Devinder Sharma. Photo by Nic Paget-Clarke.

Strong tremors were felt all over the world.

In what appears to be a classic example of ‘public-private’ partnership, the US government stepped in to bail out AIG by agreeing to lend US $85 billion in emergency funds in return for a 79.9 per cent stake, which means effectively taking control of the world’s largest insurance company. In the week following the mayhem in Wall Street, central banks in Britain, European Union, Japan, Switzerland, Canada, Russia and India have pumped in US $600 billion in multiple rescue acts. Ironical isn’t it? The private-sector giants are ultimately rescued by the government’s treasury.

In the past one year, the US treasury has already spent US $1.1 trillion in bailouts. And with the IMF chief Dominique Strauss-Kahn warning that the worst is yet to come taxpayers all over the world will eventually have to shell out more to cover up the huge losses being incurred by the private giants. This reminds me of the old saying: heads you win, tail I lose.

Sure, the markets won. The US President George Bush could not remain a silent spectator. Expressing urgency: “Government’s intervention is not only warranted, but essential,” he has offered the mother of all bailouts – US $700 billion package. And sure, within hours, the world’s markets began to smile again.

The political urgency with which the US government and for that matter governments elsewhere have come to the rescue of the financial system from getting worse exposes their double standards. US $600 billion (that has been coughed out in just one week) could have wiped out hunger (FAO estimates 854 million people go to bed hungry every night) from the face of the planet. The additional US $900 billion that the US has spent in the past one year could have pulled out the world’s estimated 2 billion poor from perpetual poverty and that too on a long-term sustainable basis. The US $700 billion bailout package that George Bush is promising could have wiped out the last traces of poverty, hunger, malnutrition and squalor from the face of the Earth.

Only if the global leadership was honest enough, such urgency could be demonstrated in tackling global poverty and hunger. There would have been no need for the United Nations to provide a cover–up for their collective guilt in the form of Millennium Development Goals. Poverty would have been confined to history. Hunger could have been banished by now.

Coming back to the collapse, this in essence is the market mantra. When the going is good, the government must step back and allow the bull a mad run. Profit becomes the sole motive, and investors lap it over. The market will correct itself you have repeatedly heard. The investment banks have always reassured governments, regulators and investors that they have the expertise to manage asset risks.

Profits are raked in by capitalist corporate marauders. A few corporate houses make billions, present fake numbers and arguments, and walk away with the cake. Credit ranking industries provide them with the highest honours. And when the collapse comes, the losses are invariably picked up the average taxpayers, on whose savings the governments provide the bailouts. The trillion dollar question that arises is: Why should the governments intervene? Aren’t the markets supposed to be self-regulatory and self-contained? And still more importantly, why should the governments try to keep the markets alive?

And before we move any forward let me assure you. These firms were no ordinary business houses. As someone has said they represented the pride of the American financial system. They had the best of talent, attracting the best from the business schools. They advised foreign governments, providing expert opinions. They have rewritten economic and monetary policies for the World Bank/IMF and the World Trade Organisation. Such has been the power of the markets that the mainline economic thinking world over has become its mute disciple.

Privatisation has been the economic buzzword, forcing the governments to open up to foreign direct investment. Markets became the ultimate economic nirvana.

In India, pressure is on to disinvest the remaining public sector companies: pressure is also building up to privatise the nationalised banks. The arguments are the same, you have often heard them. Every economist worth the name will argue in favour of privatisation of the nationalised banks. And when the private sector goes bust or the markets explode, it is invariably the governments that are expected to nationalise them.

Thanks to the left parties, India escaped the heavy shocks but the tremors did force the Reserve Bank of India to pump in US $18 billion in the domestic banking system through liquidity adjustment facility. Let us not forget, the UPA (United Progressive Alliance) government was keen to open up the financial sector, to bring in legislation to allow dilution of government equity in public sector banks and reform the insurance sector. Privatisation of banks and further opening up of the insurance sector will now be on hold following the global meltdown.

Reviewing the impact of the financial crisis, Indian Prime Minister Manmohan Singh asked his ministers “to stay alert on the global turmoil.” Not drawing any lessons from the collapse, Finance Minister P Chidambaram however remains bullish on financial reforms. If only the left parties had allowed him to go his way, India would have been in the throes of a terrible economic and political crisis.

Come to think of it. The US $85 billion bailout for AIG by the US government is the biggest nationalisation in history. Rescuing AIG was crucial because its failure posed a much bigger threat to the entire financial system. The US $700 billion bailout package, (India’s GDP is around US $1 trillion) is in reality what will keep the markets alive. If nationalisation is now justified, if it is the government which actually keeps the markets thriving, I fail to understand how was the government bad in the first place? Why was it being branded as a remnant of the bygone socialist era?

In fact, in the days to come we will see more and more such bailouts or in other words
more companies and firms being nationalised. No wonder, Prof. Nouriel Roubini of New York University’s Stern School of Business had once called it: “privatisation of profit and socialisation of losses.”

You come heavily on the police intelligence when the terrorist strikes do not stop. So much so that even the Home Minister becomes a target of ridicule. But when the financial intelligence fails, and that too with the brightest of the money managers from the best of the business schools in control, you refrain from even pointing a finger. You don’t ridicule the chiefs of the corporate world nor do you mock at what the so-called prestigious business schools produce. The reason is simple. We are all part of the greed, which in one word can define the reason behind the financial meltdown.

In other words, let us accept we are all beneficiaries of a corrupt financial system. Therefore, we refrain from standing up and calling a spade a spade.

Howsoever best we may try to reform a financial system that is based on greed, let me assure you it cannot be ever unclogged and truly regulated. The hypocrisy shrouding the success of the market economy must therefore end. Let markets operate freely, survive on its fundamentals. Let the markets learn to manage its risks, without the government coming to its rescue. Let capitalism sustain on its own, with lifesaving intravenous injections from the government treasuries. Let me see how far the markets can then survive.

Till then, you don’t have to shed any tear for the estimated 24,000 hungry that perish with each passing day in an endless wait for their next morsel of food. They have been bluntly told time and again that the governments have no money to feed them. Their legitimate right to food has in reality been snatched by the markets to stuff your pockets. This is a small price the poor must pay to fulfil your dreams.

Published in In Motion Magazine September 23, 2008

About the author: Devinder Sharma is a New Delhi-based food and trade policy analyst. Among his works are GATT to WTO: Seeds of Despair and In the Famine Trap. He can be contacted at hunger55@gmail.com

Also see:

• Index of Essays by Devinder Sharma
  
  
• McCain’s Deregulated Chickens Are Coming Home To Roost
  by Paul Rockwell
  Oakland, California
  
  
• Interview with Devinder Sharma
  The politics of food and agriculture
  Part 1 – From British Colonialism to WTO Rules and Privatization
  Part 2 – From Secured-Cash Crops to Village Republics
  New Delhi, India