privatize public utilities is not justified. Moreover, it is better for some utilities to be left in public hands. This deep financial crisis, the failure of the Doha round in international trade and the lack of results led to the encapsulation of the development policy in a simplistic manner, that is the ideology of neo-liberalism. This says a lot. There are deep structural vices in most poor countries - corruption, opaque property rights, waste, theft and misuse of the public resources -, but these are not a convincing argument for unconditionally accepting the political remedies that are too general and, sometimes, in disagreement with the local conditions.
The financial crisis that has now hit the very heart of the global financial industry is undoubtedly a convincing rejection of the paradigm that has glorified the total deregulation. The huge rescue operations that covered the losses taking place now in the financial sectors will introduce, or strengthen, the elements of state capitalism in many industrialized countries, including the United States. The impact on the national budgets can be very severe for the following years. To reduce the caused suffering and the dependence on external loans, the saving rates should increase in all the economies in which the banks receive significant capital. A legitimate question is imposed here: can the rich countries start saving and be more careful about the future consequences of their actions? The answer depends a lot on the social cohesion and on the capacity of the politicians to rule in such periods of time.
If we add here the effects of aging and the state problems, the climate changes as well as the challenges in terms of competition, one cannot find it hard to draw up a very complex political agenda.
The effects of the current financial crisis have hit the occidental world when China, India, and Brazil rose and the resuscitation of a capitalist Russia caused a multi-polar world, with profound economic and geopolitical reverberations. The fight for the control of the non-renewable resources (particularly oil and gas) illustrates the phenomenon.