As the headlines scream ‘Global Meltdown’ non-stop in the news cycle, even the most uninvested, disinterested observer has been forced to confront the possible global ramifications of such financial ill-health. Not so long ago, in
What have we missed? Here are a few things we still need to consider.
First, The market is not an organism but a collective functioning. What the cliche of the ‘nervous markets’ doesn’t emphasise enough is the fact that the market isn’t a psychologically damaged and hurt beast that shrinks in pain and fear; the market is a network of vested interests, incentives and calculations, decisions that are constantly taken by individuals who have the werewithal to make a difference for the better, should they decide to do so. The tale of the jittery, nervous market that can’t cope with the aftermath of its irrational exuberance, is like the person who had an excessive night-out and the morning after hits them with a blistering hangover and leaves them shattered. Nice, but not quite complete. The individuals and organisations who were devising and deploying clever instruments to hide risks and enable ever greater lending were acting with narrow short term self-interest, knowing that the lack of enough regulations enabled them to do so. When the going got tough, they clammed up and refused to lend in spite of knowing that they were making the situation worse. This is not the story of nervous markets but the tale of individuals who acted in narrow short-term self-interest for maximum gain and will continue to do so.
Second, none of what has happened should surprise us in the extreme. In so far as irresponsible lending was involved on the part of the banks and financial institutions, and it brought ruin upon the borrowers, small businesses and home owners – it isn’t new. For decades now, international financial institutions such as the IMF and World Bank based in the West have been lending irresponsibly and often unaccountably to corrupt and unrepresentative governments in Asian and African countries. Lending that was meant to serve the interests of the lenders, not the borrowers. It has ruined entire economies and societies that are blighted by the inability to pay back the debt coupled with the perverse incentives set in motion when loans are pushed for systematically fabricated needs. What is new is that this perversity has now been let loose on a large scale on one’s own home population. It isn’t quite the chickens coming home to roost, but it is a contagion effect of bad practices.
Third, note how representations of economic issues is a significant part of how we see economic reality. These representations are dramatically different when it comes to the troubles of labour as opposed to those of capital. When the unemployment figures rise and poverty is an issue – this is how the government reacts: we hear talk of being tough on the idler, we hear about means-testing, we hear of people who are on benefit, the dole, the hand-out, the scroungers who live off other people’s (good, honest, upright burghers’) taxes. They are seen as a drain on the system and the responsibility is very individualised. We hear of how it is each individual unemployed person’s fault that they are unemployed, they must not have worked hard enough to acquire the skills that the employers might want, they must not have accumulated enough human capital, they must be pushed back into work, they must be means-tested before giving them any help. We don’t hear about the nervous labour pool – an abstracted organism that has been damaged and needs cash flow injections and bailouts to be coaxed into action. We are informed of telephone lines to report each individual benefit cheat. On the other hand, when it comes to capital, the financial sector, the talk is of banking sector needing a bailout, the government having to rescue the ailing financial institutions. How many times during the current crisis have we heard of the bankers being labelled as benefit-seeking, as scroungers who will thrive because of state help. We’ve heard people object to the bailout, but are the bankers on benefit represented as a drain on the system by the government itself? Have any telephone helplines been set up to report bankers who malpractised and require the big government dole? No. Instead, we’re fed a simplified palatable story about the financial sector needing a rescue to be put back on track. As if it were an inanimate fuse that had blown off and merely needed the switch to be lifted.
A few hundred years ago, the Smithian fairy tale of the invisible hand remade the world. The Puritan-moralist authored powerful story of everyone working in their own self-interest bringing about the greater good of all appealed to a world that found it consonant with protestant ethics, with the onset of modernity. Now, in a much more complicated world, we’ve had another peek at how people working in their self-interest have the potential to bring about the collective ruin and demise of all.
Dr Nitasha Kaul is a writer and academic based in London. Her latest book is Imagining Economics Otherwise: encounters with identity/difference (Routledge, 2007).