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The Collapse of a Predatory Economic System: Part III - The Need for a New Financial System
Dr. Bienvenu-Magloire Quenum
Before reading this article, please spare some time to listen to, and view the video by Jonathan Jarvis, available at this link, that is a perfect illustration of the causes that triggered the current financial crisis.
You may also visit following links [1, 2, 3] that discussed about the plight of a country - the Republic of Iceland, which political authorities harnessed the banking system to Wall Street and the financial center of the City of London, to indulge in and promoting unbelievable financing schemes - exposed in the video, in order to maximize profits.
One word summarizes the various causes of the financial crisis as exposed in Jonathan Jarvis's video: Deregulation.
Visiting above green link from answers.com, you would notice that the word had different meaning. However, we at Africabiz Online will stick to the following definition of deregulation, as "The departure from government's control on the economy, giving way to the absolute reign of the so-called Free Market." Put another way: The Markets (mainly the bourses of Chicago, New York, London, Paris and Frankfurt) decide the trend of the economy. Government takes legislative Law, to repeal existing rules that regulates the economy, and disengage from being an active operator of the economy.
In the developed world, in North America and globally in Europe, this had been done during the 1970-1980s - particularly in the banking sector, giving free hand to the banks to do as they like, officially to maximize profits as exposed in Jonathan Jarvis's video. (In the United States of America, the regulatory framework in the financial services industry, created by the Banking Act of 1933 was modified substantially in the 1980s.)
For African countries and other emerging nations, Deregulation and Free Market strictly means Privatization of the economy. The state relinquishing its sovereign rights to run the economy, selling for peanuts states-own companies to private foreign investors. And most astonishingly, leaving the driving seat of the developing to the private sector, and submitting itself hands-up to the political dicta and economic injunctions wielded by the international financing institutions - The World Bank and the International Monetary Fund (IMF).
- Deregulation / Globalization/ Free Market Doctrine Failed to Improve the Global Economy
The main promotional argument raised to defend the Deregulation/ Free Market doctrine (spearheaded by Professor Milton Friedman and the Chicago School of Economics), is the alleged efficiency of private companies's chiefs of operation to boost the economy and maximize profits. Therefore, states would be assured to garner more tax and fees for national budgets.
In view, first of the collapse of the economy in the Republic of iceland [1, 2, 3]; and, second, the financial crisis evolving since the last term of 2008, no one can now claim that the implementation of the Deregulation / Globalization/ Free Market doctrine had been an indisputable success anywhere in the world at large. To say the least. Only Banks and big corporations are garnering huge profits, when nations are sinking into poverty.
available here - Unemployment in America: Wall Street Vs Main Street - highlights the fact that millions of Americans are unemployed, and millions more struggling to survive on a minimum wage. Indeed, the rapid spread of poverty and insufficient access to welfare have combined to form what some analysts are calling a 'social state of emergency' in the United States.
The situation is quite the same in European countries, where unemployment level is globally in the range of 11% of the available working force - since at least 10 years, and showing no sign of abating in the near future.
The poor state of the economy in most African nations and other emerging countries, is also a blatant proof that Deregulation's and Free Market's implementation failed to raise the purchasing power of the populations. Indeed, the economy in any single African country is characterized by an unemployment level up to 80% of the available working force; a per capita Gross National Product averaging US$350-500, and the painful fact that most people in Africa are having a meal every other day - even in South Africa, the country that stands as the most developed in sub-Saharan African countries.
- Which Solution to Clear the Mess?
Economic pundits and sherpa of national governments in the States, and in Europe, are working hard to find solutions. But the proposals made by these (western countries) experts remain encapsulated into the framework of the financial system that ruled the economy under the Deregulation and Free Market doctrine.
Is it possible that
such an approach to finding solutions, is a good one? Would it assists in devising strategies that will, first, put a stop the decline of the economy, and second, gear the economy of western countries into generating sustainable growth rates, year in, year out?
Obviously not when proven facts and statistics show that the cause of the financial crisis is the laisser-faire introduced in the economic arena by the Deregulation's and Free Market's policy enforced since 40 years, by the United States of America, the United Kingdom and other European countries, inside their own turfs, and exported to the world at large - with the active support of the World Bank and the IMF.
After the initial huge bailouts
(with taxpayers money) of the banks, in America and Europe - put in action mostly during the first term of year 2009 (to save the banks that are, dixit the authorities in charge, too big to fail,) the leaders of western developed countries are now, in this July 2010, no more sure (are they?) of which road to take to activate the recovery.
the banks took the money and go on gambling with it as they are accustomed to do before the crisis, attacking and playing havoc with the currencies of some nations experiencing hard economic times - no need for specifications, garnering huge profits in the billion range - and not taking any risk to lending to entrepreneurs (contrary to what is happening in Asian countries and particularly in China, which big companies are, anyway, state owned.)
Strange behavior that the bail out governments in America and Europe are not challenging the proven nuisance of the banks - that are making the best out of the Deregulation's and Free Market's doctrine, preferring to search for alternatives, which makes one questioning and wondering if all this is done on purpose!
Indeed, how come that the bail out (western countries) governments are not prepared
to admit the failure of the Deregulation's and Free Market's policy, that is responsible for the economy's nosedive. One remarks that Asian countries, China, Singapore and Malaysia in particular, which had not relinquish the economic decision-power to the markets and to the international financing institutions - the IMF and the World Bank -
are booming with a strong economy, showing growth rate in the double-digit range.
