Analysis of global economy
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. Rs. 450.
S. L. Rao
This book was written as an analysis of the global economic crisis that started with the collapse of the American financial system, spread to Europe, led to a decline in manufacture because of shrinking credit, losses in investments, and dwindling consumer purchasing power, and ultimately resulted in large-scale unemployment among white collar, and then blue collar, workers. The crisis infected the developing countries like India that were large exporters to the rich countries of the West. The authors of the 11 articles that figure in this collection seem to share a strong Marxist predilection.
Inequality
The crisis of 2008-09 is seen as a crisis of capitalism. Self-regulation of financial markets in the United States is condemned and the unwillingness of the market-oriented system to learn from past experiences of a similar kind is stressed. India is charged with commitment to ‘market fundamentalism’ of a neo-liberal variety. Nowhere though is neo-liberalism defined. Markets are seen to be inherently inefficient, unable to gauge risks, and unable to create effective demand to match growing supply. Unregulated markets in financial assets are unrelated to the real economy and were the root cause of the crisis. The authors also criticise the growing inequalities in India since 1991. They consider the declining poverty numbers as not indicative of reality and that in any case the definition of poverty in India is very faulty. It appears that they would like to see an economic system that is focussed on government spending to uplift the poor and not on industrial and finance development. They must welcome the stimulus packages of the United Progressive Alliance government focussed on raising rural purchasing power. They do not consider expanding supplies as a necessary element. Nor do they recognise the role of private versus state entrepreneurship in bringing about speedy economic growth and employment.
In recent years, the financial flows have gone far beyond the requirements of the real economy. Many novel financial products were developed that assumed that risks were measurable and that people acted rationally and hence the markets could be managed. The excessive dependence of the U.S. on cheap imports from China, its huge current account and budget deficits, the low interest rates to keep that economy stimulated, and the decline of American domestic savings almost to zero led to overextension of credit for housing, consumer goods, and other items. This led ultimately to a loss of confidence and collapse. India did not face any of this. India’s financial regulation has been strong and the fact of dominant government ownership of banks helped a great deal. Strangely, the U.S. is moving towards a similar situation where the government has either ownership or a strong regulatory hold on the banks and financial players. Finally one would be foolish to argue for unfettered markets. A strong and independent regulation is essential and India is well on the road to having it. So is the rest of the global economy. This is a book for the ideologically committed.
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