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Most of these changes, which emanated from the US, have their origins in the 1980s. In the past 12 months, their negative effects have been felt throughout the world, but, unfortunately, they have been misdiagnosed and consequently isolated from their structural contexts.
The initial signal of this malaise emerged in mid-2007 and was described as sub-prime problems and the attendant falling house prices across the US.
Some respected analysts claimed repeatedly that this issue would not have wider implications. However, the cause of the sub-prime problem has spread quietly and caused the collapse or impairment of three of the five major merchant banks in the USA: Bear Stearns, Merrill Lynch and Lehman Brothers.
Aside from the collapse of the merchant banks, some of which have lasted for more than 150 years, the US government has reversed its ideological stance and nationalised the country’s biggest insurance company, the American International Group, after committing $85 billion to its rescue.
As if that is not enough, the US government is working on legislation to set up something akin to a “toxic waste dump” for bad debts from financial organisations, which will cost over $700 billion.
These US measures have several implications for Kenya and other African states. Not only will they lead to a decrease in the amount of aid allocated to Africa, but they will also fuel inflation, which will spread to Africa and other parts of the world, and weaken the US dollar, thereby rendering oil more expensive.
Anything that is manufactured in the US has the capacity to reach Europe and other parts of the world, and this financial virus was no exception.
Accordingly, earlier in the year, the British government nationalised one of its banks, Northern Rock, to save it from collapse. However, this was not enough to inoculate the British economic system, so in the past few weeks, White Hall has taken extra measures to buttress the financial sector following the acquisition of the Halifax Bank of Scotland by its rival, Lloyd’s TSB.
In the past week, the central banks of several OECD countries have injected more than $500 billion into the financial system to try to save the current incarnation of capitalism, which, in turn, is doing everything to self-destruct.
Why have analysts refused to acknowledge that the turmoil in the share market is a symptom of weaknesses in the wider global structure?
First, these problems suggest that the neoliberal economic model that has been promoted since the early 1980s can no longer be relied upon by itself to tackle the challenges that we face.
Like other models before it, including the Keynesian one, which was very successful after the Second World War, the neoliberal model has lost its potency.
This is why the US and UK governments have re-discovered virtue in the nationalisation of some key socio-economic assets.
Even the American financial elite, which has traditionally derided anything that smacks of government regulation, has readily accepted government interventions.
Second, recent problems suggest that the US is losing its role as the global economic leader.
Third, it is misleading to describe what is going on as merely financial turmoil. These problems have serious social, political and economic implications.
Makinda is professor of Security, Terrorism and Counter-Terrorism Studies, Murdoch University, Australia.
source: bdafrica.com/index.php?option=com_content&task=view&id=10281&Itemid=5848
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