A social-contract to sustain the fluctuations of the global economy
{reflections}
As we know the globalization of the financial market freed capital to move around the world escaping their country of origin taxation and regulation. The resulting privileged position in which financial capital finds itself leaves each country dependent from international conditions rather than the local needs of the population. Once financial capital escapes the sovereignty of the state it originates from there aren’t any effective and comprehensive international regulations that define or limit this financial capital use. The recent crisis highlighted how the lack of capital requirements, transparency and regulation on trading derivatives left everyone in the dark of who owned what. The bill to stop the market fall landed on governments and so has the recovery effort.
The issue can be approached by regulating local markets as proposed by President Obama’s regulation on the banking system and by recognizing the need for an international financial regulation which the G20 has started to do. An international financial regulation is a long term effort as it is demonstrated by the EU attempt to regulates its members, given each member country diverging interests. Would financial protectionism be the solution? Before looking at the possible answers to this question lets recognize the mechanism of globalization. The interdependent world economy that globalization generated is such that organizations or investors seek capital where is cheaper, look for investments where they are more profitable, find talent where it is available, manufacture goods where it is cheapest, offer services from where it is most cost effective and sell both goods and services everywhere. This mechanism has created wealth worldwide but not uniformly. On the contrary pain has been the harshest there where the middle-class had the highest buying power. As result the support that this middle-class has given to globalization is shrinking leaving politicians that wish to retain power with the mandate for the redistribution of the benefits of globalization and the institution of local controls to prevent further contractions of local economies. Hence to guarantee financial stability and begin recovery the path to the global economy is being crisscrossed by bilateral trade agreements. The relative power shift amongst the trading partners is considerable. The role of countries like China, India and Brazil is augmented forcefully and their political capital greatly increased. For now then a relative protectionism is embraced by most countries even when lip service may be paid to the benefits of market globalization.
In conclusion, leaving the markets to themselves has shown us that the mantra “the market knows best” has left the financial system unbalanced and the social-cultural texture deficient of the needed developments to bounce back. Developments such as those in education (including library work,) scientific research, energy production, infrastructure and health-care provision are mostly undertaken when there is a partnership between public and private enterprise—the market does not willingly invest if there isn’t an immediate profit prospect. A renewed social-contract in this nevertheless global economy might look therefore to equip people with the skills to adapt to change, protect their health as they are in the midst of change and foster growth with renewed investments in all sectors of research.
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Opinion Poll
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After the crash: Why we can’t go back to business as usual.
International financial authorities handled this crisis the same way as previous ones. But this crisis was much bigger, and the same techniques did not work.
By George Soros
Friday, Jan 08, 2010, Page 9
> http://www.taipeitimes.com/News/editorials/archives/2010/01/08/2003462925
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Forbes: Open Markets
Is The Banking Crisis A Crisis For Globalization?
Peter Mandelson, 03.03.10, 07:40 PM EST
Internationalism needs to be the motif of this century.
> http://www.forbes.com/2010/03/03/banking-crisis-globalization-opinions-contributors-peter-mandelson.html
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New Brunswick Business Journal
The Restless Drumbeat of Globalization
Published Tuesday March 16th, 2010
Peter Lindfield
> http://nbbusinessjournal.canadaeast.com/journal/article/985674
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The Wall Street Journal: Opinion
State Capitalism: Free Trade’s Real Enemy
More corporatism w: Opinionill mean more mercantilism.
BY MARC DE VOS
(The article is no longer available unless you become a subscriber, Puah!!)
> http://online.wsj.com/article/SB10001424052748704784904575111381598716708.html?mod=WSJ_latestheadlines
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