In 1933, the great economist John Maynard Keynes said, "I sympathise with those who would minimise, rather than with those who would maximise, economic entanglement among nations … let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national." Without the type of ideas proposed by Keynes, capitalism would not have survived the Great Depression of the 1930s. However, as nation states embraced neoliberal policies over the past few decades, his proposals about the proper role of the state in the functioning of a capitalist economy were forgotten. Now, these policies are undergoing a revival in some quarters, as the severity of the current global financial crisis is forcing massive state intervention worldwide.
India's stock-market index, the Sensex, crossed 21,000 points in January 2008. Now, it is valued below 9000, having lost almost two-thirds of its monetary value in the face of what is being called the worst global financial crisis in 80 years. It has devastated the top Indian banks and corporates, who now only have illusions of wealth to harvest from their half-decade of vainglory. All hope that the ongoing crisis will leave emerging economies (and, among them, those in Southasia) unscathed have faded from the horizon. Prime Minister Manmohan Singh recently expressed his helplessness: "We are not in complete control. There are bigger players, and we are victims of that. The crisis is not of our making" Nor was the credit-led boom "of our making", he might have added, since global finance, led by the 'cheap money' policies of the US Federal Reserve, financed it. That boom is now over, as attested to by the falling growth rate. Till recently, the crisis had been mostly financial; now, it is engulfing real economies, as demonstrated by the approaching bankruptcies of the three giant carmakers in the US.
This understated and least-debated form of globalisation – financial liberalisation – has drawn the destinies of countries as disparate and far-flung as China, Venezuela and the US into the same vortex of troubles, prompted by what the former chairman of the US Federal Reserve, Alan Greenspan, has admitted is a "once-in-a-century" financial crisis. Many pundits within and outside professional economics have long debated the perils and virtues of globalisation, mostly in terms of the opening-up of economies to trade and investment. Only a few exceptions among the professionals – most notably Joseph Stiglitz – have spoken about the dangers of financial liberalisation, and that too only after being sobered by the East Asian financial crisis of 1997. Now that larger fractions of this financial liberalisation are more apparent to the public eye, it is becoming clear that markets united by intricately organised, state-promoted greed can spell economic mayhem, resulting in untold distress for those who live at the mercy of the abstractions generated by forces over which they have little control. As confidence evaporates along with credit, countries are beginning to experience growth slowdowns, large layoffs and rising unemployment.
Yet, the big players in the world of finance continue to live by their whims, even as lessons in 'market discipline' are distilled for the rest of the population. 'Panic legislation', recently pushed through at the behest of corporate czars and the US Treasury Secretary (and ex-CEO of Goldman Sachs) Hank Paulson, places them above the law, insofar as the discharge of their public duties as the guarantors of corporate debt are concerned. In effect, the tax-paying public is being asked to underwrite the lucrative gambles of financial adventurers in the top investment firms. Such action privatises gains while socialising costs, losses and risks. It generates what economists have long identified as a 'moral hazard', exempting the culprits from market discipline, and giving them an incentive to commit excesses again. It is argued that some firms are just 'too big to fail, that their failure imperils the entire financial system. But this only ensures that a similar crisis will recur in a more vicious form in the future.