Three comprehensions of the crisisin the international debate: our choice

Jean-Louis Levet, economist, essay writer

February 2012

The economy rocked in deep imbalances during the summer 2007, when the interbank market was paralyzed. The financial crisis was then transformed in 2008 into planetary economic crisis. This new situation reveals the choices which are offered to the States economic models Directorates of Political Affairs to be taken. It is certainly a question of reacting to the urgency. It is what did most States touched by the crisis, by drawing up rescue plans of the financial system quickly and by implementing revival programs. It is appropriate in same time to prepare the future. However to prepare the future depends on the comprehension of the crisis that the States, the citizens, the economic actors and social can have some. Today, we consider that three approaches of the crisis coexist more or less explicitly in the currents of thought and more largely in the international debate.

First approach: The crisis is banal and provisional; it is thus a question of returning to the preceding situation.For the promoters of this vision of the crisis (whom we especially find in the financial sphere and of the high revenues, but also in the academic world), there were front crises, there will be afterwards: it is the normal functioning of capitalism. The market must become again the authority of regulation of the economy and the State to center itself on its kingly functions. Here, the question of the production, the localization of employment, work does not arise.

Second approach: the crisis is worldwide and deep, the exit passes by “green capitalism”.For the partisans of this comprehension of the crisis (primarily most European and North-American governments; even also the official statements of recent G20), the crisis is serious because it combines financial crisis, food crisis, energy crisis. It is thus advisable to control the financial markets, and to invest in new technologies to answer the climatic challenge. The question of a worldwide governance arises, but remains unanswered true. The question of the production is seen primarily under the angle of the green economy and the relations between the social question (development of the businesses, employment, organization of work) is not thought in relation to the ecological question.

Third approach: the crisis, worldwide and new, offers opportunity of changing economic paradigm. This analysis of the crisis is largely shared by the trade-union organizations, a broad party of the associative players in most European countries and to the international scale, of the territorial persons in charge, parties socio-democrats in Europe (in particular SPD and PS). It considers that this one is revealing of a mode of breathless growth and source of great inequalities which are to some extent in the beginning of the financial crisis (in particular the fact that the over-indebtedness of the households substituted gradually downwards wages related to the de-industrialization of the economy). It is then advisable to seize this crisis appropriateness to make evolve the economic paradigm while seeking to combine social justice, economic performance and ecology. Here, the State, the partners, the territorial and associative players, have all their place to act in concert. The question of a new model of production of installation and a new worldwide order is with the agenda.

Development of the power struggles between social groups, between States supporting these various designs of the crisis, will leave one of them and with it, of the answers more or less adapted to the challenges of today. Ours is located resolutely in this third comprehension of the crisis, actually an outstanding new change. Let Us Begin Again successively.

The crisis: a fluctuation more marked than of others

For some, the crisis is temporary and does not call into question the liberal paradigm dominating. In France, Guy Sorman, one of the French figures of liberalism, express this design well, while stating in 2008: “It (the crisis) should not surprise us. One does not know capitalism without crisis, because it is founded on the risk and the innovation. There are always innovations which turn badly, such as for example the derived products. And these crises always have a monetary origin. It is what Milton Friedman taught us”. It is a crisis in capitalism. There will be others of them. Actually, the liberal paradigm dominating since the Nineties does not have large-thing to see with that of the previous decades.

Which is it? During the Nineties, we passed from a corporate capitalism to a financial capitalism founded on the cash assets, with the negotiability of the securities. The real economy passed under the influence of finance. The capital always had this dual reality: economic profitability for the entrepreneur and financial profitability for the financial investor. The new fact is whereas the second becomes the Master of the play. On the one hand, rise of the American institutional investors gathering the savings of the households (babies-boomers of the post-war period) in a country where premium account the system of the retirements by capitalization and diversifying their placements, in order to obtain corrected outputs of the risk which the banking intermediation cannot reach. In addition, the digital revolution and the TIC changed in-depth the evaluation and the risk management, while making it possible to break up the risks into complementary factors, to codify them in easily exchangeable financial products on markets and to transfer them on the unit from the financial institutions (1).

A Whole financial industry developed to analyze, place, ensure, note, manage the capital and its development. The effects cascades about it on the whole of the savings in this new form of capitalism result in two major crises: the bursting of bubble Internet at the beginning of the years 2000, mainly founded on an unrestrained speculation on the securities and a generalized imitation and the scandals with repetition which multiply, so much in the United States, with the Enron business, then Worldcom, which in Italy with Parmalat.

