The global economic crisis would probably not be deep and shocking enough to generate the required regulatory reform of laissez faire capitalism in the US, Stellenbosch emeritus economics professor Sampie Terreblanche said this week.

The world would probably have to suffer more crises and more pain until an American president wielded sufficient control over the financial markets, which had become a law unto themselves.

Democrat presidential candidate Barack Obama would not have enough power to engineer the reforms should he be voted into office, Terreblanche said.

Crisis will continue

"There is no doubt that the crisis will continue for a number of years, but the question is not so much how long it will last, but whether it will be deep enough to bring about the necessary ideological and system changes in the western world," he said at a Centre for Conflict Resolution seminar on the global crisis.

"How many shocks, how many setbacks, how much pain will be necessary?" he asked. "It took the First World War, the Great Depression and the Second World War to wipe away all the cobwebs of laissez faire capitalism, but it emerged again in the 80s and 90s."

"We must not only be concerned to solve the present crisis. What must be uppermost in our minds is what is necessary to bring about the ideological change and systemic transformation. Until this happens the world will continue to experience (pain)."

Terreblanche traced the malaise of rampant, unregulated capitalism to the ascendance of Reaganomics and Thatcherism, which overturned the philosophy of social democracy that had prevailed since the war. Instead, financial deregulation, privatisation and liberalisation became the mantras of the day as market fundamentalism held sway.

This was contrary to the approach adopted at the post-Second World War Bretton Woods conference where British economist John Maynard Keynes had stressed that the flow of funds had to be regulated to prevent the economy becoming a casino.

Whirlpool of speculation

Terreblanche quoted from Keynes, who said in 1936: "Speculation may do no harm as bubbles on a steady stream of enterprise, but the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of the casino, the job is likely to be ill-done."

In fact, financial markets had become casinos, deliberately underpricing risk as they knew a bail-out would be offered when there was a meltdown, Terreblanche said.

University of Cape Town economics professor Melvin Ayogu highlighted another trend that had led to the shift in control of multinationals from boardrooms to the executives, and again to the trading floor where the entire assets of a company could be gambled away.

Industrial Development Corporation economist Jorge Maia said regulatory intervention would be the order of the day. There were tentative signs of stabilisation in financial markets but the rand remained vulnerable.

Business Day


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