Recovery towards what?
Brendan Barber from the TUC opened the conference by stressing that a year from the start of the financial crisis, its underlying causes have not yet been resolved, and plans to re-regulate finance still fall short of what is needed to prevent another speculative bubble. Specifically, he argued that in order to build a financial system which is more stable, responsible and responsive to the needs of the real economy, the following needs to be prioritised:
- Appropriate regulation of banks and the shadow banking system, where overseeing authorities are properly accountable to the public and are representative of worker and union interests, and not only those of the financial and business sector
- Fair taxation of the financial system (e.g. implementation of a financial transaction tax)
- Reform of the IFIs so that they give policy space to the South to pursue stimulus and growth programmes of their own; promote decent wages, core labour standards and universal public services; and address the fight against climate change
Opening debate: What kind of financial system do we want?
The first panel explored the purpose of the financial system, and whether re-regulation can really solve the root of the crisis and create financial stability as well as environmental and social responsibility. The chair Larry Elliot remarked that the response to the current financial crisis, which follows a series of other smaller bubbles and crashes, has been weaker than the policy response seen after the Wall Street crash. The possibility of continuing with ‘business-as-usual’, means that there is a real chance of a deeper crash in the future. Poul Nyrup Rasmussen saw the task of reform as a political job for the Left, which must convince the public that the financial sector cannot go unregulated as it has real effects on the productive economy. Costas Lapavitsas called into question the role of banks, and argued that at present, they do not serve the needs of people. The UK has the means and capacity to run public banks, but lacks the political will. Jane Fuller argued that banks were only responding to the demands of individuals and that much of the problem was caused by individuals choosing to take on more debt that they could handle. Adam Lent argued that there are three separate questions that need to be addressed in the public debate: how to deal with the financial sector short term, how to prevent crises in the long run, and how to change the nature and purpose of finance. The latter is key so that finance drives up productivity and innovation, reduces income and wealth inequality, and incentivises good management and fairness within firms.
Morning breakout sessions
Regulation in the UK and Europe
Two aspects were particularly stressed in this session. Firstly, non-mainstream academia and civil society need to build up more knowledge and develop convincing, detailed and thought through alternatives, in order to be heard and taken seriously. Building a coalition that promotes alternatives and thus speaking with one voice is important to gain political influence. Secondly, however, part of the task is to challenge the current debate in its parameters, i.e. repoliticizing it, rather than to engage too much in the same, technical discourse.
Global regulation: what progress, what prospects?
It was agreed that key to new and improved regulation is the discarding of old ways of thinking. Many problems with the current system have been identified but in prescribing a long laundry list of reforms, we run the risk of losing key ones in the mix. Barbara Ridpath stirred the group by raising the likely trade off between the accountability and openness of financial institutions and regulatory bodies; versus their effectiveness and efficiency. Further discussions raised the importance of determining ‘accountability to whom’ and ‘effective to what purpose’? Additionally, the group debated how ‘thick’ global rules should be – acknowledging that they should be strengthened but with the caveat that institutional and policy space in the global South not be constricted.
Presentation Filomeno III. Sta Ana
Regulating global imbalances
In this session there was a debate about the cause of global imbalances, with a strong current of blame for policies in the United States rather than in China or other surplus countries. Prof. Gao particularly highlighted that China feels it has limited policy options in the short term, which prompted a debate about whether China has a powerful hand to play in negotiations at the international level. As a conclusion there was pessimism about significant changes to the international system in the short term but a recognition that over the medium term new bilateral, regional and global systems can be developed.
Presentations Gao Haihong, Terry McKinley
Afternoon Plenary: What are our alternatives?
