Finally, eight months after the explosion of the world financial crisis, concrete measures were proposed and are being made effective by both Barack Obama’s administration and the European Union (EU), with an aim to reinstate state and communitarian control over the issuance and circulation of financial products. It is truly unbelievable that the $680 trillion from derivatives linked to at the beginning of this year by the Council on Foreign Relations remain out of the central countries’ government control.
In light of this, the Obama administration proposes the regulatory amplification of the Fed, allowing the ability to monitor any financial institution whose actions might endanger the financial market. The EU, in turn, proposes the creation of supranational regulatory institutions for the monitoring of systemic risks from the transactions promoted by the financial institutions.
These measures intend to correct the regulatory vacuums in the jurisdictions of countries where the crisis was generated. It’s a new chapter of the financial capitalism where the absolute hegemony of the neo-liberal regime will no longer prevail.
At this point one should make some considerations as to what the neo-liberal regime actually is. It is different from the classical liberalism that did not presuppose a massive state intervention in moments of crisis – which in fact did not occur in the 1929 crisis. Instead, the neo-liberal ideology demands that trillions of taxpayers’ dollars and Euros are spilled to simply attend to its own rationality; still without allowing any amendment to the “minimum state” dogma. When the state doesn’t cover the losses, the systemic devastation occurs. This is the case of what happened with Lehman Brothers.
In the neo-liberal context, as Kindleberger reminds us, the state is seen as the ultimate market guarantee. This action – the suppression of governmental resources during the financial crisis – brings a moral hazard: the financial agents act in very reckless and less informed ways, knowing that the state will always be ready to assure the market at the times of systemic crisis.
Neo-liberalism gives the financial market almost divine characteristics, combined with technological revolution and financial engineering. The market turned immaterial, immediate and with a worldwide scope. The unchaining of the belief in a permanent growth has led to the idea of the end of economic history.
Neo-liberal theology, advocating the “end of history” (Fukuyama), states that the world economy no longer has cycles. And it is no longer subject to mutations in time due to productivity profits constantly brought about by new technologies. An additional issue has been the eradication of inflation and the presence of large emerging countries with millions of new consumers. This “end of history” neo-liberal idea makes the statement that the world economy is destined to a continuous and infinite expansion with no major surprises on the horizon. It’s the financial motherland, embracing all people – the minds and hearts of all.
As Zygmunt Bauman expressed in his book, Globalization: The Human Consequences, “the economy is progressively exempted from political control; the primordial meaning of the term economy is it being a non-political area.” [Editor’s note: above quote may be worded based on translated material].
The hegemony of the economic sector over the political one was initially spread by the Reagan and Thatcher governments in the ’80s through the slogans “war on regulations” and “government is not the solution to our problems.”
In a recent article, Paul Krugman said that it was from that period on that the actual crisis began taking shape. By sanctioning the Garn-St. Germain Depository Institutions Act, Reagan released the demonic magic of the North American market: the U.S. economy didn’t needed savers, but rather, only economic agents in permanent debt. He made the country believe that with “de-regulationed” regulation, the financial institutions of the country could live for a long time. They were offering vast and cheap credits to the taxpayers in exchange for betting the national savings money in the world casino.
The serious neo-liberal crisis allows reflection over the reinsertion of political state action as one of the main factors of economic activities. The prevailing cult view of the neo-liberal theology, with the market as the supreme being, can remain no longer. The reinstatement of a regulatory state in opposition to the neo-liberal state – from the Washington consensus model – becomes relevant. It is essentially based on the structure proposed by Montesquieu, that of breaks and counterweights, with a clear limitation of powers between politics and economy. It is supported by the premise that all the powers naturally tend to non self-limitation and that only one power can limit another.
The neo-liberal state, with its self regulation powers, is the opposing extremity of the equilibrium between powers, essential to the democratic equilibrium. Politics are now a mere instrument to allow the market hegemony. Besides, the neo-liberal regime acts in a way that promotes market efficiency as an end in itself. The state, in turn, shall again act as the firm regulation agent, promoting market efficiency as a path – and not the only path – to achieve social welfare.
Thus comes the necessity of reinstating the regulatory state, which should not be confused with the interventionist state. However, its implementation is still threatened. The collapse of the neo-liberal hegemony will be dependent on clear political conduct by its rulers, as we can now see from Obama’s and the EU’s government initiatives.