Real woes in a virtual world

In 1933, the great economist John Maynard Keynes said, "I sympathise with those who would minimise, rather than with those who would maximise, economic entanglement among nations … let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national." Without the type of ideas proposed by Keynes, capitalism would not have survived the Great Depression of the 1930s. However, as nation states embraced neoliberal policies over the past few decades, his proposals about the proper role of the state in the functioning of a capitalist economy were forgotten. Now, these policies are undergoing a revival in some quarters, as the severity of the current global financial crisis is forcing massive state intervention worldwide.

India's stock-market index, the Sensex, crossed 21,000 points in January 2008. Now, it is valued below 9000, having lost almost two-thirds of its monetary value in the face of what is being called the worst global financial crisis in 80 years. It has devastated the top Indian banks and corporates, who now only have illusions of wealth to harvest from their half-decade of vainglory. All hope that the ongoing crisis will leave emerging economies (and, among them, those in Southasia) unscathed have faded from the horizon. Prime Minister Manmohan Singh recently expressed his helplessness: "We are not in complete control. There are bigger players, and we are victims of that. The crisis is not of our making" Nor was the credit-led boom "of our making", he might have added, since global finance, led by the 'cheap money' policies of the US Federal Reserve, financed it. That boom is now over, as attested to by the falling growth rate. Till recently, the crisis had been mostly financial; now, it is engulfing real economies, as demonstrated by the approaching bankruptcies of the three giant carmakers in the US.