Ladies and gentlemen,
You all know what device I am holding in my hands. Correct, it’s an IPod. This device not only has changed the way we listen to music or watch video and pictures or surfing the internet, it has also transformed the way we live.
Lately I have been carrying around an Ipod with me for two specific reasons. The first one is because I am Italian, and as the majority of you know, we like to talk quite a lot. So for this reason I use an Ipod as chronometer to time how long I speak, without exceeding. Today I set it for 20/25 minutes; I hope I will stick with the plan!
There is a second reason of why I carry an Ipod with me: to demonstrate that globalisation, free market and the open society are not to be blamed for the current economical and financial crisis.
The IPod is indeed a true innovation, the product of creative minds working together, the fruit of talent brains. It is also and above all the result of a financial investment. Behind the IPod as well as behind all the other devices we carry with us or we use in our lives, there’s an extraordinary financial investments. The crisis we all talk about is not only linkable to the real estate market. It has to be linked to debts accumulated by companies in order to invest in new technologies. As you might know, I am not referring to the IPod. This is just my metaphor; I am talking about medical devices too, those tools that makes our lives longer and healthier; those devices that helps improving our living, make our homes more comfortable, our travels easier. Our cities more secures and attractive.
Behind an IPod there are brilliant minds; financial investments; entrepreneurs who aim to invest and take a risk – when they could accumulate, save and spend in a more safety way – investors making debts to invest in something they believe; an open free market, a global market. Shall we blame them because of the current crisis?
I do not think so. Free market, free trade and globalization are not responsible. The enemies of the open society can relax once more. It is not their time yet. We could argue with them that capitalism is not the best way to operate but it has proved to be the best so far. All the other systems failed, including protectionism. Today we are challenged by who consider free market a place a zoo to be protected by the state. They accuse us of disliking rules. They state we want a deregulated market or even a market without rules. Liberalism is not this. Liberalism is about a free market where individuals can trade, do business, entrepreneur freely. As for society, market requires a minimum rules, those rules that guarantee a fair market, open to everyone, with the same initial opportunities for all its actors.
Market is a place for opportunities; it’s a place where individuals can make things happen. In this short speech I have been asked to present here to this extraordinary audience of liberal individuals, I shall attempt to demonstrate that the current crisis is not because of free market and liberalism. Exactly the opposite. I’ll demonstrate that the current crisis is due to the excess intervention of the state, and particular politics. The housing failure is due to bad rules, carried out by bad politicians.
Globalization, Capitalism and finance are blamed for the current situation. Are they really guilty? No they are not. We all know it, but we need to explain it clearly and loudly to the open society enemies, the one who use populist argumentation. They do not blame the market, but they wish to take it form the control of individuals. Shame on them.
In the first part of my speech I’ll demonstrate that Globalization, Capitalism and Finance have no responsibility. Before doing it, I’d like to point out some elements that are peculiar to the current economic crisis and differentiate it from the previous ones. We had crisis before the present one. We will have more crises after it. Economy, liking or not, is like the seasons: we have growth and prosperity and then we have a downturn or crisis and a recession. We cannot run away our seasons. Our role as liberals is to make the prosperity period longer and longer, trying to cut any downturn and recession. However, we must be frank with ourselves, as scientists, as liberals, let’s be responsible politicians. Crises and downturns are needed. In fact, old leaves fall, die; they become part of the earth. New leaves will grow where the old once were blooming. Winter is actually the right time to build a shining summer. It’s the time to structure our future. To use Shumpeter, it’s the time when creative minds shape the new course of the economy; they give birth to a new growth. This is the time when innovation is really required. Innovation is only possible in a free market. This is what liberalism opponents should be doing right now, instead of seeking whom to be blamed. A crisis is then an opportunity. I am aware it carries pain and less prosperity, but it is an extraordinary moment, it’s the opportunity to create something really new, something will foster prosperity and allow us to make a leap forward.
Saying this let me now get into the details of the current crisis. There are no doubts about the fact that we are in a moment of crisis, at least concerning the economic and the financial sectors. The indicators, which will be presented later on in the speech, are evident and dramatic. When the economy stagnates the prosperity levels remain unchanged or, worst, diminished producing job losses. However, this is not the first economic crisis that we are facing and it will follow a period of growth and prosperity. For this reason it is necessary that governments and economists reduce the reaction time to deal with the crisis and find quick solutions.
Comparing the current crisis with the previous ones will not produce any useful outcome. Instead, it is of extreme importance to identify the endogen and hexogen factors that caused the crisis to prevent other to occur. The current crisis offers a number of variables useful to understand the particular moment in which we are living now, which is shaped by information. The so called ‘information society’ offers a different social, economical and cultural paradigm extremely different from the previous years. On this subject I will develop the following topics to identify the most relevant factors that are shaping the current crisis.
Financial Downturn and Global Recession
The current financial crisis also coincide with an economic recession; two distinctive factors that are extremely interconnected with each other. The developed world’s economies are either still or receding, while banks and industry sectors are experiencing a critical financial moment. The ‘new’ growing economies are also slowing down, after a period of growth that improved competitiveness and created new sectors. The economic achievements of the last decade improved the world as a whole, decreasing level of poverty and increasing prosperity. But today the economies of new developing countries are as well jeopardised, and the lack of proper systems to deal with the crises, are demonstrating that we are facing a global crisis. The 1929 crisis had international repercussions, involving directly or indirectly numerous economies, but never before in history we had to face a global one. Today we live in a global market where not only the counties are interconnected with each other but also, due to their economies, they are dependent upon each other. It becomes evident how other sectors have been affected by the financial crisis. The appendixes 1 – 2 – 3 show the globalisation of the markets, showing how the economic and financial crisis can spread easily around the globe, from one country to another.
Media Amplification and Emotional Crisis
There are other two factors that need to be explained to understand the, maybe exaggerated, global panic reaction. The first one to be analysed is the relationship between the crisis and the media. Globalisation coincides with the evolution of new ICT and global informations. So the first point to be analysed is how much the media are influencing the dynamics of the market. During the 1929’s crisis the media were not playing an important role, and only during 2000 – 2001 and the so called crisis of ‘dot.com’ we started to realise how strong and important this relationship is becoming. Fluctuations of the stock markets in Europe, Asia and USA have been influenced not only by the global financial and economic sectors or by the governments’ interventions but also by the informations constantly reported by the media. It is not wrong to sustain that the media are able to shape the emotional elements of the market, like in any other sectors where individuals have to make decisions. This is an objective observation and I am not here to identify if this is good or bad, but it is extremely important to identify how much the media amplify whatever happens in the market.
The second, and last, factor to be analysed concerns the individual involvement in the global financial market. More and more families and little enterprises decide to invest in the stock market, using instruments that until few years ago where reserved to institutions and professional investors. For this reason we are directly involved in the global economy, as active or passive actors, who through the use of financial instruments and the support of the media become aware of our own prosperity. Concerning with the previous crises we can identify that they produced a period of growth and prosperity; thus even the current financial one could be the start of a new phase of economic growth. It is important that the bank system will, hopefully, return to its original function: distributing credits and not spread the risks of it.
