Less than a hundred years after the great depression, the theory of capitalism is again under threat from players that are not displaying the correct assessment of economic realities. Industrial and scientific revolutions ushered in the era of great innovations and new technologies helped create the new middle-class which thronged to marketplaces to purchase goods that were produced fast and at competitive prices.
It seems the man who saved capitalism from total collapse after the great depression of 1929, his economic theories lie buried in Cambridge University or the British Museum archives. He was not just an economist but a member of the Bloomsbury circle that included great names like TS Eliot and Virginia Woolf. Roaming with his academic friends in the streets of London and while teaching at the University, he came up with economic thought that was not accepted immediately. The managers of the economies were constrained to apply the new principles to remedy the economy which continued to remain stagnant. John Maynard Keynes and his suggestions were accepted not before 1937 when the constraints on money supply were lifted and the world economy began to grow again. The economic theory has travelled many distances from 1929 to the present times just as it did from the times of Adam Smith to the times when Keynes put down his ideas in ‘The General Theory’ in the early thirties. Nevertheless, his ideas and contributions like the National Accounting Standards and setting up of Bretton Woods institutions of which he was the principal adviser, are still ruling the roost around the world. In the same spirit the ‘gold standard’ was given up some years after the Second World War. But after problems of the oil crisis in mid-seventies no great advancement in economic thought has occurred which should attend to the present malaise affecting the world economy.
The classic approach which is now termed as the supply-side economics was always part of the traditional thought and at no stage was left out from such considerations that were important to delineate outlines of a working economy. It is unfortunate, the ‘end of history’ thesis which is in vogue for two decades now, became the basis of pushing up the neo-liberalism theory of holding no bars or accepting no curbs or regulations to steer or streamline the economy. The word of the chief of the federal reserve is still important for the wall street indices to move up or down. The world economy is changing at a speed which is probably matched only by the speed of the broadband or the internet. The markets respond and react so fast that wall street had to put in, two decades ago, shut-down mechanism if there are too rapid fluctuations. But these cosmetic changes are not helping.
Neo-liberalism is oblivious of the new realities emerging in Latin America, Asia or in Africa. Take the matter of releasing Libyan funds controlled by the UN for the so-called transition-council to establish its government in parts of the country under its control. South Africa has agreed to let the first tranche of $500 million be released, as humanitarian assistance. The cities are without water, power or even food supplies. But the wordings in the resolution were changed as requested by South Africa, because the position in Libya is still not very clear. It did not want to recognise the transition-council as legitimate government without approval of the AU. Similarly, there are now powerful economies in Latin America like Brazil whose impact is still not distinctly felt. The key to the stability of the world economy is with China and Japan.
We need a Keynes for the twenty first century, who can pinpoint the complex variable involved in running the international trade and cross-border investments. The classic and supply-side economics need to learn and understand as how to interact with each other. The free market and capitalism were doing better in times when facing the challenges of the twentieth century. Now that it has few foes in the international arena it has begun to falter because of abandoning the basic principles of the market economy. The clamour and ‘shout’ in the back streets of cities in the developed economies is probably not loud enough for them to realise that world economy can only prosper if the principles of a balanced growth are adhered to.
The writer has served as consultant to the United Nations and other developing economies on the issues of trade and development and can be reached at [email protected]
