On the Crisis Trail

 

January 2010

On the crisis trail

The book is a well thought-out analysis of the financial crisis, its consequences and where governments are going wrong

Global Economic Crisis: A People’s Perspective — Fiasco of Neo-liberalism

Alternative Survey Group; Indian Political Economy Association

Daanish Books, 26 B, Skylark Apartments, Gazipur, Delhi 110096

Pages: 258,  Price: Rs 450

Simrit Kaur Delhi

Global Economic Crisis: A People’s Perspective is a timely book that sends a clear message: “It is time to take stock”. Undoubtedly, the economic recession that was triggered by the financial crisis in the US with the collapse of Lehman Brothers on September 23, 2008, now threatens the globe as well. Around the world, stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. On the one hand, many people are concernedthat those responsible for the financial problems are the ones being bailed out while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly interconnected world. The view that the Indian economy would be less adversely affected by the global economic crisis because of limited integration and other inherent strengths has also proved to be wrong. As the full implications of the global financial crisis unfold, questions are being raised on its impact on growth, human development and achievement of the Millennium Development Goals.

The basic concern addressed in the bookis that the policies adopted by most governments in the aftermath of the crisis have neglected its social and democratic aspects while making beneficial policies for the big corporates who became victims primarily because of their own greed. For instance, Kabra in his paper states that the common masses and vulnerable sections of the society get twice bitten. First, they have no share or a low share during the phase of prosperity followed by loss of jobs, lower wages and reduced welfare spending by the State during crisis. Joseph Stiglitz is quoted in the paper to highlight the point that rescue packages for dealing with ailing banks is “a win-win-lose proposal: banks win, investors win, and taxpayers lose”.

Another paper by Roy highlights the same by stating, “losers are once again who lost in the past”. Quoting the statistics of the Labour Bureau, it states how in a span of just three months (October 2008 to December 2008), more than 500,000 Indian workers had lost their jobs in select sectors of the economy due to the global meltdown.

The gravity of the situation is to be understood in light of the fact that of the present workforce of around 500 million, not more than 40 million are covered by social security, whatever definition one uses. As of now, beyond social security provided by the community or the family, workers who have lost jobs because of the growth downturn have no access to any social security. In the face of continuously rising food prices, the implications are even graver. Thus, the working population is being increasingly pauperised, without being contributors to the crisis. At the same time, they are being forced to sacrifice their claims in order to finance the revival of a system that never valued their lives.

Yet another paper by Singh highlights how the financial stimulus packages announced by the Indian government have left Indian agriculture untouched in spite of providing employment to over 50 per cent of the workforce, notwithstanding its role in providing food security. It mentions how no special package for agriculturalists has been announced which will help them cope with the rising costs of cultivation and extremely volatile crop prices. But this sector’s contribution is critical for making the GDP growth inclusive and pro-poor. The paper highlights the lack of policy orientation towards this sector. To expect that the resulting benefits could trickle down to poor farmers is simply unrealistic, it states. Enhanced fiscal stimulus packages, benefits of which primarily accrue to the manufacturing and services sector, will also have adverse consequences on the governments’ capability to spend on social protection.

Arun Kumar’s paper analyses the reasons for the collapse of the financial markets and why fiscal stimulus packages have not been successful. Upadhyay’s paper on macroeconomic impact of the crisis and Mazumdar’s paper on impact of economic crisis on demand conditions are some of the contributions in the collection that make an interesting read.

Kumar’s paper demonstrates how the origin of the crisis is not just in the sub-prime housing mortgage crisis, but rather has a manifestation in the deeper underlying issues confronting the US economy. The paper points to the contrast between regular banks regulated by the central bank and other unregulated financial institutions dealing in financial assets. It states how the absence of regulation for the latter results in destabilisation in both directions — during the growth of the financial bubble and its deflation.

A strong flavour that emerges from the 11 articles in this collection is that the authors seem to share a strong view that the financial crisis is the failure of neo-liberalism: a political doctrine that favours privatising profits and socialising losses. According to them, the markets are not self correcting, do not allocate resources efficiently and do not serve public interest well. They, thus, argue for an alternate system of development. However, it must be appreciated that an end of neo-liberalism may not necessarily be the best policy to come out of the crisis. However, it certainly calls for changes in the institutional structure of capitalism.

In fact, the role of the ‘State versus market’ has been one of the major issues in development economics and policy. It is of interest to mention here that during the 1980s, the theory of market failure was overtaken by the theory of non-market or bureaucratic failure. The tradition of State-led policies were challenged due to extreme bureaucratic inefficiencies, poor performance of public enterprises, high fiscal deficits, and the advocacy of market driven remedies.

Today, once again, views concerning a smaller and more limited role of the government, which were held so strongly in the early 1980s, are being questioned. Undoubtedly, neo-Keynesianism is staging a comeback. Deregulation is no longer viewed as an unmitigated success. Scandals in the banking and securities industries have led to calls for greater regulatory surveillance. But one must remember that both systems — private as well as public — are marked by imperfections and that neither is perfect. Totally disregarding one in favour of the other is thus undesirable. Finding a balance between the two is the real challenge today.

To conclude, the book is a well thought-out analysis of the financial crisis; its consequences and where governments are going wrong. This compilation of viewpoints of several researchers and analysts will surely facilitate debate on finding viable solutions that strengthen the linkages between crisis, growth and human development. All in all, the book is recommended for policy makers, academicians and economists alike.

The writer is an associate professor, faculty of management studies, University of Delhi