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Capitalism for the poor, socialism for the rich
Wednesday, March 11, 2009
The World Bank, in a new report on the global economic crisis, has predicted that the volume of world trade will decline in 2009 for the first time since World War II.
This follows the prognostication of the International Monetary Fund (IMF) in January which foresees 0.5 per cent growth this year, the lowest in 60 years. Unemployment in the US climbed to 8.1 per cent at the end of February 2009, the highest level since 1983 when unemployment was 11 per cent.
No one knows how long the economic crisis will last and when a recovery will commence. Chairman Ben Bernanke of the Federal Reserve has opined that a recovery could start as early as late 2010, but at the other extreme, a recent study by the National Bureau of Economic Research reveals that the vast majority of "depressions" have an average duration of four years.
In these circumstances, governments have taken a variety of actions to stimulate the recovery of their economies. These have certain common features, in particular, fiscal expansion (the United States budget deficit is projected to be 12% of GDP); nationalisation of banks, eg in Britain; low interest rates (almost zero in real terms) and massive loans to bankrupt companies, eg General Motors.
Nothing is wrong with this, we think, because the lesson of the Great Depression is the necessity for state intervention to correct massive market disequilibrium. The articulation of this policy as a general theory is the immortal contribution of Keynes.
There, however, is a contradiction because while the Keynesian prescriptions are now viewed as pragmatism, it is the opposite of the conventional Washington Consensus preached by these countries and the IMF to developing countries. The poor and small developing countries are told to minimise budget deficits, maintain very high interest rates, sell rather than bail-out companies in difficulty and adopt privatisation at all costs instead of state involvement. This double standard is one law for the rich and one for the poor.
Admittedly, the polar opposite treatment of General Motors and Air Jamaica reflects the differing financial capacities of the respective governments. The point is that the starting premise is different. In one case, the stance is that the enterprise is so important that the Government must find a way to save it, while in the other case the starting premise is that it cannot be salvaged and must be sold.
Free market capitalism for the developing countries and something akin to socialism for the rich. This disingenuous duality is a long-standing practice. Most notably, those who developed by protectionism are the quickest to advocate free trade. Those who advocate foreign investment prevent it in any sector that can be described as important to national security. Those who subsidise their farmers call for the removal of barriers to agricultural trade. Do as I say, not as I do.
The officials of rich countries and the technicians of international financial institutions that purvey this poisoned chalice are what Professor Ha-Joon Chang appositely calls "Bad Samaritans".
The problem is that by the time some of these "economic hit men" confess, the damage has already been done.
Wednesday, March 11, 2009
The World Bank, in a new report on the global economic crisis, has predicted that the volume of world trade will decline in 2009 for the first time since World War II.
This follows the prognostication of the International Monetary Fund (IMF) in January which foresees 0.5 per cent growth this year, the lowest in 60 years. Unemployment in the US climbed to 8.1 per cent at the end of February 2009, the highest level since 1983 when unemployment was 11 per cent.
No one knows how long the economic crisis will last and when a recovery will commence. Chairman Ben Bernanke of the Federal Reserve has opined that a recovery could start as early as late 2010, but at the other extreme, a recent study by the National Bureau of Economic Research reveals that the vast majority of "depressions" have an average duration of four years.
In these circumstances, governments have taken a variety of actions to stimulate the recovery of their economies. These have certain common features, in particular, fiscal expansion (the United States budget deficit is projected to be 12% of GDP); nationalisation of banks, eg in Britain; low interest rates (almost zero in real terms) and massive loans to bankrupt companies, eg General Motors.
Nothing is wrong with this, we think, because the lesson of the Great Depression is the necessity for state intervention to correct massive market disequilibrium. The articulation of this policy as a general theory is the immortal contribution of Keynes.
There, however, is a contradiction because while the Keynesian prescriptions are now viewed as pragmatism, it is the opposite of the conventional Washington Consensus preached by these countries and the IMF to developing countries. The poor and small developing countries are told to minimise budget deficits, maintain very high interest rates, sell rather than bail-out companies in difficulty and adopt privatisation at all costs instead of state involvement. This double standard is one law for the rich and one for the poor.
Admittedly, the polar opposite treatment of General Motors and Air Jamaica reflects the differing financial capacities of the respective governments. The point is that the starting premise is different. In one case, the stance is that the enterprise is so important that the Government must find a way to save it, while in the other case the starting premise is that it cannot be salvaged and must be sold.
Free market capitalism for the developing countries and something akin to socialism for the rich. This disingenuous duality is a long-standing practice. Most notably, those who developed by protectionism are the quickest to advocate free trade. Those who advocate foreign investment prevent it in any sector that can be described as important to national security. Those who subsidise their farmers call for the removal of barriers to agricultural trade. Do as I say, not as I do.
The officials of rich countries and the technicians of international financial institutions that purvey this poisoned chalice are what Professor Ha-Joon Chang appositely calls "Bad Samaritans".
The problem is that by the time some of these "economic hit men" confess, the damage has already been done.