Transcript Tomidajewicz, Distribution as primary factor of crisis

Fault of distribution as
primary factor of crisis of
liberal capitalism
by
Janusz J. Tomidajewicz Poznań University of Economics
Content :
• Genesis of the crisis
• Course of crisis in conditions of globalization
• Consequences of the crisis for countries in which
primal sources of the crisis didn't appear
• Accepted methods of fighting against crisis
• Conclusions: efficiency of the fight with crisis:
1. Sources and reasons (genesis) of
the crisis :
- Superficial sources of the crisis : well known and described –
excessive number of mortgage credits and their breakdown.
- Deeper sources of the crisis : pressure of investors on effective
investments and credits supported by the state, connected with
interest of managers concerning such investments.
- Structural sources of the crisis : excessive accumulation
resulting from the concentration of income division,  driving
the demand with credit  rapt limitation of demand in
situation of breaking down possibilities of the repayment of
credit.
Structural sources of the crisis
• During last 20-30 years the liberal version of capitalistic economy has
led to a growing concentration of incomes inside particular domestic
economies, but also in the global scale. This concentration causes:
• - from one side: formation of significant savings that „search” for
possibilities of lucrative investments in the real sphere, but mostly on
financial markets.
• - from the other side: it leads to a relative, or sometimes to an absolute
limitation of internal consumption demand that reduces possibilities of
effective investment.
• In result the wrong division leads economies to a specific situation
of over-accumulation, which is a primal (structural) source of
occurrence of financial and further economical crisis's.
Methods of development (employment) savings surpluses :
• - stimulating the domestic demand by the public sector (redistribution,
public spending): - reduced because of limited range of budgetary
redistribution and leading to public debt,
•
- stimulating the internal demand through the private sector :
crediting a widely understood consumption (also supported by the
state), stimulating investment demand in particular sectors and creating
a market bubble in those sectors, creating apparent investment
possibilities on financial markets – development of derivatives and
derived instruments. All presented methods face sooner or later the
barrier of insufficiency of real consumption that would enable
realization of profits from those investments.
• - foreign expansion: from the export expansion that faced the barrier of
competitiveness, by direct foreign investments to investment in foreign
securities
Barriers of utilization of the over-accumulation :
• In each case the basic barrier was the lack of possibilities
of realizing predicted profits from artificially created
possibilities of investment:
• - lack of possibility of payment and service of consumer’s
credits, from the side of consumers with limited incomes,
• - insufficient efficiency of investment in excessively
enlarged market bubbles,
• - not reaching (because of excessive investment) predicted
profits from foreign expansion (export, foreign
investments, foreign securities)
• In consequence, in result of rapid breaking the demand for
free assets down appears:
• - the first symptom of breaking down financial and stock
markets reveals itself through decrease of values of active
assets on appropriate market (fall of prices of adequate
securities, e.g. HT companies, decrease of quotations on
geographical markets, e.g. Indonesian crisis or fall of prices
on mortgage market),
• - depending from the level of connection of determined
market with other segments of the financial market, the first
break down is being transferred to other segments of the
financial market, as well as on other geographical markets,
• - in the third phase the break down of financial markets is
being transposed to the area of real economy
2. Course of the crisis in conditions
of globalization
• Present crisis has begun in the mortgage credits’
market in USA and in its first phase it had a character
of a financial crisis.
• It has expanded on global economy (other countries) via:
• - the role of USA as the capital supplier on the global
financial market and as an investor on foreign markets,
• - the role of USA as an importer,
• - the impact of crisis in one country on the functioning of
global financial markets,
• - psychological effect,
3. Consequences of the crisis for
countries, in which primal sources of
the crisis didn't appear :
-
Limitation of credit abilities (via world financial crisis)
Decreese of export,
Limitation of domestic production,
Growth of unemployment and fall of domestic consumption,
Crisis spiral as result of factors mentioned above.
Conclusion : the bigger is the sensibility to crisis the stronger
is the relation between national financial system and the global
financial market and the bigger is the dependency from the
export
4. Accepted methods of overcome
crisis :
 Overcoming of symptoms of the crisis :
- Supporting financial institutions for maintaining the continuity
of financing in the real sphere of economy,
- Reducing interest rates as a form of incentive to maintaining
economical activity,
- Supporting the demand through supporting indebted and
subsidies to specific purchases, etc.
 Fighting with deeper sources of the crisis :
–
reinforcing national institutions of control of the banking system and
financial markets,
– proposals of putting under control the market of secondary and
derivative financial instruments,
– proposals of reforming the global financial system,
– proposals of creating world institutions of regulation of financial
markets
Remark :
All determined means aim to limitation of possibilities of forming
artificial directions of allocating surpluses of savings. However, they
don’t eliminate this surplus. Therefore they might lead to earlier and
constant occurrence of this disproportion that may lead to permanent
limitation of abilities of development of particular economies.
5.Efficiency of fight with the crisis :
- The crisis manifest itself differently in different countries and
its aspects (such as possibilities of giving credits to various
units of economic activity, decrease of export, fall of inflow of
foreign investment or smaller domestic consumption) can have
diversified intensity.
- Overcoming symptoms of the crisis has an efficiency that is
limited by globalization – instruments implemented in one
country have also consequences in other countries. Still the
global efficiency of applied means is limited.
- The global coordination of instruments that fight with direct
causes of crisis meets the barrier of diversification of its range
and symptoms.
- Ideas of implementation of instruments overcoming deeper
sources of the crisis face the resistance of groups connected
with the financial capital and national interests.
Conclusions :
• At present the fight with the crisis must
concentrate on upgrading the current situation and
affecting on direct causes of the crisis. Still, there
is absolutely no reflection on structural sources of
the crisis and on methods of removing them .