However, neither these accounting scandals, nor the instability of the stock markets, that only a share continues American Central bank has made it possible to contain, for as much called into question this dominant vision of financial capitalism (2). The crises form integral part of capitalism, they purge the system. Besides the American political power takes the necessary measures with a greater financial liberalization, started in the Eighties, with the introduction in 1999 of Gram-Leach Bliley Act. This last authorizes the constitution of financial holdings again simultaneously leading activities of commercial bank, investment banks and brokers in securities and of insurance. This act is the great return of the deposit banks to Wall Street (3). Let Us Point Out us to it context of then: one period of economic euphoria which appeared without end, so much so that certain economists spoke about “new economy” and qualified with reason by Alan Greenspan “of irrational exuberance” (4). This is why he was then considered to be possible and necessary to abolish the Knell-Stegall-Act of 1933 which regulated banking lasting nearly 70 years (5): a bank as Citigroup had already taken this route. Automatic Regulation of the banking system, financial creativity, new technologies: all is in place “to release” the financial system and to induce an explosion of the new financial products. In 2008, incur it obligations, shares and assets of commercial banks represent 4 times the worldwide GDP and the derived products almost 12 times this last. The two major innovations, securitization and the derived products contributed to these incur record of financial products. Those raise three frightening challenges: the traceability of the risks, consequences of the dispersion of the risks and the valorization of the financial instruments (6).

It is interesting besides to note that this creativity in the field of the financial innovations was possible because this industry knew to attract many graduate tops and to remunerate them well more than the other economic sectors (7). With equivalent profile, an employee of this sector gains 40% of more than in the other sectors. Moreover, it is well-known that the premium accounts and no-claims bonus reach colossal amounts then. All was in place so that a major financial crisis starts. But as long as the system functions, there is no reason to change it.

However, certain high ranking officials, as of the beginning of the years 2000, start to draw the alarm bell. Thus, Arthur Levitt, the former chief executive of the SEC, denounced in hard terms the deregulations of this financial capitalism: “Guards of the system - administrators, credit rating agencies, legislators, lawyers, abdicated their liabilities for a long time… the simple principles of capitalism were canted with less and less independent boards of directors and management whose personal enrichment did not have any more any relationship with company's efficiency” (8). While the stock exchange collapse of the beginning of the years 2000 is allotted to “the exuberance of the markets”, the accounting scandals are perceived like a weakening of the ethics of the managers, obsessed by the search for profits by all the means and like the fruit of a failing corporate governance. Thus, in both cases, the vision remains narrow and the consequently partial answers. It is enough to strengthen the control of the corporations by the shareholders and to harden the sanctions in the event of deviance. Essence is not to touch with the dogma: the shareholder is king. This design of the crisis, like a phenomenon of the economic situation, fits thus in a new ideological context: the market like alone authority of regulation and the corporation as financial credit whom it is advisable to optimize on the financial markets. Institutional investors, consultancies in management, academics specialized in finance, fall under the same objective: to build doctrines and principles of share intended to restore the legitimacy of the power of the shareholders on the managers. The economic value must serve in priority the shareholders.

Thus combine the diffusion in the whole of the society of the precepts and the judgments of effectiveness worked in the financial sphere, the role of the ideology neoliberal diffused to satiety in public space and the liabilities of the States in this movement of deregulation and that of the public policies which refashioned social space while accepting and by ratifying the hegemony of the finance of market. (9)

In such a system of thought, the State must be centered on its kingly missions (army, police, safety) and the question of a worldwide governance hardly arises. This paradigm of the internal regulation postulates that the economic system always returns to optimal balance by the fact of a free interaction between free players. Concerns of a hypertrophied finance, even concerns of an ecological nature do not take place to be, because the market will find the way of a auto-regulated finance and sustainable development in the condition which the public power does not interfere. (10) Against this system of thought, dominating until the release of the crisis in 2007, the States, starting with the United States, then made a true head with ideological tail: constrained to take over crisis management under penalty of a systemic crisis, they initially concluded the rescue of the financial system then operated an economic revival. In 2008, their share relates as well to the extension of the public guarantee of the bank deposits, the recapitalisation of the banks being able to go until their nationalization, and the guarantee of the interbank debt. In 2009, most States, including China and the United States, are solved to prepare revival programs economic. The countries of the European Union in particular consider that the crisis has deeper roots: financial crisis certainly, but also crisis of growth. It is then advisable to work with the regulation of the financial system and to invest in the new fields of growth, the green economy. It is the one second comprehension of the crisis which takes shape.

