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The game is up: The age of liberal finance is over Ann Pettifor contends that the response to the regime of unregulated finance that has caused the eurozone crisis should go beyond focusing on bankers' bonuses and the failure of the rich to pay taxes. A coherent alternative programme should include such critical elements as the provision of liquidity to stimulate economic growth, an orderly debt workout, capital controls and the adoption of full-employment goals and policies. THE game is up. The
2007-9 private banking crisis that started with the unpayable debts
of the And so the age of
liberalised, de-regulated finance appears to be over - at least in The Stability and
Growth Pact was and is repeatedly flouted by This resistance represents a Polanyian counter-movement - however weak - which defies orthodox economists, central bankers and Haute Finance. Across the eurozone, Europeans resist further private sector bailouts and refuse to march like lemmings to their own destruction across cliffs of unemployment, deflation and social unrest. Financial straitjacket The eurozone and its
economic framework was designed as a financial 'straitjacket' to undermine
the sovereignty of Europe's elected governments, to transfer power over
financial and therefore economic policy to unaccountable central bankers;
powers then enforced by 'the invisible hand' - 'the markets' - international
speculators on foreign exchange and financial markets. It was also,
its protagonists argued, designed to ensure peace across But so utopian is
the vision of liberalised, unaccountable finance, that it has achieved
the very reverse: the divergence, not convergence, of European economies,
sovereign insolvency, bank failures, rising unemployment, the degradation
of public services, and, with it, the intensification of tensions and
conflict across Regrettably we have been here before. The very same policies - and liberal finance model - were tried in the 1930s, under the Gold Standard. By 1933 their failure was complete, challenged effectively by both Karl Polanyi and John Maynard Keynes. The latter took on the responsibility of outlining and implementing a 'Plan B' - one which endured until overturned by neoliberals in the late 1960s and early 1970s. So as we witness the death throes of this second experiment in liberal finance, what is today's progressive alternative? What is the left's Plan B? Alternative policy programme The failure of the
left to pose an alternative to liberal finance was striking before,
during and after the 2007-9 financial crisis. In the wake of the greatest
financial catastrophe of our lifetimes, the loudest complaints were
aimed at bankers' bonuses, and at the failure of rich elites to pay
taxes. Recently, the pro-austerity Institute for Fiscal Studies in the
But while these are important issues, they do not touch on the structural injustice of a liberalised financial system that is capable of wrecking the global economy, denies economic sovereignty to democratic states, and that stratifies the polarisation of wealth between rich and poor. Nor does the debate on bonuses or the addition of taxes structurally alter the role of Haute Finance as 'stupid master' (to quote the British Labour Party's Employment manifesto of 1944) as opposed to 'servant' of the real economy. So what should the left's macro-economic Plan B look like? Clearly it will have to embrace both monetary and fiscal policy, with monetary policy more important in the long run, but fiscal expansion needed immediately to deal with the collapse of employment and private sector activity. The first element of any plan must be the careful and coordinated sequencing of both quantitative easing and fiscal expansion. This will involve the financing of a programme of public works expenditures designed not just for socially and ecologically essential projects, but also to stimulate private economic activity. Central banks are eager to supply liquidity to private bankers when they wreck both their own institutions and threaten the global economy; they should now act to supply liquidity to governments that need to stimulate economic recovery, and finance the transformation of the economy away from fossil fuels. Next, it will be essential to manage in an orderly fashion the massive write-off or 'restructuring' of unpayable debts - to replace the current disorder of random deleveraging by sovereigns, corporations, households and individuals. Many of these debts are phantom debts, and cannot ever be repaid. That reality must be faced. It is time for another debt Jubilee. The third element
should be the introduction by sovereign states of capital controls over
the mobility of finance across borders, to strengthen democratic, accountable
policy-making. In the words of Fourth, central bankers, while regulating the creation of credit by private bankers to ensure loans are repayable, should also seek to bring down interest rates across the spectrum of lending: for safe and risky loans, short- and long-term loans. Adam Posen's recent proposal for a public bank that would make cheap loans available to small and medium-sized enterprises should be given serious consideration. In other words, the rule should be 'tight but cheap' money. Fifth, governments and central banks should be mandated to promote a) full employment and b) sustainable, localised economic activity, supporting the domestic economy - not a globalised financial elite. For just as employment makes things affordable for individuals and households, so full employment will make things - including the transformation of the economy away from fossil fuels - affordable for government. 'Look after employment,' as Keynes argued, 'and the budget will look after itself.' Add to the above, terms and conditions for banks bailed out by taxpayers and a reformed taxation system, and you have a coherent and plausible Plan B. Correct me if I am wrong, but so far it seems the most comprehensive one on the table. Ann Pettifor is
a director of PRIME Economics; fellow of the new economics foundation;
author of The Coming *Third World Resurgence No. 253, September 2011, pp 17-18 |
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