Controlling the market

As our economy expands under the aegis of our fortuitous oil find, we have to take into consideration Marx’s aphorism: “Men make their histories but not in circumstances of their making”. It behoves us, then that we consider the circumstances we have found ourselves. We are in the throes of the neo-liberal order since 1989 when the government subjected itself to the ministrations of the IMF Structural Adjustment Program.
The new model, unleashed by Thatcher in Britain and Reagan in USA, insisted on loosening the regulatory framework over the financial sector that had been painstakingly installed after centuries of struggle. These were all jettisoned on the altar of “small government”. This retreat from social responsibility, which resulted in the most dramatic transfer of wealth to a small segment of every country that adopted the new dispensation, did not raise many eyebrows. The ships of the rest of the population would also rise as the gains were invested in the productive sector that created jobs.
That ethos was articulated by the influential thinker Ayn Rand, summarised in her novel “Atlas Shrugged”. Basically, Rand downplayed altruism and trumpeted self interest (“the highest virtue”). “If you saw Atlas, the giant who holds the world on his shoulders, if you saw that he stood, blood running down his chest, his knees buckling, his arms trembling but still trying to hold the world aloft with the last of his strength, and the greater his effort the heavier the world bore down on his shoulders — what would you tell him to do?”
“To shrug,” wasn’t the pithy answer.
She lionised the human ego, rejected God as an artifice for the expiration of human failures, extolled the separation of state and the economy, and promoted governmental deregulation. Rand inspired a devoted band of followers including, especially, in the US. By the nineties, after Clinton completed the loosening up of substantive financial regulating by allowing regular banks to join the securities investment explosion, the bullish stock market silenced all but a few, who were derided as Jeremiahs – until the house of cards came crashing down in 2008.
Basically, the flaw with the neo-con model went to the very core of their central premise – the exaltation of selfishness. They miscalculated the power of its corollary – greed, which had been kept in check, however tenuously, by the old regulatory framework. A chastened US administration admitted the “flaw” in the model: self-regulation in an arena of greed unbound is, performatively, a recipe for disaster.
In practical terms, the model raises what is known in economics and related fields as the issue of “moral hazard”. It identifies the ever-present dilemma posed when people who are insured become more inclined to take risks, since they believe that they are protected. Where does one then draw the line?
Business and entrepreneurial behaviour is at the bottom, a matter of taking risks, and society is willing to have those who take risks receive the rewards – if, on the whole, the entire society benefits. And this last point was the motive behind governmental regulation.
For instance, early on when the corporation was invented as a “legal body” to encourage investments without threatening personal assets, there were laws enacted to ensure that the facility was not flagrantly abused. Closer home to the present crisis, banks were heavily regulated to ensure that depositors’ money was secure, because the state had given them a virtual and literal power to create money.
They were forced to be conservative but steady. However, in the deregulatory excesses of the nineties, many other institutions were allowed to solicit funds from the public and deploy them in highly speculative ventures.
Banks wanted a piece of the action; the law was changed and they were allowed to enter the world of high-flying investments – including the newly discovered Philosopher’s Stone – derivatives. If not directly, then through various and sundry financial affiliates – some created specifically for this purpose.
In Guyana, the government should re-look at the regulatory framework to discourage moral hazard scenarios as our banking and investment institutions increase their activities.