The crisis is worldwide and deep: let us pass to “green capitalism”

This comprehension of the crisis more takes into account the complexity of the situation. More pushed analysis of the crisis shows than this one forwards certainly a cyclical component, but also a structural component (11). A cyclical component with the excess of real construction before the crisis in the United States, but also in the euro zone except Germany and in Great Britain, which led to a strong correction downwards of residential construction. This component is cyclic, because it disappears gradually with stabilization from the operational startups then their increase by 2009. A structural component, with the assumption of responsibility by the State of the over-indebtedness of the private sector which is durably reducing the growth in the countries considered. Indeed, the stop of the rise of the rates of debt which had supported the request since the middle of the Nineties constitutes the other causes crisis causing a structural break-up on the debt.

However, the remedies suggested more attack the demonstrations more shouting of the crisis that to its deep roots. Thus, concerning the objective to give finance under control and with the service of the productive economy, the summits of G20 which followed (12) one another since 2008 consist in focusing on the following positions: for a regulation and contracyclic accounting standards, for a real supervision of the Agencies of rating, hedge funds, tax havens, for a deduction of the taking risk by the banks: as many constructive positions, but which discuss only the last disorders appeared at the time of the crisis.

Indeed, we know that in the microeconomic field, the financial information is not always sufficiently transparent, it remains tax havens where the international regulation of the banks is not implemented, the accounting procedures do not discriminate enough between the various types of investors. Thus there do not exist rules specific to the investors of long run who would incite them to invest on the long run without being discouraged by the risks of less been worth in short-term capital (13). Economists also encourage us to think of the organization of the banks, while planning for example to separate the activities very risky from the activities on behalf of the customers, in order to prevent that the financing of the seconds is not disturbed in the event of crisis by the losses of the first In the same way at the macroeconomic level, the absence of international coordination of the monetary policies of exchange condemns the worldwide economy to the excess of creation of cash assets: too expansionist monetary policies, accumulation of considerable monetary reserves (14). The chronic excess of cash assets causes the appearance of situations of excess of debt, of bubbles on the prices of the assets. Not to obtain with a comprehensive view of the crisis and an answer to the fundamental causes can only support other crises. The European Union on its level however carried out projections by strengthening the Funds European of financial stabilization (FESF). This institution, intended to come to the rescue of the countries in difficulty was essential to the solidarity and the perenniality of the euro zone. For as much, the sums and the mechanisms concerned could not be enough, as we can observe it, in particular to draw aside fears of a final defect of certain countries of the euro zone like Greece.

With these attempts to control finance, the States (in particular American and European) sought “to make green” the economy by supporting a more respectful production of the social norms and environment. It is a question of amending the offer of properties and services to make it producing of negative externalities by increasing the productivity of the resources, by developing green technologies and the éco-design, in incentive the corporations with being more responsible for their social and environmental impacts. Thus it is for example National strategy of sustainable development Frenchwoman 2010-2013 (15) which falls under this tendency or Action Plan of the European Commission (16) on this subject.

However, at the level of OECD, little country has truly, beyond the speeches, implemented a national policy dedicated to durable consumption. We can quote Sweden, Finland and Great Britain, which take into account the psychosocial aspects, the systems of securities associated with consumption and the difficulties of directing reflexes creatures of habit. However, the obstacles are numerous for the installation of a production and a durable consumption: financial constraints, low visibility of the immediate earnings, behavioral inertia. Moreover, the challenges of social development and environmental continue to be dissociated. As François Mancebo synthesizes it: “In strong durability, progress is expressed by the deployment of the human potentialities rather than by a material increase. In low durability, it is concretized in the idea that the technology innovation will make it possible to create the conditions of perfect substitution between natural and built capital” (17). Thus, the Revival program of the European Commission in 2008 (18) puts certainly the question of the climate change at the center of the share to carry out. But an attentive reading of the proposals shows that it is about an objective complementary to others, considered to be more important, such as the balance in the budget, the research of competitiveness, the compliance with the rules of the ECB, etc