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Greed thrives in a world without regulation

6 December 2008 825 views No Comment

DOOMSAYERS who think the current global economic crisis spells the end of capitalism as we know it should think again.

For a start, instead of winding back after the failure of the globalising free marketeers, the stated aim of the G20 group of countries, enthusiastically endorsed by Kevin Rudd, is to extend the unregulated free market worldwide. In a similar manner, and despite the opposition of China, Rudd is pushing for all 21 of the Apec member countries to universally embrace ‘free trade’.

Rudd and other world leaders should look before they leap, because corporate greed and incompetence are endemic and there is actually an urgent need for effective economic and fiscal regulation.

Now more than ever, it is essential that governments intervene to ensure that the cowboys in the market are subject to strict checks and balances. As well as fundamental fiscal and economic reforms on a global scale, we need effective national regulation, which opens the market to transparency and accountability.

As Doug Cameron, Labor senator for New South Wales, rightly argues, ‘Achieving a balance between the market and society in a range of business and financial activities must be the goal of [our] legislators.’

‘Politicians cannot stand by and watch, as financial spivs emerge from the devastation that they have imposed on the world’s financial markets to once again enrich themselves at the expense of workers’ jobs, savings and homes,’ Senator Cameron says. Workers and their communities must be protected, he argues, from ‘the rapacious actions of some of our financial corporate “elite and the worst excesses of the market’.

Strong regulation, increased transparency and effective penalties against illegal financial activity need to be urgently implemented, along with strengthened government supervision of financial markets. In particular, we need to obliterate the excesses resulting from futures trading. What do derivates and hedge funds actually produce? Nothing at all. And how do they help the real economy? The answer is, they don’t.

Yet the globalised free market reigned unchecked for decades until it collapsed three months ago. And guess what? Not a peep from the free marketeers protesting about what is, in effect, the nationalisation of banking institutions around the world. Nor did many complain about the injection of taxpayer funds into the so-called ‘free’ market.

The seizure of mortgage giants Fannie Mae and Freddie Mac by the US government in September unleashed a flood of government interventions around the world.

In October the British government injected £25 billion into a number of UK financial institutions. UK taxpayers woke to the news that they ‘owned’ about 40 per cent of the Royal Bank of Scotland and about 60 per cent of other institutions, including Lloyds and Barclays. On 4 October, the government of Iceland nationalised Glitnir, Iceland’s third-largest lender.

In all the panic, there was nary a whimper from the free marketeers, normally the loudest critics of government intervention.

Yet they argue that markets and money can almost always manage things better than any government. Their mantra was, as Michael Pusey wrote, ‘Just get out of the way and let prices and market forces deliver their own economically rational solution.’

When the financial meltdown began back in September and as the stock market kept plummeting, the silence of economic rationalist, free marketeers and those hell-bent on selling every government asset, stripping Australia’s manufacturing base by taking business off-shore in pursuit of higher profits through lower wages, and pursuing lopsided ‘free trade’ deals, became deafening.

When it came to the perils of economic rationalist extremism and the unbridled free market, only two Australian parliamentarians had pointed out that the sky was about to fall.

Along with Senator Cameron’s passionate attacks on the free marketeers, the independent member for Kennedy, Bob Katter, chimed in about the high balance of payments, the imbalances in free trade agreements, shipping downstream mineral processing off-shore, the blowout in personal debt and the loss of government assets such as the sale of Telstra.

Hansard is littered with warnings from the former National party maverick from North Queensland, but inside the chamber his ‘thunderings’ were dismissed as little more than the ravings of a ‘Chicken Little’, spoiling the good times generated by the resources boom and easy money. This time Chicken Little was right!

And if Katter and Cameron could see the excesses of free marketeers coming, why didn’t the government of the day?

What is most damning is the realisation that, due to the lack of regulation of key elements of the economy, governments around the world have become quite impotent. The truth is that they lack real clout.

Treasurers and heads of government flying off to ‘meet and greets’ can best be described as window dressing and a pretend show of strength so as not to scare the punters.

While the G20 communiqué issued seven points of agreement, allegedly to prevent another global financial fiasco, little has been said about tracking down the perpetrators of the current crisis and bringing them to justice.

If Mr Rudd is serious about instigating change, he needs to think long and hard about the lack of government involvement in the fiscal and banking sector.

Now is the time for governments to retake responsibility for the nation and the people they purport to represent; to actively re-engage as a regulator with real teeth, but also encourage the delivery of real consumer choice based on service and actual production rather than the pursuit of obscene paper profits.

A new federal bank would be a start. Maybe the late Rex Connor of the Whitlam government was right: now there really is a need to ‘buy back the farm’.

THE SPECTATOR AUSTRALIA , 5 December 2008