Dismal outlook for banks to win the next financial crisis

By Vickramabahu Karunaratne

(February 15, Colombo, Sri Lanka Guardian) I receive the ‘Finance & Development’, the quarterly publication of the International Monetary Fund, regularly; for more than three decades. But, I was never attracted to read all the articles in a single issue. It was different in the case of the last issue, released for December 2009. The present global economic crisis, something not seen since the great depression, has changed not only the thinking of the American ruling class but also that of the International Monetary Fund. Yes, one could still argue that the fundamentals have not changed. Nevertheless, the quarterly magazine contains articles on Joseph Stiglitz, comments of the Oxfam leader and an article on stimulating a green recovery. Global capitalism has to look into issues raised by both revolutionaries and reformists, for the simple reason: that of the interest of survival. The market, in spite of its inherent potential to arouse the animal instinct within humans, is still the best way to organize production and distribution, claims global capitalism. But the problem is how to control the excessive greed that led to the crisis that we are experiencing. According to Gillian Tett, the bold dream of a small tribe at JP Morgan was corrupted by the greed of Wall Street, and unleashed a catastrophe.

Prakash says in his article on Stiglitz, “despite the financial crisis, Stiglitz remains optimistic about the future of markets and capitalism.” According to Stiglitz, in contrast to the 19th century owner operated capitalism, in the 21st century capitalism will be operated by the people. If owners are displaced by the people, then it will be some sort of state capitalism; because, the people at large can control the economy only through the instrument of state. In fact Marx predicted that capitalism could finally arrive at state capitalism; before it is displaced by socialism.

Distorted view

Stiglitz is not at all interested in that, his project is to find a way out for capitalism, with sufficient intervention of state to regulate bad effects. So was Keynes. Prakash says “despite his concerns about its stability, Keynes did not want to bury capitalism. Nor did he want a large role for the state permanently”. Both Stiglitz and Keynes believed that socialism means the end of individual initiative and enterprise. Keynes believed that a system that allowed the state to do every thing, would achieve neither material nor moral goals. Though they are very intelligent people, consciously or unconsciously they think of socialism as a rigid Stalinist project where individual initiative is lost. All their arguments for capitalism are based on this distorted view of socialism.

Collapse of capitalism

Marx made use of the findings of Adam Smith, Ricardo and Malthus, to explain the inevitable collapse of capitalism. He saw that the market will become in the end the fetter on development of forces of production. On the contrary, Keynes and his followers try to make use of findings of Marx, to device a machinery to save capitalism from collapse. In that, the intervention of capitalist state is a fundamental necessity. Prakash says that Stiglitz challenged Marx’s claim that European nations needed the colonies to provide a market for their excess production of goods at home. Stiglitz argued that the colonies were more important as an avenue for investment opportunities. Well, this development of the Marxist theory was made by Lenin long time back. Lenin said in his booklet on imperialism in 1916, “typical of old capitalism, when free competition had undivided sway, was the export of goods. Typical of the latest stage of capitalism, when monopolies rule is the export of capital”. I agree that Stiglitz and Marx have very little in common, except perhaps their common Jewish origin! But, in spite of his anti Marxism, Stiglitz is a spokesman for the down trodden, in the international arena. He says, ‘if genuine reforms of the financial system are not undertaken ,there is a reasonable risk of another crisis within 10-15 years , and the likelihood, that the banks will win the next round is low’. Therefore, the game is not over.