The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear. (Antonio Gramsci)
by Jayati Ghosh
Part 5 - Restructuring Economic Relations
The boom was not stable or inclusive, either across or within countries. The subsequent slump (or ‘secular stagnation’) has been only too inclusive, forcing those who did not gain earlier to pay for the sins of irresponsible and unregulated finance.
As economies slow down, more jobs are lost or become more fragile, insecure and vulnerable; and people, especially those in the developing world who did not gain from the boom, face loss of livelihood and deteriorating conditions of living. This is why it is so important that we restructure economic relations in a more democratic and sustainable way.
There are several necessary elements of this. Globally, most now recognise the need to reform the international financial system, which has failed to meet two obvious requirements: preventing instability and crises, and transferring resources from richer to poorer economies. Not only have we experienced much greater volatility and propensity to financial meltdown across emerging markets and now even industrial countries, but even the periods of economic expansion were based on the global poor subsidising the rich.
Within national economies, this system has encouraged pro-cyclicality: it has encouraged bubbles and speculative fervour rather than real productive investment for future growth. It has rendered national financial systems opaque and impossible to regulate. It has allowed for the proliferation of parallel transactions through tax havens and loose domestic controls. It has reduced the crucial developmental role of directed credit.
Given these problems, there is no alternative but systematic state regulation and control of finance. Since private players will inevitably attempt to circumvent regulation, the core of the financial system – banking – must be protected, and that is only possible through social ownership. Therefore, some degree of socialisation of banking (and not just the risks inherent in finance) is inevitable. In developing countries this is also important because it enables public control over the direction of credit, without which no country has industrialised.