For the poor, finance is always about much more than economics. In practical as well as philosophical terms it is a matter of basic human rights. As the dust begins to settle on the global financial crisis it is certain that all economies will suffer. For the rich, OECD states, stagnation or recessionary losses are predicted, and for the emerging (BRIC) economies of Brazil, Russia, India and China, growth will significantly slow. But it is in the poorest, least developed states that we will likely see the most dramatic effects, simply because they have less to lose.
On top of the sharp price increases in staple foods and fuel earlier this year, least developed nations are especially vulnerable to reductions in foreign direct investment in their economies, in export trade, in the levels of remittances (which in respect of money sent home by Mexican migrants working in the US, for example, has already dropped sharply in the present quarter), or in the quantities of economic aid they receive (legitimate fears of aid reductions are well founded, given the estimated 25% drop that followed the Asian financial crisis last decade).
This was the stark warning that came out of the recent UN meetings in New York on the imperilled prospects of achieving the Millennium Development Goals (of halving world poverty, instituting universal primary education for boys and girls, substantially reducing infant and maternal mortality rates, halting the spread of HIV/AIDs, arresting environmental degradation, and promoting economic development in the poorest states) by the scheduled 2015
Though short on detail, UN Secretary-General Ban Ki-moon has been long on doom-laden rhetoric, warning that the turmoil in global financial markets could have "a very serious negative impact" on the ability (or more likely, enthusiasm) of rich nations to meet the goals. That is despite the sums required to do so being considerably less than the $700 billion bailout package put together to rescue ailing Wall Street banks (the annual aid budget of the US is currently around $25 billion, while that of the World Bank stands at approximately $38 billion; according to the OECD, the total aid commitment from all the world's major donors in 2007 was just over $100 billion).
This temper of concern was echoed in the communiqués emerging from this month's annual meetings of the World Bank and the IMF in Washington DC. Douglas Alexander, the UK's Secretary for International Development who was attending the latter, was especially candid in stressing that "in this interdependent world, co-ordinated action from governments, the IMF and the World Bank is not only a moral imperative, but in our self interest".
The fundamentalist undertones of such an exhortation flows from the circumstances that nearly one billion people face everyday. For without the means by which they can secure adequate housing, health care, education, and enough to eat and drink, and without protection against exploitation, discrimination, and (perhaps worst of all) disdainful disregard, the poorest of the poor will live, if they manage to stay alive at all, only barely.
Poverty does not cause human rights abuse. It is, primarily, the actions or inactions of governments that cause human rights abuse. However, the incidence of poverty is a reliable sign of attendant human rights problems, and an indicator that states are not fulfilling their obligations under international human rights laws.
In the midst of the undeniable woes besetting Western economies, thoughts are now starting to move beyond the immediate concern of how to staunch the haemorrhaging global capital markets, to questions of how to repair the system for the long-term. In these discussions, considerations of how best to serve the poor must be front and centre. This is not just because their social and economic development needs are so desperate, but, more broadly, such a focus reminds us what the economy is really for. Economic prosperity, still less the generation of capital, are not ends in themselves. Rather, they are merely means necessary to achieve such ends as greater individual wealth, social welfare, national stability and global peace.
The notion of the economy as an instrument is hardly new, even if it is too often forgotten. John Stuart Mill and Adam Smith, the intellectual titans of liberalism who laid the philosophical foundations of modern economic thought and practice, were clear about this. For Mill "the economical advantages of commerce are surpassed in importance by those of its effects which are intellectual and moral", while Smith was adamant that while the benefits that commerce can bestow on individual freedom may be the "least observed advantage of commerce", they are "by far the most important of all its effects." These are clarion calls that must now be heard and heeded above the din of the market.
As a matter of principle, economic globalisation is indispensible to the prosperity, welfare and rights-protection of rich and poor alike. But markets in practice - whether in the surreal, paper world of global finance, or in the real economy of commodities and services - must be managed if such goals are to be reached. Even the now much-maligned, so-called 'deregulated' capital markets, ushered in under the laissez-faire banners of Reaganomics and Thatcherism (and duly embraced by the whole of the global economy), were in fact sustained by mountains of regulations. Substantial legal regimes have been needed to keep at bay the protectionist and discriminatory tendencies of states, the anti-trust and anti-competitive behaviour of corporations, and the insider-dealing and collusionary tendencies of financiers.
There appears, now to be a consensus that regulation (or rather re-regulation) of the global capital markets, at least, is paramount. This is accepted it seems, even among the former so-called 'masters of the (free market) universe', as vividly illustrated by the reports of Treasury Secretary and former head of Goldman Sachs, Hank Paulson's bended-knee appeal to House Speaker, Nancy Pelosi, to secure the passage of the $700 billion rescue bid, pretty much regardless of whatever regulatory strings were to be attached. The precise details of the new regulatory framework that will be imposed on the global financial actors, however, are still far from being worked out, let alone agreed upon. But finally, ten years after the Asian financial crisis and five years after the crashes in South American economies, the heady days of 'hot money' flowing in and out of economies at (literally) electric speed are numbered as capital flows will be made subject to greater oversight.
Received wisdom has it that Wall Street must be saved in order to save Main Street; and that the City of London must be saved so as to save the cities of the developing world. Money - the lifeblood of the economy - is first being pumped into the global financial system by the only solvent bankers left standing, reserve banks themselves, fulfilling their ultimate roles as lenders of last resort. The regulatory 'pound of flesh' that the states will demand for such extraordinary measures will certainly be that the system must subject itself to greater government intervention generally, and increased levels of transparency and accountability more specifically.
Whatever the exact format of the new architecture of global finance, it will certainly have to be different from the last major effort to restructure the rules. Ten years ago this month, in the face of widespread and fierce criticism, the plug was finally pulled on the OECD's 'Multilateral Agreement on Investments'. The MAI had sought to liberalise international investment flows such that states - especially developing states - would no longer be able to place restrictions or conditions on foreign investments intended to insulate themselves against the extremes of capital flight. It was an initiative that indisputably and knowingly (it was negotiated in secret), greatly favoured rich-state financial institutions.
With the benefit of hindsight afforded by the current global capital meltdown, the episode was a close shave for both poor and rich states, as the impacts we are witnessing today of what George Soros has labelled the "unleashed and unhinged" financial industry, would surely have been magnified. The thought hardly bears contemplation.
The sobering message that we must dwell on is that the naïve belief that unregulated capital markets will always deliver desirable results, even for their most powerful participants, has now been categorically refuted. This is not just a matter of accepting that markets fail (no-one seriously denies that), but rather it is to see the Emperor's nakedness for what it really is. The market is not a self-regulating mechanism, but one that ultimately requires exogenous intervention to right itself. The 'invisible hand' is not somehow subliminally guiding the economy to nirvana, but is operating randomly, driven by whims, as likely to lose the jackpot as to win it. Economic historian Karl Polanyi said all of this more than 60 years ago (when reflecting on the lessons learnt from the banking crisis of 1907 and Great Depression in the 1920s), but his caveats about the massive social and economic dislocations that are the inexorable consequences of free market capitalism have been slowly buried over the intervening years; at least until now. In the coming months, much more will be heard of Polanyi and John Maynard Keynes, as champions of state interventionist, supply-side economics, and much less of the neoliberal tenets of Fredrick Hayek and Milton Freidman.