Robert Wade examined the role of imbalances and inequality in driving some of the problems in the financial and economic system. Rather than pursuing regulation, which Prof. Wade called “whistling in the dark”, imbalances should be addressed directly, through measures such as managing capital accounts and exchange rates. James Vaccaro argued for a ‘systems’ approach to banking, and that regulation alone is not sufficient to bring about changes in the financial system, as it would still be embedded in a banking model that is fundamentally unchanged. He argued that the root cause of the financial crisis was that relationship banking was no longer the core business in banks. Vaccaro called for a ‘socially useful banking’, where there is transparency on where customer money goes, and where investment projects are screened for their long-term sustainability and added social value. Michelle Gale de Oliveira stood in for Miriam Kennet and ran through the principles for what she called green economics. Nancy Kachingwe injected a developing country perspective into the discussion. She argued that Northern and Southern countries have some problems in common such as policy institutions that lack power and capacity and the capture of governments by elites. Developing countries in particular need to reform the financial sector so that it serves ordinary consumers and small and medium enterprises rather than extractive industries and commodities export and import, address the negative consequences of speculation, and broaden the debate to include corporate regulation, the net outflow of capital from developing into developed countries, and the trade regime.
Presentations Michelle Gale de Oliviera, Robert Wade
Afternoon breakout sessions
Alternative banking models
In this session, the speakers gave a background on the financial crisis as it relates to trends in the banking sector and about three alternative banking initiatives: Banca Etica in Italy, which provides credit for non-profit organisations and other socially responsible investment; Fair Finance from the UK, which provides access to finance to poor and marginalised people in London; and CAF, which helps people self-organise their own democratically run small saving initiatives. Generally, alternative banking models emerge bottom-up, driven by the demand for access to financial services, and locally based, integrated in the communities they provide the service for, or linked to social movements. Some of the existing alternative initiatives and ideas got captured by large institutions and bureaucratic mechanisms, especially in the US, which runs counter the important bottom-up feature of alternative models.
Presentations Gary Dymski, Faisel Rahman, Jean-Claudio Rodríguez-Ferrera
The public sector as an alternative
The session explored how and what services the public sector could be providing but is currently not in many places. Two speakers focussed on the experiences of privatisation – in health services and water – and described how we can not expect profit-orientated private institutions to be the best provider of public services. However, it was pointed out in the panel that there is a tendency towards the privatisation of public services and a perception of inefficiency and corruption in the public sector, which is a hindrance. Vincent Dlamini concluded that public institutions would have to be strengthened before they could retake service provision.
Presentations Kate Bayliss, Sally Ruane
Financing a new paradigm
While there are some examples of alternative financing mechanisms, they are regional and small in monetary terms and so do not yet amount to a paradigm shift. However, Lauren Phillips points out that they are growing in size, and as demonstrated by the establishment of Banco del Sur and the joint Argentine/Venezuelan bond (Bono del sur), they have gone some way in reducing dependency on Washington. Raffer suggested an international tort law and damage compensation for the South for the losses they incur from signing multilateral and bilateral trade treaties, which favour the North; challenges posed by climate change; and the costs arising from forced financial policies. There was also discussion on the implementation of financial transaction taxes such as the Tobin Tax.
Presentations Laura Phillips, Kunibert Raffer
The two distinguished members of the UN panel of experts on the financial crisis gave their perspectives on the possible lessons to be learned. Jomo KS examined some of the problems with financial globalisation, including imbalances, uphill flow of capital, and the lack of institutions for managing the system. Jomo described the needed policy priorities as reflating the economy and enacting appropriate regulatory reform at the national and international level.
Dr. YV Reddy called for a re-calibrating of the globalisation of finance, which he argued is uncompetitive, has resulted increasing instability and encourages a flow of financial resources from the South to the North. He stated that globalisation of finance took place prematurely and excessively, and empirical evidence over the last 30 years shows that those countries who have been cautious globalisers (e.g. China and India) are doing well in terms of GDP growth, stability and poverty alleviation. Reddy argues that, contrary to the logic behind the globalisation of finance, diversity of economic cycles between countries could actually be a balancing force for the global economy. Reddy recommends a moderation, and in some cases a rolling back, in the globalisation of finance. He calls for a re-regulation of finance, with some elements of harmonisation at global level but significant policy space and autonomy at the national level.
Presentation Jomo KS