Leading economist blasts financial debate wide open

Date: 06/04/2009

The global financial crisis provides an opportunity for the world to rethink its economic and political structures says a leading economist in a bold essay to be launched today by the Whitlam Institute.

Professor John Quiggin takes the economic debate beyond the immediate triage and first aid being offered by world governments. He proposes a long term response to the global financial crisis which shifts the risks from individuals and families and places the hand of government firmly on the economic tiller.

"The crisis is not a temporary aberration, to be followed by a return to the 'normality' of the late 20th century, dominated by the ideology of economic liberalism. Rather the economic and social system that emerges from the global financial crisis will be radically reformed," says Professor Quiggin, who is Federation Fellow in Economics and Political Science at the University of Queensland.

"The inevitable contraction of the financial sector creates both the need and the opportunity for an expansion in the provision of non-financial human services, such as health and education."

Professor Quiggin's essay is the first essay in a new series called 'Perspectives' which have been commissioned by the Whitlam Institute within the University of Western Sydney.

Eric Sidoti, Director of the Whitlam Institute says the 'Perspectives' series offer opportunities for the nation's sharpest minds to canvass ideas and put forward views on the policies that would shape a better, fairer Australia.

"This first issue of Perspectives will prove to be a bold and substantial contribution to the debate about where we want to be at the other side of the global financial crisis," says Mr Sidoti.

"There has been a great deal written on the world economic climate already, but just as important though is the need to explore new ideas, to posit options and to encourage debate on them."

In the essay, Professor Quiggin outlines his blueprint for a new global economy where governments have a strong role. His vision includes reconstructed financial markets with banks tightly controlled and separated from speculative enterprises; a continuation of free trade; and a healthy income for governments from taxes.

"The global financial sector, which had long overawed national governments with threats of ratings downgrades and capital flight, and dazzled the world with the immense wealth it generated, has suddenly become a collection of desperate and widely-despised mendicants, bailed out at the expense of ordinary citizens," writes Professor Quiggin.

Professor Quiggin also believes the global financial system needs a complete overhaul - an issue recently discussed at the G20 Summit.

"The challenge facing governments and regulators will be to construct a new global financial system and a regulatory architecture strong enough to prevent a recurrence of the bubble and meltdown that has largely destroyed the existing unregulated system," Professor Quiggin writes.

Mr Sidoti says Professor Quiggin presents a strong and exciting response to the economic crisis which will trigger great debate.

"The economy is the product of human activity. It can be shaped and choices need to be made as to the philosophical frameworks that guide our decisions," says Mr Sidoti.

"Prime Minister Kevin Rudd's essay in the February edition of 'The Monthly' was significant for this reason. As was former Prime Minister John Howard's response in his subsequent address that same month at the Menzies Research Centre.

"I believe this first issue of Perspectives will prove to be an important contribution to that debate," he says.

A full copy of Professor Quiggin's essay can be downloaded from:
***Background Information***
Key points from Professor Quiggin's 'Perspectives' essay include:
*social democracy is not just a theory, but has practical economic consequences.
*a commitment to sound fiscal policy must be maintained.
*a global economy and open trade remain critical in forging a way forward.
*the 'Great Risk Shift' is over. There is a need to rebalance risk to provide greater protection for workers and families.
*neither public nor private provision of goods and services is superior; rather a mixed and balanced economy is ideal.
*old style public-private partnerships are dead.
*in a new banking system, banks must be clearly separated from speculative financial activity.
*higher taxes will be needed once the immediate financial crisis is over. The funds will be required to repay debt and to finance a permanently larger role for government.
*risk for private investment is likely to remain high making public investment even more important.
*public investment should be focused on human capital (health and education), natural capital (preservation of the environment) and physical capital (infrastructure).
For more details on the Perspectives series contact:
Amy Sambrooke, Communications Officer, Whitlam Institute 02 9685 9072 or a.sambrooke@uws.edu.au



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