When Open Market is Parasitic

By Alenga David

The internationalization of economic activities allows financial markets to not only thrive but evolve into indispensable institutions within the international economic governance system.

Thanks to their supposed indispensability, financial institutions can no longer be extricated from how nation states relate with each other under the dispensation of economic globalization.

Consequently, control of the commanding heights of the global financial market inadvertently comes with a corresponding measure of political power. The power of the financial markets is leveraged by the ability to call the shots on the direction and flow of capital and setting the standards for currency regimes. Judged by the sheer power they wield, financial institutions have evolved into a predatory oligarchic caste whose parochial interest is truncating sound economic governance.

Indeed, sharing global prosperity was identified as one of the key linchpins to guaranteeing a post-World War II security architecture. For instance, it emerged from the interwar years that the Allied Powers sought to secure a new world order that had the capacity to engender economic cooperation leading to shared global prosperity as an alternative to reckless nationalist military adventurism.

Furthermore, the interwar years also reminded policymakers that guaranteeing the optimum functioning of the open market system was humanity’s sure bet to lasting global security.

A sorry legacy of our current flawed economic governance system is the imbalanced creditor-oriented relationship between the global economic institutions set up for the purpose of being the guarantors of economic prosperity and security. Ironically, financial institutions now symbolize the very unhealthy horrors of trade dependencies through a system of global trade that has piled up deficits on the accounts of many countries. Biting austerity measures have become the poster child of unsustainable debts as a direct consequence.

Ironically, as the too-big-to-fail mantra is being hummed, economic insecurity and despair are on the rise. Thus far, there is nothing to show for rescuing the big banks as the isolated cases of fragile growth has not reflected in jobs against the backdrop that profits were privatized in boom years whilst losses transferred to the public during the bust.

A noisy misrepresentation of the free market is being pushed around ostensibly urging governments to pursue a hands-off approach to financial policy management by entrusting it to the so-called free market. Whatever happened to Keynesianism?

Trusting the free market to improve living standards and boosting of the economy is simply ridiculous, especially where creditors are more inclined to pursue short term gains. Under pressure from the financial markets, indebted governments in the United States and the eurozone are not considering fiscal instruments such as taxing renter wealth to ensure effective redistribution.

The proliferation of an open market system that takes away the power of the state to create its own credit and money leaves the state at the mercy of the financial institutions whose very goals fly in the face of the social contract between states and their citizens.

By appropriating excessive powers, financial institutions have effectively absolved themselves from regulatory accountability ? a relic of the kind of governance system that runs the global economy.

Similarly, an emerging dangerous trend that is undermining the very foundations of the democratic processes is the arm-twisting measures pursued by financial institutions to deprive citizens the right to decide on their debt situations through referenda. Elected democratic governments, they argue, are a few vertebrae short of a strong spine to carry through tough austerity measures.

Since no sustainable recovery is possible within the global economy without getting the eurozone to put its house in order, the European Central Bank’s role in crafting its economic destiny has become imperative. Instead of borrowing from the financial markets, it should take charge of printing money for the purpose of financing public expenditure amongst eurozone member states.

Fears of the collapse of the euro under the weight of mounting public debts can be eased if it takes up the responsibility of printing the funds it needs under the proposed public option policy. After all, Britain and the United States are currently being served well by this policy which comparatively offers them a lower interest rate for bonds as opposed to that of the eurozone.

The writer is a student at the Graduate School of International Studies, Hanyang University. His email address is alenga.d@gmail.com.