Institutions of Capitalism in the 21st Century
Institutions of Capitalism in the 21st Century
  • Lee Si-young
  • 승인 2009.11.13 20:38
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From left, Laurence Brahm, author of the Anti-Globalization Breakfast Club; Barry P. Bosworth, Senior Fellow at Brookings Institute; Daniel Gros, Director of the Centre for European Policy Studies, Belgium; and Gerald Roland, UC Berkeley and CEPR

One of the many speakers present at AECF was Gerard Roland, a professor at UC Berkeley. In a debate about 21st century capitalism, he shared his opinions with everybody. The introduction of the 20th century started out with economic prosperity and peace, but in the latter stages sparked two of the bloodiest wars in history. Ideas of government were constantly arising, but the capitalistic system outlasted all of them. Totalitarian regimes such as that of the Nazis and Communism are no longer a threat to take over as a solid political system. In his speech, he stated, "There is neither a political system nor an economic system presented that can compete with democracy and capitalism."

So where does that lead us in the 21st century This will be a showing of increasing numbers of democracies and an increased number of capitalistic countries. According to the Polity database, the number of democracies have largely been increasing from 1946-2008, while autocracies are declining. He concluded by saying, "We must learn to live in a world with non-converging cultures. More democracy will not change this. Non-converging cultures will be a factor in the slow spread of genuine democracy."

A More Independent IMF for the 21st Century

Another member of the debate was Daniel Gros, director of the Centre for European Policy Studies. He spoke about creating a more independent system for the International Monetary Fund (IMF).

His opinion on the current IMF is that it needs more resources to predict future crises and that the system has to be made more independent.

The IMF crisis that occurred in 1997 affected many lives in Korea and Asia. Daniel Gros stated, "The current structure of the system does not create adequate informational and analytical content. They simply do not have access to the relevant information to detect early warning signals effectively. Secondly, there has been a lack of independence and impartiality."

Critical comments were made by this speaker, and his hope is that the IMF is able to detect early warning signals more effectively to prevent financial crises. He states that the strategy is a 2 step strategy that includes IMF early-warning capacities and increasing IMF independence. He concludes by saying, "I argue that the IMF can become an effective watch dog for international financial stability only if it's governance is changed."

Lesson of the Financial Crisis

Barry P. Bosworth, Senior Fellow of Brookings Institute, USA, shared his opinion about the global crises in asia, solutions and a new paradigm.

As some of the other panelists stated, he agreed that a current financial crisis was triggered by excess risk-taking in the market for subprime mortgages. He said, "As such it represents a major failure of US financial regulation. However, while the failures of the mortgage market were the proximate causes of the crisis, it was also fueled by the excess global liquidity that can be traced to the imbalances of capital and trade flows between the US and Asia, and an excessively easy US monetary policy. It reflects not a failure of capitalism but a failure of policy."

The United States was the most impacted by the crises because it was at the center of all three problems that created the crisis: a large and persistent external imbalance that pumped financial capital into US markets, an overly expansionary monetary policy that ignored the growing evidence of speculative activity in asset market, and a foolish reliance on the self-regulation of financial markets.

The US policy response has three central aspects of a monetary policy focused on the provision of abundant liquidity, a large fiscal stimulus aimed at arresting the collapse of aggregate demand, and reconstruction of the financial system. Bosworth believes that these policies have worked relatively well in stopping the economic collapse and the focus is now shifting to the recovery phase and the need to address the longer-term issues that precipitated the crisis. This will be difficult, according to Bosworth, because many of the short-term actions needed to stop the collapse were directly opposite to the measures that are necessary for a long-term rebalancing of the US economy. In the long run, the United States needs to dramatically raise national saving, reduce its reliance on the inflow of resources from abroad, and expand investment in its infrastructure, he said.

He concluded by saying that in effect, the United States is being pushed to follow the lead of other countries that have experienced financial crises in focusing on an export-led recovery. However, despite joint criticism of the US imbalance, individual Asian economies seem to have concluded that export promotion continues to be in their own best interests, and that the major lesson from the crisis is that their reserves were not large enough. This is a prescription for increasing trade conflicts in the future.

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