Volume 149 (2010), Number 2
SPECIAL ISSUE: THE GLOBAL CRISIS

• A legal perspective on the economic crisis of 2008

  Alain SUPIOT

  The 2008 global financial meltdown was the symptom of an underlying crisis in law and institutions caused by the neoliberal utopia of Total Market – “scientific” depoliticization of the economy, full commodification of labour, land and money, and all-out competition, with even legal systems subject to “law shopping”. Financial markets were so successfully deregulated, they were the first to collapse: taxpayers are now paying the bills. But the markets for natural and “human resources” are also at risk. In the spirit of the 1944 Declaration of Philadelphia, Supiot argues, the rule of law must be reinstated to end human subordination to economic efficiency.

  KEYWORDS: ECONOMIC RECESSION, FINANCIAL MARKET, MARKET ECONOMY, RULE OF LAW.

• It’s financialization!

  Richard B. FREEMAN

  Wall Street’s 2007–09 implosion and the ensuing global recession highlight the crucial relationship between finance and the economy. Governments, international agencies and experts had failed to detect rising risk levels in the deregulated financial sector. The author outlines the resulting huge cost in lost jobs and likely reductions in public goods and growth, as economies restabilize budgets after paying for massive bailouts and stimulus packages. Specifically, he assesses the role of monetary incentives for rent-seeking in the decisions that led to the crisis. Finally, he makes the case for radical reform of the institutions linking finance and the real economy.

  KEYWORDS: ECONOMIC RECESSION, FINANCIAL MARKET, BANKING, FISCAL POLICY, LABOUR MARKET, OECD COUNTRIES, UNITED STATES.

• Will only an earthquake shake up economics?

  Ronald SCHETTKAT

  “Natural rate theory”, the Efficient Market Hypothesis and its labour market application dominated interpretations of economic trends and policy prescriptions from the 1970s onwards, with their views of public policy and regulation as distorting otherwise well-functioning free markets. The upheaval of the current crisis is shaking these theories to the core. In this context, Schettkat examines European experience from the 1990s onwards and shows the theories to be unsubstantiated: high unemployment persisted post-recession despite structural reforms to labour market institutions, and the resumption of economic growth was hindered by thendominant deflationary monetary and fiscal policies inspired by these theories.

  KEYWORDS: ECONOMIC RECESSION, MARKET ECONOMY, MONETARY POLICY, LABOUR MARKET, UNEMPLOYMENT, ECONOMIC THEORY, EU COUNTRIES, UNITED STATES.

• Global crisis and beyond: Sustainable growth trajectories for the developing world

  Jayati GHOSH

  Despite recent signs of output recovery, casual resumption of the growth model that crashed in 2008–09 will exacerbate the domestic and global imbalances that caused the crisis in the first place – to the detriment of the real economy, equitable development, and employment recovery. The model’s environmental unsustainability is also evident. The author therefore argues for a broad policy agenda including reform of the international financial system, development strategies re-focused on wage-driven domestic demand and viable agriculture, fiscal promotion of greener technologies and demand patterns, and redistributive social policies to reduce inequalities and act as macroeconomic stabilizers in downturns.

  KEYWORDS: ECONOMIC RECESSION, FINANCIAL MARKET, DEVELOPMENT POLICY, SOCIAL POLICY, DEVELOPING COUNTRIES.

• Incomplete crisis responses: Socio-economic costs and policy implications

  Raymond TORRES

  This article examines the perverse effects of incomplete crisis responses. Initial emphasis on the role of government – through coordinated fiscal measures to stimulate the economy, cushion job losses and support vulnerable groups – was effective in averting another Great Depression, despite widening public deficits. However, a policy mistake was made by bailing out banks without reforming the dysfunctional financial system that triggered the crisis: concern over the financial markets’ reaction to growing public indebtedness has shifted policy towards a more traditional, market-oriented approach focusing on fiscal consolidation, smaller government and weak social protection. The risks are greater inequities and economic instability.

  KEYWORDS: ECONOMIC RECESSION, FINANCIAL SYSTEM, FISCAL POLICY, EMPLOYMENT, INCOME DISTRIBUTION, WAGES, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES.