Top economists skeptical of fiscal stimulus package

Link: http://southasia.oneworld.net/todaysheadlines/top-economists-skeptical-of-fiscal-stimulus-package
Indian economists say that the remedies being sought to come out of the on-going economic recession are further going to deepen the crisis. They have suggested that fiscal stimulus package needs to be given to people rather than corporate houses.

Rajender Singh Negi, OneWorld South Asia

New Delhi: What is being witnessed today in the form of economic recession is not an aberration. This is, in fact, a modus operandi of the system of free market capitalism characterised by free financial markets, says Professor Prabhat Patnaik, Deputy Chairman Kerala Planning Board.

He was speaking at a symposium in New Delhi yesterday jointly organised by Anveshan, Delhi Science Forum and Economic Research Foundation.

Taking his argument further, he elaborated: “This financial crisis and the associated global economic recession is part and parcel of any regime which has the hegemony of international finance capital.” Such crises always carried the potential risk of the spread of fascist forces, as was witnessed in 1930s, he warned.

“Sheer technical discussions will not take us very far,” he added and said the only way to overcome this crisis was to dislodge this hegemony.

“There is no transcendental justification for freedom of trade. It is good only if it gives rise to larger employment,” he declared.

Need for vigilance

A government that was unhappy about the slow pace of reforms all of a sudden began taking pride in the fact that it had not gone full throttle on pursuing its financial sector liberalisation agenda. A prime minister, who till a few months back, was talking of ‘integrating’ Indian economy with that of the world in a volte-face of sorts began to talk of ‘insulating’ it from external threats. A finance minister, who all along championed the neoliberal agenda, began taking pride in his socialist leanings.

Ever since the ill effects of the US financial crisis have started to be felt globally, the Indian government has gone on board saying that the country’s economy is on sound footing and that it had seen it coming. Last week only Prime Minister Manmohan Singh was quoted as saying that the growth might slowdown but it would not be a major slow down. Later he talked of doing whatever was needed of doing to keep the economy sound.

Professor Jayati Ghosh of the Centre for Economic Studies and Planning, Jawaharlal Nehru University said that this was a period that demanded more vigilance.

She reminded that past financial crises in developing countries were all accompanied by intensification of the very policies that caused the crisis in the first place, that is, a very significant shift in income distribution and further liberalisation.

“Policies being planned or negotiated nationally and internationally will be hugely detrimental to any progressive development project,” she said referring to the recently concluded G-20 summit meeting in Washington last week and the developments thereafter.

Making a reference of the ‘fiscal stimulus’ package that was talked about at G-20, she said that a pattern of stimulus was important.

It all depended on what one wanted to stimulate – a private sector enterprise engaged in profitable infrastructure project, or a public sector enterprise that could generate employment. The government also must set its priorities right and redirect its public expenditure in areas where there have been huge job losses. It must take immediate measures to correct the developmental imbalances and provide basic nutrition and sanitation to the people, she said.

What is happening on the contrary is that there has already been an attempt to provide ‘stimulus packages’ for large corporate groups rather than for unorganised sector or even for industrial clusters, which employ a huge number of people, she rued.

As a matter of fact the government is busy bailing out the aviation sector. Last week the government announced a reduction in prices of aviation fuel, which benefited only a handful of airline companies. However, no attempt has been made to reduce the prices of petrol and diesel, which can directly impact the common man.

She also touched upon the issue of how India was conceding to the West’s demand, further jeopardising the interest of its people, for free trade and opening its domestic markets for dumping of foreign products.

“It is crucial to look at the nature of ‘fiscal stimuli’ and to demand from the very beginning progressive kinds of expenditure. Otherwise what is likely to happen is that huge amounts of money will have gone in private bailouts and then they would say that we cannot have further expansion because that will be inflationary.”

System of oligopoly

Renowned Egyptian economist, Professor Samir Amin, who is currently on his India tour, was also among the speakers. In his presentation he reflected on some political issues arising out of this current financial and economic crisis.

He felt that if this crisis deepened further, which he thought was a likely scenario, it would lead to unprecedented political changes at the global level.

The present capitalist imperialist system had reached a level of centralisation of capital, According to him: “It is a system of oligopoly. A handful of oligopolies, perhaps 5,000, are controlling 90% of whatever happens in any part of the world.”

But now the military might and the financial empire controlled by a few is crumbling. “That is what is at stake,” he argued.

This however goes against the analysis of the Central Intelligence Agency (CIA) of the US. In its 2005 report it had concluded that the US’ Super Power status was going to remain intact. Its conclusions was that the changes in the global economic order would be minor except that India and China would start having a greater share in global trade.

Prof Amin while pointing out that the CIA had not changed its stance even after this great economic upheaval, said that he did not agree with this analysis and said that there were clear signs of the sole Super Power’s power waning.

No lessons learnt

Sitaram Yechuri, Politburo member of the Communist Party of India (Marxist) said that it seemed the government had not learnt any lessons from its past mistakes. It forced the public sector banks to put money in stocks and that was how the Sensex in past week moved up only to fall after the withdrawal of money by the Foreign Institutional Investors having registered profits.

Pointing out that this government would have gone pushed the country in a much deeper mess if the Left Parties had not pressurised it for not going for complete liberalisation of financial sector by privatising the nationalised banks and insurance companies, transferring the social security funds like pension and provident fund to the stock market, full capital account convertibility, etc.

Speakers were unanimous in their prescription for coming out of this economic recession which was that the government must strengthen banking sector, tighten the regulatory mechanisms to control the financial market, increase public expenditure on welfare and employment generating schemes and refrain from bailing out big corporate houses in the name of providing fiscal stimulus.
Date of Publishing: November 18, 2008