BUSINESS AS USUAL - PRIVATISE PROFITS AND SOCIALISE LOSSES
In 1932 John Maynard Keynes, possibly the greatest economist of his generation, wrote an article in the New Statesman. With a slight editing to bring his article up to date and an acknowledgment that these are mainly his words, we see the situation in front of us today in all parts of the global economy:
In 2009 the world will be wondering between two alternatives; and until doubt is resolved it would be vain to expect genuine decisions from any Stimulus Package or Economic Summit. The alternatives are these. Will it be apparent by the end of 2009 that this slump is same in kind as past slumps thought so violent in degree, and is gradually working itself off by the operations of natural forces and the economic system’s own resiliency? Or shall we find ourselves after a modest upwards reaction and dubious hopes of recovery, plunged again into the slough?
So long as there is any prospect of our realising the first alternative – and its realisation is not impossible – we may be certain that governments and businesses will confine themselves to pious words. Only in the other event, with hopes dashed and the oppression of renewed and universal despair terrifying the world, will there be any chance of action commensurate with the problem.
There are already murmurings that “in two years” with “some tax relief and some infrastructure spend” we will all be back on track to growth and well being. We only have to “kick start” our economies and all will be well.
However, in spite if this sense of optimism amongst some commentators, the wider question of the basic underpinning of the global economy remains in play. We have yet to feel the full impact of global and national financial and economic crises in our region.
The question is: what do we really believe will be the consequence of the changes being wrought around the world in 2009 when they play out in our economies?
Or put simply: “Is the global financial and economic system about to be fundamentally broken, or is it simply heading for a deep recession?”
If the answer from this question is “broken” then the response from government and business needs to be different to a response for a global economy heading for a recession. Keynes’ words should ring in our ears. “Broken” requires some breakthrough thinking about job creation and sustainable economic development, while a “recession” simply requires a stimulus package to restart the economic engine.
Before we leap to a final conclusion, we would be well served to reflect a little longer on the wider global financial crisis, its root causes and possible future impact on our various economies.
Commentators
[1] suggest that the global economic crisis has been caused by a “perfect storm” of three factors:
- Firstly, a severe institutional failure in the investment banking and retail banking systems around the world – banks become risk takers and “gamblers”, akin to casinos rather than prudential businesses
- Secondly, a failure of the intellectual capacity of governments and financial regulators to manage the financial systems – the policy makers simply could not believe that the “invisible hand of the market” could get it so wrong, and
- Thirdly, a failure in morality in which the world was ready to accept growth for tis own sake without consideration being given to the longer term social and personal purpose of growth
As to institutional failure, the banking system in countries like Australia has proved more resilient and better regulated than other countries, of this we are certain. While credit is tight, and money is more expensive than before, it is still possible to borrow funds to buy a house and to undertake commercial activities. We are not like Iceland, where the notion of “sovereign debt” starts to look shaky in the face of the financial collapse of the national banking system. Yet it is possible to speculate that a fundamental restructure of the banking systems worldwide may produce a new and more stable financial system.
With respect to intellectual capacity, national economic regulators can become better prepared and better resourced; and we have the capacity to review and assess the corporate world and to expose the tendency to conceal problems rather than to reveal them to the shareholders. We can actually improve the regulation of the world’s financial system and save it form itself.
Where we remain at risk in the global economy and in our region is in the “moral” dimension. While trying hard not to sound like a religious fanatic there is a core of widely held spiritual and values-based beliefs that now need to be questioned and the answers to this inquiry will guide us towards policies for true global recovery.
“…economic efficiency – the means to growth – has been given absolute priority in our thinking and policy. The only moral compass we now have is the think and degraded notion of economic welfare. This moral lacuna (an empty space)
explains uncritical acceptance of globalisation and financial innovation. Leverage is a duty because it “levers” faster growth. The theological language that would have recognised the collapse of the credit bubble as the “wages of sin”, the come-uppance for prodigious profligacy, has become unusable. But the come-uppance has come, nevertheless.[2]”
The issue for government and business is thus in part an issue of definition. What is the purpose of any action to be taken in this crisis?
Is it to restore the market to its once former glory and to head off again down the highway of growth for its own sake, again?
Are we dealing with a mere “cycle” in a great economic system of self-regulation and risk taking?
Privatising profits and socialising losses worked in the past, why not now?
The moral dimension insists that we ask the question, “what are the social priorities for growth in the global economy and how shall we meet these priorities in the coming years?
Keynes would argue that whatever fiscal and monetary policies governments sought to put in place using this set of “business nearly as usual” assumptions will lead right back to where the problem started in the first place:
“…fear and greed, duplicity and incompetence, but above all conventional thought and feeling (will bring) their collective performance far below the level of…human individuals. But here is a last opportunity[3]”
Governments and corporations must face up to the moral dimension – growth for its own sake, or growth leading to a better quality of life for ALL?
This is at the heart of the social contract between government, corporations and the community – and this is at the heart of the current economic crisis. Government may not walk away from this obligation. If one breaks the social contract in order to kick start the economy; if government and corporation trade off social well-being for jobs at any price then we are lost.
[1] Robert Skidelsky, “Keynes Mark II” The Australian Financial Review, February 13th 2009