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| Sunday, 27 February 2005 |
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Features |  |
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The market mantra : What went wrong by Jayatilleke de Silva Deregulation, privatization and small government have been the core elements of the standard prescription for development and good governance ever since the enthroning of the market in 1977.
Now more than a quarter century later the people, principally the poor and poorest of the poor are yet to receive benefits of the change. Successive governments have promised to deliver but failed dismally in spite of the promises of supplanting a human face to the otherwise ruthless market economy. What it has achieved is a skewed development where the Western province gets all the plums. The slogan -kolombata kiri gamata kekiri (plums to the metropolis, crumbs to the periphery) - epitomises this development succinctly. The Washington consensus, whose dictates we have been following faithfully over the years raised the market to the level of a fetish. Captains of industry and their professorial colleagues wrote volumes and volumes of dissertations and treatises hailing the market as the ultimate do-gooder of all times. The East Asian financial crisis, the Russian Crisis, the Latin American Crisis, the bursting of the American bubble, the stock exchange crashes, the fall of Enron and other corporate scandals, however, have forced economists to ponder whether there had been anything amiss in the market mantra touted so long as panacea for all ills. Joseph Stiglitz, one of the foremost economists of our time, the former Chief Economist of the World Bank and Chairman of President Clinton's Council of Economic Advisors and author of the celebrated work "Globalization and its discontent" bares it all in another illuminating book "The Roaring Nineties." With his detailed knowledge of the working of the US and global economy he presents an incisive analysis of both pinpointing where, when and how market fundamentalism practised by the US and multilateral financial institutions failed. He shows how the unprecedented boom in the Nineties of the last Century inevitably gave way to the worst downturn in the US economy. He records that in the first two years of the 21st Century "$ 8.5 trillion were wiped off the firms on America's stock exchange - an amount exceeding the annual income of every country in the world, other than the United States." It is an irony of history that Marx's 150 year old prediction about the inevitability of cyclical crises under capitalism should prove right in the very first two years of the triumphant new millennium before the advent of which communism was pronounced dead and capital's victory declared final. Stiglitz draws the conclusion that there needs to be a balance between the role of government and of markets. He says it was too little regulation, not too much, that caused the economic crisis in East Asia in 1997. The United States pressurised Third World countries to adopt policies, which it had discarded at home, claims Stiglitz. For example, developing countries were told to open their markets while the US maintained stiff trade barriers and large subsidies on behalf of US farmers and agribusiness. It maintained robust trade deficits while advocating others to keep them down.Just as much the US economy was mismanaged, Stiglitz maintains that the global economy was also mismanaged. Globalization is an objective process inherent in the capitalist system. Yet the United States has mismanaged globalization by attempting to structure it to suit America's short-term interests. He concludes : "globalization, as it was actually practised, tended to make poor societies more rather than less unequal." For example, globalization brought forward policies of trade liberalization. Trade liberalization, however, later turned to be a new way in which the rich and powerful could exploit the weak and the poor. Stiglitz also concludes that economic globalization has outpaced political globalization. He blames the US and multilateral financial agencies controlled by the US for ignoring the interests of the vast majority of developing nations. He argues that closer economic integration reinforces the need for collective action. Unilateral actions of the United States go against its own long-term interests, he concludes. He proposes that countries should be given more freedom to choose the type of market economy that suits them rather than imposing the American model. " There is no one way. There is no perfect system," he concludes. |
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