JOSEPH Stiglitz, former chairman of President Clinton's Council of Economic Advisors, was quoted by the Newsweek as saying, “There has been a continual erosion over the last 20 years. Even when I was in the Whitehouse, everyone talked about risk. But then everyone would throw up their hands and say, ‘we do not want to regulate'. That is because it was people from Wall Street who were doing the talking.” Stiglitz so eloquently captures the essence of current financial crisis. The free market ideology, which has long been advocated by capitalism proponents, is now in a critical phase after it becomes clear that the two turbine engines of such ideology – deregulation and privatization lack the ethical justification by its negligence of society at large. Each economical downturn would be indescribably devastating on a social level. Governments' response to any such crisis would be through massive financial cuts in critical sectors: education, infrastructure, health care and the like. Throughout the past three weeks, the entire world was in panic by what seems to be a deep and serious financial crisis that is feared to cause a total collapse of the world economy. The world economy is in a grip of uncertainty engulfed by fear that a much broader crisis is looming in the horizon. Although United States is the source and the focus of the current crisis, the entire world is grasped by the dizzying pace of the turmoil in the financial markets and may soon succumb to its dire consequences. Its geographical breadth is threatening even the most remote and emerging economies. In short, the bubble has burst. But the questions that need an answer are what went wrong and what might have happened had the US government acted swiftly to save key banking institutions from going bankrupt? The answer is disturbing because the assiduous believers of free market are against the very idea of state-led intervention in the economy. The reigning doctrine of capitalism, so to say, relentlessly states that market forces are responsible for setting the wheel of economy move. Such a de facto principle functions properly if government intervention is restricted to the idea of making labor laws and overseeing these laws for any potential violations. This is what led to the fall of Lehman Brothers. Billions of individual assets evaporated in the twinkling of an eye. The stock markets around the world plummeted to unprecedentedly low levels. Desperate and panicked stock traders tried to sell out their shares massively at any given price so as to escape the unknown. Central banks coordinated major interest cuts to reduce the panic of stock traders and to put an end to a widespread speculation that no significant state-sponsored interventions were expected. The utmost some governments can afford to do is stop stock trading for an hour or a half for the market to take a breath. Too much has been said about the “causes and effects” of the recent credit crunch particularly in the United States, the European Union and Asia. However, little is known about its impact both domestically and on the GCC level. Although some stern statements confirm that the recent turmoil has no direct impact on GCC economies, there is room for much speculation. Multi-billion sovereign funds and giant corporations had heavily invested in several international markets, including those of the United States and the EU. These markets were severely hit by the financial meltdown of key American financial institutions. The GCC central banks issued no clear statement of the prospects of any financial damage to these investments. Of course, the GCC countries need to act collaboratively and swiftly to confront the nightmarish consequences of the current crisis. Oil, a key export, is at the heart of the news nowadays with its rapidly decreasing prices just months of high-rocketing ones. The fear of a recession in the American economy would have a direct effect on the economies of the gulf countries. There is one last word on the current crisis. Each economic crisis bears so directly on the prospects of a decent human life of ordinary people. The harshness of each downturn is so overwhelming that nobody is rationally focusing in eliciting lessons that could be used to avert similar downturns in the future. The prospects of a recovery would be useless unless we have plans not to fall into the same trap again. On the GCC level, policy makers need to take more concrete steps for a unified monetary policy with a single currency and one central bank. It will also be a great leap forward if the planners recognize that they can no longer ignore the promising future of investment in human capital by pouring money into the budgets of educational institutions and research centers. India's long-hailed experience in investing in wide array of fields stretching from sophisticated modern technology to tea production is a stark example of how it is possible to diversify investments and not over-concentrate them on one sector which might be prone to catastrophes. __
