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S. Balakrishnan

It is the biggest and worst crisis since the Great Depression, comparable to the sudden collapse of the Soviet Union. Has the world changed forever?

Finance capital has overwhelmed industrial capital in the last couple of decades. Business tycoons yielded first place to money managers, each with hundreds of billions of dollars of investment power. The latter’s reach became global as emerging markets and poor countries scrambled to open their doors to foreign capital.

The US Government, the Federal Reserve, ECB and Bank of England are throwing everything at the problem – injecting massive liquidity and capital into banks. They realise that what is at stake is nothing less than the world as we know it.

We are, of course, still far from the economic meltdown of 1929 and thereafter. True, demand is falling and unemployment is rising, but the situation is not (yet?) catastrophic. But the strong measures taken in concert in the G-7 countries and China and India have done little so far to arrest the fall of stock prices. Do we administer more of the some medicine or try something else? If so, what?

It is the philosophy of the Bush Administration and its cohorts of free market economists (many of whom have got economics Nobels in recent years) that the best Government is the least Government. Markets are supposed to be self-correcting and their own best guardians. That ideology is now out of the window.

Capitalism is in reverse gear, meaning more Government. For the free marketers, the trade-off was between a systemic collapse and a rescue act. They preferred – as any sane person would – the latter.

The stage is now set for partial Government ownership of banks. The hope is that when there is a turnaround, the investments can be sold at a profit.

Our Government, particularly the ‘reformers’ in Government, would do well to realise that the reason our banks were not hit was not because they are better regulated, managed or capitalised but because they are Government- owned and, therefore, confidence was never a issue. (Like Inspector Cousteau in Pink Panther, we have a fortunate knack of surviving our own foolishness – 2009 which was supposed to see the ‘privatisation’ of government banks now looks a non-starter thanks to the global banking crash as do the Raghuram Rajan and Percy Mistry Committee reports. Earlier, just as the first Tarapore Committee Report on capital account convertibility rolled off the press, we were luckily struck by the Asian crisis).

Socialist solutions are a cheap price to pay for the survival of capitalism, is the calculation of America’s free market ideologues.

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