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Anurag Srivastava ,Programme Support coordinator
In reaction to the ongoing global economic crisis as well as concerns raised by the ascendency of global finance over global trade, the Centre for Trade and Development (Centad) has begun a new programme on Trade and Finance with the objective of studying the magnitude, impact and utility of global finance in fostering inclusive growth, gender equity and Human development. The programme is guided by Professor Ajit Singh, Professor Emeritus at the University of Cambridge, UK and a panel of eminent economists.
Global finance has grown in mammoth proportions in comparison to the real economy globally. Its movement and associated fluctuations have created economic crises in countries and regions, the current one being bigger in scope than anything witnessed so far. The present crisis is the culmination of a series of similar, smaller scaled and regionally confined fluctuations and crises which have been recurring at a higher frequency than at any other span in the economic history of modern industrial society. The East Asian crisis of 1997 was unprecedented in scope and drew attention to the movement of global capital which, for lack of regulation could reach and withdraw from markets at free will. Crises, of different scales are a common feature of capitalist development; however since the 1970s, their impact on a global scale is unprecedented. The 1973 oil crisis, the 1980s Latin American debt crisis, the 1990s Japanese asset price bubble, the 1998 Russian financial crisis and now a worldwide economic crisis testify some fundamental malaise in the global financial regulation.
What is globally mobile capital, where does it emerge from and what it implies for economic management and eventually human welfare, are fundamental questions raised repeatedly without credible answers to inform global policy making. The fundamental schism between theory and practice, between national, regional and global policymaking ordains a response other than mere wishful thinking.
According to a recent estimate (2006), broadly the measured economic output of the entire world was about $ 47 trillion; the total market capitalisation of the world stock markets was $ 51 trillion; the total value of domestic and International bonds was $ 68 trillion and the total value of derivatives outstanding was $ 473 trillion – which is ten times the size of the economic output of the entire world.
Further this finance capital is moving globally with an unbridled swing creating impacts on a massive scale- if the recent and ongoing economic crisis is any example. It raises questions on achievement in human development- which need to be defined with a view to workable answers.
While the link between the spillovers of global capital and financing for human development is methodologically and pragmatically challenging, the possibilities must be explored. The challenges of finding solutions that work are enormous, if the answers which are ideational or normative are to be avoided. The programme plans to critically analyse the northern and southern financial agents, both state and non-state, for the impact their actions and policies create on the domestic and foreign economies.
The present economic crisis also blurs the division between citizens in the North and South as both parts of the globe find severely affected individuals relative to their social context. With a focus on national economies, the programme will attempt to analyse risk, capital and investment and link them to impacts which are distributed between the North and the South. The more specific objectives are as under:
The first objective of the Programme is to focus on the ongoing economic crisis and analyse the response of multilateral institutions particularly the IMF, which ostensibly represent a mutually agreed global governance agenda over national policy space of sovereign states. The meaning of policy space for developing economies and prudent financial regulation mechanisms will be explored and it’s relevance for growth in developing economies will be critically analysed. This will focus on the G 20, the IMF as well as instruments and benchmarks of global financial regulation such as the Basel Accords.
The second objective of the programme is to explore solutions towards reforms in the global (corporate) financial regulation. The impact and role of instruments of finance as they emerge from private bodies and interact with the state capital and public financial resources of sovereign states will be researched. This will be done with a view to combine perspectives of different stakeholders in international finance and to develop practical and workable insights. Perhaps some common line of thinking is contingent as opposed to a mutually hostile position between private financial institutions, governments and the academia. There has been a schism between academic and applied work in context of real world finance. If the prevalent theoretical models in finance are considered to have failed, revisions should be made to allow accounting for real world financial behavior. The programme will attempt to take stock of theoretical developments across disciplines with a view to locating the praxis in behavioral aspects of financial institutions.
The third objective is to study South Asian integration in the global economy with a view to understand the factors which can underscore wide scale human development in the region. This is in line with the established expertise of the Centre on South Asia. According to an estimate, if growth in South Asia accelerates to 10 percent a year, the region could see single digit poverty rates by 2015, other things being in place. The challenges related to investments and productivity depend critically on capital. In this context, the possibilities within regional cooperation in South Asia will be explored. Perhaps some type of capital financing as well as common markets can offer a bulwark against the volatile global capital, as also make available critical resources on more amenable terms. In the context of expenditure financing with capital flows from external sources to national economies, of which FDIs are a significant part, this research will examine the tradeoffs between capital flows from global markets versus a window built on regional cooperation in the South Asian framework.
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