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Looking beyond the global economic crisis
Gulf News, The Star
6 October 2008
What began few months ago as a problem with the US sub-prime mortgage sector had turned into a financial tsunami
A global financial crisis is upon us as the specter of deep recession hitting world economies spooks central banks and creates panic among traders. Last Monday underscored the reality of today's globalized economic structure. Major sell offs of stocks spread like wildfire in Asia, the Middle East and into Europe before hitting the US money markets. Gulf markets lost between 10 to 5 percent in early trading and by the time the shockwaves had reached the US, European stock exchanges were knee-deep in the red.
What began few months ago as a problem with the US sub-prime mortgage sector had turned into a financial tsunami knocking off major banks and brokerage firms and bringing on the worst credit crunch the world has known in recent history. Even an emergency $700 billion rescue plan, which the US Congress passed last week after long deliberations, had failed to assure investors.
The crisis is spreading so fast that governments are unable to come up with decisive measures. Currencies are tumbling and commodity prices, which for most of the year were breaking record highs, are in a free fall. Oil, which less than two months ago was trading at a historical $150 a barrel, was by Monday selling at less than $90 a barrel.
To accentuate the seriousness of the problem, politicians, central bank governors, bankers and big investors were still undecided on the extent of the damage that this tumultuous crisis had dealt to the global economy. The free market doctrine was being severely tested and the fate of the global economic system was hanging in the balance. This by far was the biggest challenge to capitalism since the United States succumbed to the Great Depression in the 1930s.
The interdependence of world economies as they have become in a globalized structure has turned into a liability. As the biggest economy on the planet heads south, the reverberations are felt everywhere. The challenges are severe and while some pundits and economic experts fear the worst; a global depression and the end of America as an economic powerhouse, others believe solutions will eventually be found.
But almost everyone agrees that major reforms will be needed to overhaul the global economic system. Capitalism may not become extinct but it will have to undergo substantive changes that will cancel out some of its most notorious traits. Already economic experts in the US are calling for stricter government oversight of the policies of financial institutions. The theories of economic liberalization are being revised with calls for a more humane and less greedy practices.
About 20 years ago capitalism declared victory over adversary socialist doctrines. The collapse of the Soviet Union and its satellite states was much more than a political and a military triumph. It was considered as an ideological breakthrough, an end to historical dialectics where one economic and political model would prevail.
But in those two decades, and as liberal economic theories forced themselves on societies all over, the world began to face unprecedented challenges of humungous proportions. Cultural, environmental, political, religious and economic tribulations began to pile up at the level of single countries, regional groupings and globally. Capitalism had created new opportunities and pulled millions from the perils of poverty and unemployment, but in contrast it also abandoned others, compounded environmental risks and threatened local cultures.
It soon became clear that free trade, the flow of foreign investments, privatization of public services and assets, urbanization and other bounties of the capitalism consumer culture created a new set of problems. The world's resources were being consumed at unprecedented rates and while a new middle class was being created, millions were being left behind as the gap between rich and poor widened and inflation was getting out of control.
The promised new world order was not without serious flaws. Critics from within the capitalism system became vociferous even before the latest Wall Street woes. How much had the Bush years accelerated the current demise is an open question. Certainly the occupation of Iraq had overburdened the US economy, but even without it one can argue that it was a matter of time before the globalized economic order would face its ultimate test.
As we brace ourselves for the tenuous times ahead, we should permit ourselves to think outside the box. Our societies are young and in transition and while we examine the repercussions of the present global crisis on our part of the world, we should use the opportunity to revise our own economic, social and political agendas. Certainly there are principles in the capitalist system that we should work hard to preserve, but there are others that we must decide to abandon. This is the time to launch open and free discussions to set the guidelines that will steer our efforts towards building the society we all want.
America's is not the only model around us. We should revisit the experiments of others, from Canada to New Zealand to Scandinavia to the Far East. The Arab region has the unique opportunity to chart its own path to sustainable development in an environment that guarantees social justice while allowing free enterprise in a culture of lawfulness and accountability. This is the time to go back to the basics and start from there!
Osama Al Sharif is a veteran journalist based in Jordan.
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