Sunday, December 21, 2008

Not Just another financial crisis

In September, I went to a conference organized by the Mayor of Mexico City's Office,  called"Science and Innovation Week".   This popular mayor, a hopeful Presidential candidate had contracted the New York Academy of Sciences to bring world class speakers to talk about how to grow concepts of "knowledge cities".  
One of the prominent speakers in this conference, among nobel prize winners, experts, and academics was Alvin Toffler, author of "The Third Wave", famous during the 80s.  Toffler's book had achieved fame even in Thailand.  I own a Thai version of his book that was translated by a panel of Chulalongkorn academics.  
Alvin Toffler made an interesting remark at this recent conference, refering to the looming financial crisis.   His comment rested in the back of my mind as I read article after article detailing interest rates cuts, stock market reactions and rescue packages.  As the US Treasury in effect nationalized its favored mortgage houses and some investment banks, the US automakers comes begging for money.  That was when Toffler's remark made a loud bang in my head.  He said something like, "Wait and you will see more major corporations toppling down." "Why?"  "Because this is not just another stock market bubble burst, not another business cycle down, what we are seeing are second wave industries going through death throes."  The financial system is crashing because it was structured to support an old dying industrial economic paradigm.
As an amateur economist listening in to all these other economists from diverse places, I can't help but get the feel that this is a historical moment as we watch the West not only doubt their core ideology but act against it as well.   The neoliberals are either denying the depth of this destructive phase or looking really hard at assumptions they had believed to be the best possible option.  What strikes me among all these discussions is that nobody really knows how they are going to get out of this mess of too much liberalization they themselves so strongly supported.  A comment under a recent article in The Economist posted an interesting question, "Why do these people think the problem can be solved simply by throwing in more money?" The German Finance Minister himself refuses to do that, as Paul Krugman, our newest Nobel Prize economst writing with the New York Times points out, and that in effect is preventing the EU from having any effective financial rescue plan.
For Thailand's new government, I think the advice given to Obama about any rescue package to the automakers applies equally for any government budget to be dished out to prop up the Thai economy.  That is, be careful with how the budget is allocated.  It was suggested that in order for the American automakers to recieve any financial help they should be made responsible for re-organizing their outmoded industry in support of a greener economy.  The Thai government can also be more responsible if they make sure they allocate money to position Thailand firmly on the new wave that is developing and not simply just patching export targets and growth rates for a paradigm that is nearly already gone. 

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