The refusal to question the Deregulation's and Free Market's doctrine negative impact on the economy has been obvious during Toronto/ Canada/ G8 gathering 25-26 June 2010.
G8 European leaders advocate for, and are actually putting in place contingency restricted national budgets to clap down on public expenses in infrastructure building and maintenance, holding down social welfare expenditures and increasing added value taxes. That is making the population paying twice for the crisis generated by the recklessness of the banks - which receive huge bail out money!
On its parts, the United States of America is counting on the resumption of population's consumption to stimulate the economy, on the ground that budget's restriction and more taxes on the population would stifle the eventual recovery, and hinder economic growth.
As one can see both approaches diverge, highlighting the strange stubbornness to ignore the devastating impact of the Deregulation's and Free Market's doctrine on the economy. Indeed, none of the above briefly described approaches to recovery - budget restriction or consumption stimulation - has the slightest chance to stir the recovery if the Deregulation's and free Market's aberration is still in place. [Click this link to review an excellent article by Robert Reich, The Vanishing American Consumer and the Coming Trade War, that explains why the consumerism approach alone cannot do miracles in current explosive economic circumstances.]
In the contrary, ignoring the negative impact of the Deregulation's and Free Market's madness, is searching for troubles in the near future - G8 leaders are playing with fire as desperate populations may find out that revolts are the only way for change. Is this outcome the planned aim?
Before the financial crisis erupted and more often since it occurred, university professors, economics thinkers and professionals around the world - in the United States in particular (see books listed below,) produced reports and analysis, which most of the time converge to the fact that the prevailing laisser-faire - the markets decide - of the past 40 years had to be harnessed as soon as possible, to stop the haemorrhage and reverse the nosedive trend of the global economy.
Centuries ago, in the ancient world, Greece's and Rome's philisophers were of the same opinion that the state should prevail and manage, in order to service the people and not the few. The stability of the state would benefit from such an approach.
Not so far in history, a famous French state man, Talleyrand, who served the French Emperor Napoleon Bonaparte and the royalty that succeeded Napoleon, remarked, "Financiers make (huge) profits when the state does not do its job (regulating)" / "Les financiers ne font bien leurs affaires que quand l’Etat les fait mal".
Can any sober observer of the current economic landscape in the West, that is in total disarray and confusion denies that Talleyrand's statement is not true? Can anyone really concerned about harmony between the nations of the world, continue to stand for the "diabolic" economics of Free market/ Deregulation/ Globalization cooked by Milton Friedman (the Chicago School of Economics) followers and supporters, which ruthless implementation grab the economic power from governments worldwide, to the benefit of big corporations, destroying national economy, creating unemployment and boosting poverty?
Africabiz Online fully agree with Talleyrand's statement, and is of the opinion that African nations should exercise their full sovereign rights to be involved in the developing process of national economies - as strategic planners and prime investors in state owned companies - in association with private national, regional and international investors, in order to serve the majority of citizens and not only the few, to preserve social stability and create riches for all - to fighting efficiently against rampant poverty.
However, in order to secure economic success, the state-owned companies should be imperatively managed as private companies.
About the author: Dr.
Bienvenu-Magloire Quenum is the principal/
managing director of Dr.
Quenum & Associates, IBC; an experienced Investment & Business
Planner with 30 years consulting practice in African countries;
author of Africans,
Stop Being Poor! and the editor in chief of Africabiz
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|MORE ON THE FINANCIAL CRISIS
|1- Financial Shock: A 360º Look at the Subprime Mortgage Implosion,
and How to Avoid the Next Financial Crisis
by Mark Zandi (Hardcover - Jul 19, 2008)
2- The New Paradigm for Financial Markets:
The Credit Crisis of 2008 and What It Means
by George Soros (Hardcover - May 5, 2008)
3- Manias, Panics, and Crashes:
A History of Financial Crises (Wiley Investment Classics)
by Charles P. Kindleberger, Robert Aliber, and Robert Solow (Paperback - Oct 4, 2005)
4- Chain of Blame:
How Wall Street Caused the Mortgage and Credit Crisis
by Paul Muolo and Mathew Padilla (Hardcover - Jul 8, 2008)
5- Understanding Financial Crises
(Clarendon Lectures in Finance)
by Franklin Allen and Douglas Gale (Hardcover - May 17, 2007)
6- The Subprime Solution:
How Today's Global Financial Crisis Happened, and What to Do about It
by Robert J. Shiller (Hardcover - Aug 24, 2008)
| 7- The Trillion Dollar Meltdown:
Easy Money, High Rollers, and the Great Credit Crash
by Charles R. Morris (Hardcover - Mar 3, 2008)
8- Empire of Debt:
The Rise of an Epic Financial Crisis
by William Bonner and Addison Wiggin (Paperback - Oct 6, 2006)
9- Financial Crisis, Contagion, and Containment:
From Asia to Argentina
by Padma Desai (Hardcover - April 21, 2003)
10- America's Financial Apocalypse:
How to Profit from the Next Great Depression
by Stathis (Paperback - Nov 14, 2006)
11- Crash Proof:
How to Profit From the Coming Economic Collapse (Lynn Sonberg Books)
by Peter D. Schiff and John Downes (Hardcover - Feb 26, 2007)
12- Bad Money:
Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips (Hardcover - April 15, 2008)
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