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June 20, 2007
Root causes
by Sylvia S Tognetti
Dani Rodrik - an economist who is esteemed for his work on global trade issues to which he brings an institutional perspective, and who is refreshingly candid about blindspots in his own field, is looking for the benefits of changes in the global financial system that have occurred over the past 25 years or so, and can't find any. For a list of the risks, see this article he links to, by Martin Wolf in the Financial Times, who does a good job of describing some of the mechanics of the "financial engineering" that has occurred. Wolf hasn't quite figured out if this is good or bad:
Our brave new capitalist world has many similarities to that of the early 1900s. But, in many ways, it has gone far beyond it. It brings exciting opportunities. But it is also largely untested. It is creating new elites. This modern mutation of capitalism has loyal friends and fierce foes. But both can agree that its emergence is among the most significant events or our time.
but promises Rodrik an answer in next week's column. What his article suggests to me is that novelties in the global financial system have unleashed risks and uncertainties as unprecedented and possibly as uncontrollable as those in the climate. If there is indeed a "triumph of the trader in assets over the long-term producer" and if "capital is flowing in the wrong direction, from poor to rich nations" - what does that say about approaches being taken to protect the production functions of ecosystems so as to insure the flow of services, like water and climate regulation, and to alleviate poverty and promote sustainable development? Rodrik concludes:
I am among those who see the future risks as being substantial. I think there is a fundamental incompatibility between unfettered global finance and a fragmented system of political sovereignty at the national level. I am also not convinced that this new international financial capitalism has actually lived up to its promise: it has on the whole not been beneficial to developing nations, and it has created great inequality in the rich countries (as Wolf acknowledges). So we need a substantial rethink.
All the potential Keynes's out there: we need your ideas!
I don't think the answers will all come from economics or that we will find any Keynesian silver bullets but I will eventually flesh out a post about the notion of a "Post-Cold War Reconstruction" as a framework for a substantial rethink and for redefining the whole concept of security, which would answer the question Frank Luntz asked in the Frontline interview: "you tell me where global warming fits in [on the more immediate issues]" Iraq, Iran, terrorism, health care, prescription drugs, education...". There is some good stuff out there - now if we could just get somebody intelligent elected for president who isn't intimidated by complexity or delusional voters.... (Come on Al!)
Posted by Sylvia S Tognetti at June 20, 2007 4:04 PM
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