28 October 2008
editorial
Last week, in the United States, senate members spoke to the former treasury chief, celebrated economist and poster child of the neo-liberal economic philosophy, Alan Greenspan in a bid to find what went wrong with the biggest economy in the world.
The neo-liberal theory of economics has been at the centre of economic philosophy peddled by the West, led by the United States. The International Monetary Fund and the World Bank, the organisations that dominate international finance adopted this model and sought to impose it on the countries they worked with.
Often when a small country sought to access credit from these organisations, it would be forced to adopt the philosophy. Before long, the neo-liberal model became the mantra around the world. It was generally believed that the market could take care of everything and that governments had no business in even regulating, let alone being actively involved in any part of the economy. Governments were bludgeoned into smaller sizes. It was believed that every aspect of a nation's economic life could and had to be carried out by the private sector.
What the financial crisis has shown is that this is not necessarily true. The financial crisis resulted from the private sector having run amok with the finance industry. Speculation has led to excessive debt. The American economy faces collapse. The world economy will be badly affected as it has already started to happen.
Despite all this, countries that kept their financial environments largely free of unfettered profit making seem to be immune from the whole mess. Asian countries which in the 90s faced economic ruin because of the advise of the IMF and World Bank have been following a different philosophy completely, keeping governments actively involved in the financial industry if not all industries.
Ironically, the proponents of non-state involvement are calling for government involvement now that there is this crisis.
The Asian countries continue to progress without even a slight effect from the crisis. In fact, as matters stand now, the US owes China 500 million US Dollars. Countries like Malaysia and Singapore show little disturbance from the crisis. Perhaps African countries should take time to pause now, and take a leaf out of the experience of their Asian counterparts to follow a different path from the one espoused by the West.
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