October 12, 2008
Keeping society in limbo
K. P. Vlahodimos, 12 October 2008
Somebody has finally to explain the underlying issues of this financial crisis and ensuing clouds of severe recession for the benefit of non-economist specialists. People have had enough of jargon and cloudy lofty statements keeping society in limbo. I am writing this note as an anti-expert. Is anybody there?
There is a lot of confusion recently because of catastrophic developments in the financial sector on a global scale. The ordinary informed citizen struggles to interpret myriads of incompatible and mostly incomprehensive messages. They are meant to reassure but achieve the opposite. And yet he needs a comprehensive description of the problem in order to be active in developments affecting his welfare and the destiny of his children.
Result, suspicion and lack of confidence. This lack of confidence is not relevant to the sound bites of the media about the posture of financial institutions and their power game in dealing with the authorities. It goes to the ordinary citizen.
A simple observation suggests that the severity of the crisis in a country is analogous to the stage of its economic development and the apparent role of the financial sector, with the US leading. It is in advanced countries that media are bombarding the population with threatening messages creating this limbo as to the way out, the consequent real cost and calls for accountability. Underdeveloped countries are much less affected.
Confidence can only be built if a holistic assessment of the problem is shown, the real economic and social consequences are stated but related to the solid wealth foundations that already exist and the opportunities offered to move to more viable arrangements in the functioning of the economy. Public consent to this assessment is the most important negotiating tool in the hands of the authorities attempting to tame a financial sector gone wild. Today this is not available.
It would be necessary to highlight the existing solid wealth base in real and not monetary terms. Irrespective of its ideological base, the potential of developed society has two dimensions that relate to its economic performance, natural resources and human capital. Financial services are only a small sector of the human capital albeit highly specialised. The real strength of developed societies is their flexibility to adjust because of the diversified highly specialised human capital pool. It would not be the first time such societies face a problem with a sector of economic activity and ways exist to tackle them at their root causes at a cost. These ways might prove more challenging in this case chiefly because of the emotional connotations of “money”, than the severity of the crisis itself; but are unavoidable.
Although root causes are closely linked and their borders blurred, some can be pinpointed by a non-expert observer. Experts can expand on more.
To begin it might be purposeful to question: With all these gigantic losses to the taxpayer, investors, banks and other financial institutions employees, who are the ones that gain? We are talking about many trillions of dollars of wealth and their frightening negotiating power on future arrangements of the financial and perhaps other sectors or even political processes. Assuming there have been intentional distortions of the system that have caused the crisis, people behind them will fight to preserve their gains.
We know that the consequences of the oil crisis have accumulated very large amounts of financial reserves in the hands of states and people outside the countries with acute problems. Although some of these reserves have been invested back and suffered from the crisis, their longer term perspective cushions this pressure. A lot more should be available. Given the political and cultural sensitivities surrounding some of the holders of these resources as well as their geopolitical arrangements guaranteeing their survival, what would be the consequences of using these reserves in the global economic system when the moment is right for them?
How objective is the strategic perspective of the large media groups privately owned by controlling minorities with broader interests or sometimes non-democratic governments? Is real-time insatiable media scrutiny of the political establishment beyond political processes, even in their private lives, influencing government policy? If so to what purpose?
Greed is part of human nature. It will manifest itself if conditions are ripe. In the case of this crisis, there is ample of it in a provocative manner for some time. Why did the supervisory system accommodate it?
Finally, developed economies are under this crisis for some time. Signs from everywhere indicated that the problem is as global as the financial and economic networks. Why is it taking such a long time to accept the need for a strong global coordinating institution? Why EU has been so slow to come together on this issue? Do its leaders realize that the very viability of the Euro edifice as well as the whole European experiment depends on forming a common view before a strong global institution comes into being?
Perhaps it is time to accept that this financial crisis is much more of a fundamental political challenge to society and proceed with renewal of government mandate to deal with it. There is a need to effect fundamental change at a speed that will avoid collapse of the broader economic edifice in the shortest possible horizon.
Author : optir