1 February 2009
Financial Regime Change? By Robert Wade—A Comment
From Norman Girvan
In an article titled “Financial Regime Change” published in New Left Review, September-October 2008, Robert Wade has made a number of points which have salience for us in the region. I quote these below followed by my own comments, and invite others to join in by submitting their own comments in the box below.
Wade: The loss of three of the five giants fundamentally changes the politics of international finance, because these investment banks were immensely powerful actors in the political process-not only in the US but also in the EU. From their London bases, the us investment banks had a shaping influence on the content of EU financial legislation in Brussels. The upside of their disappearance, then, is that it weakens one major obstacle to financial re-regulation.
Insofar as EU financial legislation was the main reference point for the provisions on regulation of financial services in the CARIFORUM-EU Economic Partnership Agreement (EPA), Wade’s point underlines the urgency of revisiting these provisions with a view to determining whether they have not been rendered out of date by the financial crisis (in additition to their possible incompatibility with the Draft Cariccom Financial Services Agreement)
Wade: The downward spiral of credit contraction is being driven by a pervasive collapse of trust in the entire structure of financial intermediation that underpins capitalist economies. With debt levels running high and the economic climate worsening, many enterprises in the real economy must be close to bankruptcy; hence lenders and equity buyers are staying out of the market.
This could explain why the series of rescue packages for the banks in the US, the UK and other leading industrialised countries have failed to arrest the downward spiral in the real economy. The concern now is that the recession will be with us for a some time—i.e. at least into 2010—and could easily turn into a full-blown depression (I would say that 24 straight months of economic contraction would qualify as a depression—Wade makes the point that the Asian economies may not be sufficiently robust to rescue the world economy from the effects of the crisis).
Wade: The policies Beijing has pursued are far from identical to those endorsed by the Washington Consensus; it has followed the precepts of Friedrich List and of American policy-makers of the nineteenth century, during the us’s catch-up growth, more than those of Adam Smith or latter-day neoliberals. The state has been an integral promoter of development, and has adopted targeted protection measures as part of a wider strategy for nurturing new industries and technologies; it is now investing heavily in information systems to help Chinese firms engineer their way around Western patents.
We need to keep reminding our policy makers (and students) of this. Such policies have become much more constrained by the EPA and by the “new generation” of FTAs, which are much more than ‘trade agreements’ but bind domestic policies in ways that conform to the (now discredited) Washington Consensus.
Scholars today face the challenge of rethinking some of the basic intellectual models that have legitimized policy over the past three decades.
Developing domestic and regional demand would involve greater efforts towards achieving equality in the distribution of income-and hence a larger role for labour standards, trade unions, the minimum wage and systems of social protection. It would also necessitate strategic management of trade, so as to curb the race-to-the-bottom effects of export-led growth, and foster domestic industry and services that would provide better livelihoods and incomes for the middle and working classes. Controls on cross-border flows of capital, so as to curb speculative surges, would be another key instrument of a demand-led development process, since they would give governments greater autonomy with regard to the exchange rate and in setting interest rates.
“Strategic management of trade”, “controls on cross-border flows of capital”, and “fostering of domestic industry and services”, are key policies that are relevant for an integrated Caricom economy and common development strategy. They would be highly suitable for the ‘Single Development Vision” I agree with Rickey Singh in his column today that the Vision needs to be returned to to the Caricom Agenda, together with the Caricom Charter on Civil Society and the Health For All report.
Wade: The recent strengthening of regional integration processes, meanwhile, should direct attention away from global standards and arrangements which, because of their maximal scope, are necessarily coarse-grained at best. Regional trade agreements between developing countries have distinct advantages over multilateral trade deals, whose terms often serve to break open economies of the global South while preserving intact protections for industry and agriculture in the North. Regional currencies—such as the Asian Currency Unit being discussed by East Asian states, based on a weighted average of key local currencies—could act as a benchmark independent of the us dollar, reducing vulnerability to market turbulence on Wall Street
This is of critical importance for us. Wade is saying that strengthening of regional integration processes should be a key element of the post-Washington conensus world. In our context, strengthening means not only accelerating completion of the CSME but articulating a strategy towards the Latin America integration movement, notably ALBA and UNASUR.
Wade: Global economic regimes need above all to be rethought to allow a diversity of rules and standards, instead of imposing ever more uniformity. Rather than seeking, in Martin Wolf’s terms, to make the whole world attain the degree of economic integration found within the federal structure of the us, such that nation-states ould have no more influence over cross-border flows than us states have over domestic transactions,We might draw inspiration from an analogy with ‘middleware’. Designed to enable different families of software to communicate with each other, middleware offers large organizations an alternative to making one program span their entire structure; it allows more scope for a decentralized choice of programs. If the second leg of the present ‘double movement’ turns out to be a period from which consensus is largely absent, it may also provide space for a wider array of standards and institutions—economic and financial alternatives to the system-wide prescriptions of neoliberalism. This may give the new regime that emerges from the current upheavals greater stability than its predecessor. Whether it provides the basis for a more equitable world, however, will remain an open question—and an urgent challenge—for some time to come.
I have been arguing for some time that we need to replace the universalism of the Washington Consenus with an approach that validates the specificity of national and regional circumstances, of context, of trial and error, and of development strategies. This was the basic philosophical stance of the New World Group.