Keeping financial markets global while at the same time making them safe requires tighter, better cooperation among countries – not only on financial regulation, but also on global macroeconomic and monetary policy – observe Adarsh Kishore, Michael Debabrata Patra, and Partha Ray in ‘The Global Economic Crisis through an Indian Looking Glass’ (www.sagepublications.com). The authors caution against policies (such as the favouring of domestic over foreign lending) that could lead to distortions; and also against protectionist pressures. The stark collapse in world trade in the wake of the crisis only heightens the importance of a rapid completion of trade negotiations to help open up markets and revitalise global growth prospects on an enduring basis, they urge.
The future, according to the authors, is not that capitalism will cease to exist, but that it will escape from ‘intensive care’ to emerge with a more human face; with animal spirits that will be watched and possibly tamed. Reminding that globalisation is not a dirty word, they aver that the future of capitalism lies in the preservation of globalisation. “Given the not-so-bright, gloomy medium-term outlook, anchoring financial stability in the future will be reoriented around a stronger recognition of market failure and a larger and more legitimate role for public intervention than before.”
The authors foresee that most emerging economies would return to amassing foreign exchange reserves and limiting current account deficits/ external debt as a risk-minimisation strategy. Fretting that, as a consequence, global imbalances will continue to prevail, they paint the grim scenario that there would be even bigger upheavals in the manner in which markets function or financial sectors are restructured or policymakers conduct regulation.
A telling prognosis in the book is that the current mismatch of globalised finance and national governance is unsustainable; and, the prescription is that either governance must become more globalised, or finance, less globalised. Ruing that the crisis reflects not entirely the failure of markets but instead a failure to create proper markets, the authors see, in all this, not the bankruptcy of the social system but the intellectual and moral failure of those who were in charge of it.
Recommended read for the crisis-hit.
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