Taming Global Financial Flows: A Citizen's Guide. - Review - book review

TAMING GLOBAL FINANCIAL FLOWS A CITIZEN'S GUIDE by Kavaljit Singh ZED BOOKS 2001 14.95 [pounds sterling] PAPERBACK

What should be the future of the international economic and financial system? It's one of those REALLY BIG questions crying out for answers. The bad news is that you can't phone a friend, ask the audience or even go fifty-fifty.

The good news is that, even as corporate interests tighten their hold on the subsidies they extract from the rest of humanity and the biota, and move through the proposed GATS to further curtail the regulatory rights of governments, there is some useful work out there that may help us find the way forward. In that can(n)on, George Soros's new book is a rather uncertain addition to the artillery, but Kavaljit Singh really delivers.

When Soros said back in 1997: `The collapse of the present international capitalist system would have terrible consequences. But I find it far easier to imagine than a continuation of the present situation', it was bound to get attention. Here was one of the high priests of modern international capitalism speaking. He developed his case in The Crisis of Global Capitalism (1998), which predicted the imminent collapse of the world economy. In the event, it wasn't capitalism that fell apart but Soros's reputation as a financial magician and postCommunist guru. He was revealed as fallible, both as a thinker and as a moneymaker -- missing the massive ride of the Internet boom which ran for the next two years, and seeing the performance of his famous Quantum fund plunge. `I made my bet and lost', he writes. `It was a painful experience to endure both personally and professionally'.

Open Society is in part an effort at retrieval. It is a reworking of his much-criticised earlier work and is more modest in its theoretical claims and predictions, but no less ambitious in its policy proposals.

If you actually read this book, my advice is only to dip a toe into Soros's attempt at being a philosopher prince in the first few chapters, where he develops his theory of knowledge as a basis for an attack on which he calls economics. For the record, Soros has two organising concepts of `reflexivity' and `fallibility' as the source of much that goes wrong in human affairs. By reflexivity, he means the observer reinforcing a mistaken view of the world with false beliefs -- something that can last up to a certain point until the whole system comes crashing down. This happened with the whole Soviet Union -- which in later years found itself `borrowing' large sums of money and food from the capitalist powers in order to maintain a system that supposedly protected it from those powers -- and happens regularly in the boom and bust of western financial markets.

Even more to the point are Soros's ideas about, and prescription for, an international global financial system that is `far from stable'. Prone to shocks, he writes, it lurches from crisis to crisis which the International Monetary Fund (IMF) and the World Bank are powerless to prevent. During the downturns, international capital acts like a wrecking ball on unfortunate `developing' countries and those in transition.

Soros wants the IMF to be better resourced in order to provide contingency credit lines with access open to countries which follow sound policies, plus better banking supervision, better IMF supervision of macroeconomic and structural policies, greater transparency and so on.

He also recommends that the World Bank become a World Development Agency -- a name that was also recommended by the Meltzer Commission, set up by US Congress last year. But Meltzer favoured a smaller institution, devoted to grant aid to the poorest states. Soros wants something far more ambitious: an agency providing credit for small- and medium-sized enterprises in all developing and transition countries.

So, the Soros message in full? Like some latter-day Oxford Street Protein Man, his prescription is something like: better regulated markets and stronger international financial institutions for more justice and more sustainability. Less sitting too, presumably.

It's not too far from the message of people like Martin Khor of the Third World Network, who says: `We aren't anti-globalisation: we want fair globalisation. We want the West to liberalise ... [and stop] exploiting legal loopholes to avoid keeping their side of the bargain'. Khor's vision is a return to the principles which the economist JM Keynes sought to enshrine at Bretton Woods: financial markets subservient to industry; international financial organisations regulating trade and ensuring `fair prices' for commodities; the IMF back to its original role of controlling the free flow of capital, not extolling its virtues.

And how to get there? Soros calls for an `Open Society Alliance'. This would have a dual purpose of, first, `promoting the development of open societies within individual countries, and second, strengthening international law and the institutions needed for a global open society'. The alliance would effectively be a form of world government, using the UN as its legislative body.

At a wild guess, the model could be his own Open Society Foundation, whose mission is to `help open up closed societies, to help make open societies more viable and to foster a critical mode of thinking'. The Foundation distributes around US$500m a year of Soros's personal fortune primarily to humanitarian, education, health and scientific work, primarily in eastern Europe and the former Soviet Union. It also provides generous support to independent media opposing dictatorial regimes such as the Burmese Junta.

But it's one thing to run a foundation where you're only answerable to yourself, another thing to run the world. And Soros provides few clues as to how one could build this kind of alliance. Tellingly, he writes: 'I do not want to go on elaborating on the features of an Open Society Alliance because the further I go the more I feel enveloped in an air of unreality. The details would have to be worked out by participants'. That's a fine and democratic sentiment, but it'll take a lot more detailed thought about how to build that kind of co-operation and avoid the danger of trying to forge a future based on fallible simplistic formulae.

Kavaljit Singh may not be the new Keynes, but his new book provides a detailed and clear exposition of many elements in the puzzle. Singh suggests `nine steps towards a better international financial architecture', including a return to capital controls, enhanced regulatory and supervisory measures, stable exchange rate systems, greater regional cooperation and a Tobin tax. There's useful material here for activists and citizens' groups to consider, if they want to engage with the realities of power.

COPYRIGHT 2001 MIT Press Journals
COPYRIGHT 2001 Gale Group