On the other hand, John Maynard Keynes, from which I drew inspiration in my time as Finance Minister, was a firm believer in the need for pump priming when the chips are down. It was incumbent on the state to do something when the economy was heading southwards. Hayek’s credo on the other hand was that those who live by the market must also die by the market.
So when I said that Hayek is history it was of course not just taken from my hat but was in reference to the multi-billion dollar bailout that was on the table then before the U.S. Congress, before the election of Obama. And now that reference too is history as just the other day Congress passed the biggest stimulus package since the great Depression.
With this gargantuan stimulus plan, it would be clear that President Obama knows that the free market is well and good but Adam Smith’s invisible hand may sometimes continue to be invisible if not altogether paralysed when the time for action draws nigh.
The question now is have we drawn any lessons from history? We know what consequences may ensue if we adhere strictly to free market principles. In the 1930s, the Federal Reserve folded its arms and did absolutely nothing even as the financial system was cracking under the weight of massive defaults.
As history tells us, this policy of letting the market find its level by doing nothing eventually caused the collapse of the American economy. And this then spread to Europe. Then there too would have been lessons from the crash of October 87 as well as the savings and loans scandal.
Then of course, there was the 1997 Asian financial crisis. Well, I don’t know what lessons the Americans learnt but as for me, the lesson was: Don’t disagree with your boss even if you know that he is wrong, especially if he is the Prime Minister and you’re only the Deputy!
But jokes aside, what exactly were the lessons learnt? Is it that we can thumb our noses at America and say that we don’t need to listen to them? Do we trumpet our alleged success in resorting to bailouts even much earlier? Do we now justify our resorting to capital and currency controls on the ground that it has put us on a better position than others, as some leaders have claimed? This is a false premise. Bailouts cannot be used as a veneer for crony capitalism. Capital controls cannot be used for private purposes.
As I’ve said before, the convulsions that began the last summer arising from the subprime crisis have morphed into a full blown seizure. Many are still groping in the dark. Some are still in denial. The current crisis has reached such a level that by all accounts a worldwide recession looms near, if not already gripping us.
Former Fed Chairman Alan Greenspan said just yesterday that more government rescue funds are needed to stabilize the U.S. financial system. According to him, the global equity market is being suppressed by “a degree of fear not experienced since the early 20th century.” I know, some quarters have blamed Greenspan for this current state of affairs but I believe that is really missing the point. The blame game can go on ad infinitum but what matters is what is to be done to deal with the situation.
According to Greenspan, the financial system must be overhauled or else the positive impact of a fiscal stimulus will peter out. The real test of fiscal stimulus is whether it “primes the pump” for private demand. I agree.
Even though the locus of the slaughter is the United States, in many ways the current upheaval bears some similarities to the Asian crisis. We would think that the lessons learnt from the Asian crisis, in particular the Asean region, could help us navigate the treacherous waters that we may be heading towards.
Like the crisis in the Asean region, there are without a doubt serious issues of governance, transparency and accountability at stake.
For some time before the 1997 Asian financial crisis, Asian leaders were caught up in the euphoria about the so-called East Asian miracle. Sceptics were dismissed as naysayers. Those calling for fiscal restraint, including myself, were branded as party spoilers and dismissed as doomsday prophets. But when the meltdown came, it exerted a heavy toll and many fell victim to its toxic effects, save for some who had the great fortune of being cronies and family members of certain political leaders.
Now that is one part of history we don’t need to go back to. But in this regard, social justice must remain one of the main purposes of government. It is once again all too apparent that, left unchecked and unregulated, the consequence of markets running amok is not just gross inequalities of income distribution but systemic failure altogether.
Self-regulation has obviously failed. A well-regulated market is now the order of the day, where contracts should be honoured and the principles of fair dealing applied. But regulation must come with a policy of transparency and accountability without which it breeds corruption and abuse of power.
Governments are answerable to the people, not to corporations no matter how big they may be. It is not their business to bail out badly run institutions and companies. If you keep on spending money which is not yours, sooner or later it will take its toll.
In this regard, it is alarming to see our national debt going northwards even as our economy is going southwards, enlarging in the process not our national coffers but our fiscal deficit against our GDP. As we know, this new stimulus package that is being proposed will be making another huge dent on the balance sheet. Make no mistake. I am not against pump priming of the economy. I was in fact one of the chief proponents of such a policy.
But today, issues of governance and corruption are yet unresolved. Suffice it to say that independent watchdogs are giving us the thumbs down on the corruption perception index. The powers that be continue to hold tenaciously to power and employ all means necessary to perpetuate it or even enlarge it, even if it means resorting to unconstitutional ways.
I believe these are some of the essential measures we must take to deal with the trying times ahead:
We must revive the lagging economy by adopting market friendly policies and take decisive action to cure the festering sore of corruption and cronyism that has decimated the judiciary, rendered the anti-corruption impotent and leeched billions of dollars from the state coffers.
We are looking at foundational weaknesses. Apart from the obvious issue of risks management, the global financial architecture and the institutions need structural reform. Make no mistake. We are not here to advocate command economies of the Orwellian kind but we can no longer be in a state of denial as to efficacy of a common sense approach to managing the economy.
We must restore faith in the institutions of governance both domestically and internationally so that investors will once again find the country an attractive destination for their long-term investments. Among other things, this means strict adherence to the rule of law and an immediate end to draconian statutes that would allow the powers that be to detain their adversaries willy-nilly and without due process.
We must introduce structural reforms in public procurement programmes and the management of State companies while ensuring that adequate social safety nets are in place.
Petronas should be made accountable to Parliament and not remain the private piggy-bank of the Executive Branch. The National Treasury cannot go on operating by staying aloft and unaccountable to the public. In a word, GLCs must be able to stand up to the people’s scrutiny and have their dealings open and transparent.
If our markets are strong and unfettered, and if our laws are transparent and enforced by impartial judges, we will not need special development corridors to attract investment. A stable and clean business environment cannot happen overnight. We must first do away with a corrupt and opaque government. Compassionate policies are essential in order to heal the wounds caused by unequal development. Just as importantly, poor bumiputeras will finally be able to access economic aid that trickles all the way down.
The central principle of these economic policies is that the right opportunities must be made available to every single Malaysian –to learn, to earn an honest living, and to realise their dreams.
Thank you.
Sumber : Anwaribrahimblog
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