Many people think and talk about the failure of market forces as something new. But it is due to the inherent failure to think the proper application of the laisseiz-faire policy, where to apply and where not to apply. It is not the market forces as conceived by Adam Smith is a failure. The so called followers of Adam Smith introduced privatization even in areas such as providing infrastructure and civic amenities. The world economy is evolving one and it will around with a renewed strength like the pent-up demand. As it is evolving the regulatory authorities must show the direction, caution and curtail any unwanted euphoria and speculation.
When a child is totally let free, he may groom himself or more probably ruin his life for the want of care. But this doesnt call for a stringent control which will very much affect the growth of the child. We need to follow the balanced strategy of letting the child (economy) free and control it wherever necessary. Here the banks, financial institutions and the guardians of monetary and fiscal policies to uplift the ailing economy. The non-following of the sound economic and banking principles have led to the present crisis. And it is to be admitted that economic policies need a revamp to give a clear cut solution for the present problem. The present one is not the exact replica of what Keynes himself witnessed. At that time, the integration of economies and the development of money and capital markets were not at its top. The concept of derivatives was also missing at that time. Probably Keynes was right at that time.
The economists and the policy makers must admit that economics is not something about rolling a ball. It is a mixture of various internal and external forces that may or may not be brought under the control of the Government or the regulatory forces. But well planned policies having flexibility may prevent the recurrent of such economic cycles in future.
The distressing feature of the present crisis is that it follows the principles of downturn than the recovery or rebuilding of economy. The world over millions of jobs has been lost due to the financial tsunami that has been largely man made and the man has become the victim to his own folly. The failure of Lehman Brothers set the ball of down turn, but the symptoms manifested earlier in US went unnoticed. The reduction in real income, the sagging morale to spend more and tumbling down of the Stock Market are the overall features of the present crisis.
Unlike the IT bubble that shook during 1999-2002, this time the evil effects of it is touching the heart of every industry. Automobile sector, Tourism, aviation, financial services, Gem cutting, Textiles and Garments and the manufacturing industries in general have been in a way or other hit by the present economic malaise. We have failed to diversify our exports to the next layer of fast developing and other countries. This has led to the lop-sided growth of exports to the industrial manors, mostly to US and the other European countries which accounted for more than 80% of our exports.
About the Author:
The author is the Asst. Prof. at HKBK Business Academy, Bangalore