Published in DAWN: 18-12-08
IS the financial tsunami in America as shocking as it is made out to be, or is it a classic case of a value-correction taking place in a market which had gone overboard with its own addiction to being bigger and more powerful than everybody else?
Whatever the reason, it is a much-needed lesson which all countries and societies across the globe need to learn; firstly to rescue themselves from similar disasters and then to develop their own structures on a sounder basis than inflated materialism to fool clients.The recent economic turmoil has made economists and financial analysts scramble through models and theories in an attempt to find an explanation to what is happening in a world where trillions are just a figment of some crooked banker’s creative imagination. This, of course, raises a lot of questions about which model, which structure and which regulation will stop these waves of doom engulfing the world.Has the capitalist model failed and is there going to be a resurgence of the communist mode keeping in view China’s rise to economic stardom? The world’s best financial brains are still scratching their heads and brainstorming to come up with a plausible explanation. British Thatcherism in the 1970s brought about a whole revolution by championing privatisation and setting the way for most to follow. Now we have Gordon Brown’s version of nationalisation of increasing government stakes in private institutions, setting the way for others to follow.For years deregulation was the development mantra, while all we hear now are shrill cries of panic for more regulation. Financial principles of capitalism, theorising ‘the higher the risk the higher the returns’ has taken the literal course too seriously, leading free market concepts to unholy extremes where $62 trillion worth of credit-default swaps occurred without being traded on exchanges. This is surely not capitalism but swindling which has destroyed the belief in an economic system that had created many opportunities for the less-privileged countries. The system of capitalism is not at fault but its unregulated abuse is. When a system fails, the danger is that opposing systems become an automatic refuge for victims of the failed system.Is communism the answer to this issue? Interestingly the three economies which are comparatively unhurt by this global economic free fall are China, India and Russia, all practising various forms of protectionism, with Russia being the closest to the closed economy model and India the farthest away. Government intervention seems to have become the favourite recipe for economic survival. However, hopefully the infatuation with this model should only be limited and selective.The financial mess definitely needs more government regulation to limit the damage inflicted by the financial gamblers of the world. However if this tendency turns into a full-scale system of government controls it would unnecessarily make countries reticent to opening up markets for trade thus reversing all the good work done to make this world a more equitable place for goods from rich and poor countries to find worth in the most opportune markets of the world.Pakistan’s economic debacle has little to do with the world crisis. In fact its banking system is in much better shape than many others. The crisis that we find ourselves in is a result of years of political and economic deception carried out by successive governments. The complete lack of proactive planning of our basic resources has put us in a state where basic survival is the name of the game. Exports have not performed and imports have ballooned; local industries have been crippled by the lack of basic facilities, and foreign investment by lack of security and opportunity. In fact the world crisis may have given us an outward chance of survival.As world markets crumble, the opportunities to invest elsewhere will become rare; thus capital flight from our country may not find alternative options. Our crisis is still solvable considering that we need only $5bn to bail us out compared to Lehman Brothers which needed $690bn to survive. As predicted, most Friends of Pakistan are fair-weather friends. With Americans taking full advantage of our vulnerability and stampeding over our territory, and China only agreeing to some remote long-term investments, Pakistan had no choice but to go to the lender’s mafiosi, i.e. the International Monetary Fund. In hindsight it may not be the worst choice especially if the IMF manages to force the two biggest resource-guzzlers of our country — the military and government — to cut spending.What has happened in the world is not because of flaws in the capitalistic model but a huge flaw in the humanistic model. All models are subject to use and abuse by the people managing them. Each model is operative only under certain guidelines and principles. It is insatiable greed and corruption which are at the root of the trouble. In fact, western financial extremism has caused terror in the world economy. It is time for the world to spurn this obsession with materialism and balance it with the values of contentment, of integrity, of humility and of humanity. Without these principles, sanity will be at risk.
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