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People's Daily Online>>Opinion

‘Market fundamentalism’ is unpractical

(People's Daily)

16:55, February 03, 2012

Edited and Translated by People's Daily Online

One subject of the World Economic Forum held in Davos of Switzerland in 2012 is "reforming the capitalism," which reminds me a joke: If first-class economists exist, then the first-class economy will not exit. This joke actually reveals a fact: The current economic crisis faced by the West is a crisis of the West's mainstream economic theory and also a crisis of the Washington Consensus based on the theory, because the core of the Washington Consensus is the "market fundamentalism."

The market fundamentalism believes that market — the "invisible hand" — can automatically promote the economic balance thus any governmental interference is unnecessary. As the economic crisis is spreading and deepening in the West, the "market fundamentalism" has become notorious.

In fact, regarding relations between the market economy and governmental interference, China's general designer of the Reform and Opening-up Deng Xiaoping had a very deep insight. In his South Tour Speeches 20 years ago, he said firmly and confidently, "Planning and market forces are not the essential difference between socialism and capitalism. A planned economy is not the definition of socialism, because there is planning under capitalism; the market economy happens under socialism, too. Planning and market forces are both ways of controlling economic activity."

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Liang1a at 2012-02-0498.177.138.*
It is a mistake to think that the mere implementation of a system will automatically lead to the full flowering of that system. For example, democracy works reasonably well in the US but has totally failed in India. India has boasted of being the biggest democracy in the world. But it has failed miserably in its efforts to achieve higher standard of living for its rapidly increasing population leading to serious miseries for its people. The cast system is anything but democratic and there is serious lack of equal rights for the women. Therefore, just because a certain system is implemented does not mean that it can bring about the desired result. By the same token, just because the West had failed to achieve a stable and expansive economy does not mean there is something fundamentally wrong with the market system. It is just that those in the West who practise market economy have not done a good job of implementing the theory. This is why China should go to the fundamentals of the market theory and figure out what the West has done wrong and improve on it to achieve a superior implementation of the theory. In the end, I think market system is not enough by itself because the market forces are often too slow to respond to changing conditions and lag the changing conditions by a long period. Also the system requires government supervision to prevent human collusions to defeat the free working of the market forces. The current financial crisis was caused by the unethical practises of the banks and brokerage houses to manipulate unsafe toxic loans. Therefore, for the market forces to work properly there must be a certain critical amount of government supervision to ensure the proper conduct of market participants to allow the market forces to work properly. And if necessary the government must step in to bridge the gaps to hasten the response of the market forces to changing conditions.
SteveLaudig at 2012-02-0496.44.178.*
The "unseen hand" is not an "unknown" hand and it holds a knife to the throat of us.
Wingy at 2012-02-0424.213.4.*
IMpractical
Canada at 2012-02-0470.36.49.*
Market fundamentalism is the biggest cause of the financial crisis, Western economies decline, and a massive transfer of wealth to the ultra rich.
wende at 2012-02-0371.255.83.*
In every human endeavor, regulations are needed to safeguard the common good. It is best to foresee what might happen and make the rules. On some cases, rules are made after the fact (after seeing what did not work according to the desired intention). Adjustments are always necessary.
  

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