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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. We’re in New York City at the United Nations with Jomo KS. He’s the assistant secretary-general for economic development to the United Nations. Thanks for joining us.


JAY: So Americans have been quite preoccupied with the economic crisis, as people around the world have been, but I don’t think Americans are all that aware of how the effects of the crisis have been felt globally, and usually these crises affect the places outside the United States a lot worse than inside the United States. So paint us just a bit of a picture what this crisis has meant for the people of the world, and then let’s talk about why and what’s happened.

JOMO KS: Well, the main effects have been to—there’s been a significant collapse of world trade by about 10 percent over the last year. Much of this has adversely affected prices of commodities, which are very important for most producers, especially in developing countries. They generally receive much, much lower incomes. As a consequence they have much less incomes to spend with, and this of course means that these economies all generally tend to slow down significantly. There has been at least a 6 percent reduction of economic growth in most of the world, worst of all in the so-called transition economies, but also pretty bad in other parts of the world. The poorest countries have not experienced such a major collapse, but it’s partly because they were coming off from very, very low starting points. In some countries, of course, there are negative growth rates. In other countries there might not be negative growth rates, but you have such a low positive growth rate that when you consider population growth, on average everybody is much worse off. In many economies the worst effects were felt through the stock markets. The cost of borrowing has gone up tremendously, so there’s relatively much less investments. But there would have been that much less investments anyway, because there’s nobody to sell stuff to. And so we generally have what is called a synchronous decline in the world economy—everybody is pretty much worse off. This is very different from other recessions. Thirty years ago, for example, there was stagflation in the West, but in East Asia and in Latin America the economies were growing very, very rapidly. So this is a very, very exceptional situation. It suggests that economies are much, much more integrated with each other. Globalization has succeeded with rather devastating consequences, as you can see.

JAY: The problem’s been isolated in most of the business press and popular press in the West as being a problem of the finance sector—unregulated finance sector, a greedy finance sector, a speculative finance sector—and if we can just rein in the finance sector, we’ll get back to how things were, and in theory how things were weren’t so bad. What do you make of that?

JOMO KS: Well, I think undoubtedly it is true that the financial sector has a lot to be blamed for. The financial sector has caused many of the problems in the recent past. The financial sector has resulted in an ascendance of finance over the real economy. And the major consequence of this has been a great degree of short-term-ism in investment decisions and so on and so forth because of the dominance of finance concentrations. If you look at the US economy, for example, before the crisis, although the finance accounted for less than—you know, it was—what?—15 percent of the economy, it accounted for more than 40 percent of profits. So you had a lot of distortions because a lot of the financial innovations of the last few decades that resulted in phenomenal profits for the financial sector at the expense of the real economy. So although the economy was not booming, the financial sector was doing pretty well for itself. So the financial sector certainly has much to be responsible for. But at the same time, we do find that the real economy was very problematic, partly because of the dominance of finance, but partly because of increasing concentration at the world level, where fewer and fewer corporations have become increasingly dominant. And this has had tremendous consequences. If you take Africa, for example, in the 1980s, Africa was a net food exporter. By this decade, Africa had become a net food importer. So when food prices spiked at the beginning of 2008, Africa was very, very badly affected, especially those economies which had not provided for their own food security.

JAY: In terms of the regulation of the financial sector, are the proposals on the table in Washington and being discussed globally—are there solutions to be found in these proposals?

JOMO KS: I think there are some interesting proposals which have come up. I think there is an implicit recognition that many of the financial reforms which were put in during the 1930s, for example, were wrongly—Glass-Steagall, 1933—were wrongly sort of repealed towards the end of the last century with devastating consequences, as you have seen. But really it’s not a question of going back to the old legislation and regulation, but rather coming up with appropriate legislation and regulation for our times. A big problem with many of these debates is that there is a very serious difference of perspective between Europe and the Anglo-American world. The US and the UK generally take a much more benign view of finance and basically do not want to factor finance in any significant fashion, whereas the Europeans are generally much more skeptical and wary. And this is one important divide. But, very, very importantly, we find that there’s very little attention in all these discussions about what those regulations would mean for the rest of the world, especially for the developing world. You have regulations, for example, in the past with all the best of intentions which might be very useful and appropriate for a mature economy but which had devastating consequences. Let me just give you one example. There was a recommendation by the Basel Committee on Banking Supervision to allow 20 percent backing for loans made of one year or less and to require full backing for loans of a longer duration. This basically encouraged banks to lend short, to lend on a short-term basis. And so you had a lot of short-term-ism, for other reasons as well, further worsened by this kind of regulation. So you need to think about this. But two other major concerns at the time of the Bretton Woods reforms of 1944 have not come into the picture. In 1944 you find that Bretton Woods was very concerned about creating the conditions for sustained growth, as well as employment creation. These were very major considerations, given the experience of the Depression and so on and so forth. And, incidentally, they’re also part of the mandate of the Federal Reserve in this country. But that was one very major concern. A second major concern was creating the conditions for postwar reconstruction and development. Now, those concerns, which were very important in the last round of major monetary and financial reform, are not part of the discussion at all this time round, and this is part of the problem. We have to recognize that finance is a means to an end, should not be an end for itself. And this is a major limitation of the discussion about reform right now.

JAY: There was a small window of discussion in the United States, when massive amounts of public money were bailing out banks, about the whole question of nationalization, the idea that there actually might be some social responsibility on the side of the finance sector. Now it seems like that conversation is fading away, and many people are saying this kind of musical chairs of finance and the rounds of speculation—that the game’s about to start again, and what we’ve had is a kind of concentration of ownership on Wall Street and a new round of speculation, but nothing significant seems to have been learned from this.

JOMO KS: Well, it’s a bit difficult to come to such a conclusion right now. Obviously, some speculation has begun again. There are, even in the worst of times, always opportunities for speculation. You know, shortselling and so on, for example, often happens as markets go down, and this suddenly has been taking place and was part of the reason why we had the price spikes of 2008. But it’s still very difficult to see the kind of levels of speculation going up to the levels which we saw previously. Part of the reason, of course, is that banks are much tighter right now in terms of making available credit, and borrowing costs are also much higher, so speculators will think twice before they speculate, especially when borrowing costs are higher.

JAY: Well, in the next segment of our interview, let’s talk about some of the underlying reasons for this crisis if the finance sector is one piece of it but the real economy was in a crisis before this crash and is in more profound crisis now. So let’s talk about why and what can be done about it. Please join us for the next segment of the interview on The Real News Network.


Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.

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Jomo Kwame Sundaram

Jomo Kwame Sundaram (Jomo K. S.) has been Assistant Secretary-General for Economic Development in the United Nations' Department of Economic and Social Affairs (DESA) since January 2005, and (Honorary) Research Coordinator for the G24 Intergovernmental Group on International Monetary Affairs and Development since December 2006. In 2007, he was awarded the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Jomo has authored over 35 monographs, edited over 50 books and translated 12 volumes besides writing many academic papers and articles for the media.