Can unregulated financial markets end CAPITALISM? International political instability

By Shahab Sabahi

Energy and Environment - Policy analysis research group

Whatever caused the financial markets crashed (lack of stringent regulations), the fact is the invisible hands of free market disable to fix and help the markets return into the normal function. Indeed a strong policy must be adopted to regulate the financial markets before further damages to economies and consequently to societies.

It is worth to recall Karl Marx’s remark. He was partly right in arguing that globalization, financial integration and intermediation would end to anarchism. As values are faded away in one financial market, international companies’ growth is stalled and the companies will cut jobs. Cutting jobs causes reduction in labour income, and it will reduces final demand and again more drop in supply.  

The existing unregulated financial markets, with short-profit focus, have generated ineffective wealth which have not been redistributed in productive sectors and just generated bubble income for few.  The unregulated financial markets may lead to capitalism’s end IF an immediate policy intervention does not occur.

Growing unemployment amplifies poverty and inequality which threaten security in national and global level. The social strain and lack of opportunities will reach and feel by the world’s middle class that corresponds to social unrests.

Now it is time for a fresh CAPITALISM framework that is capable to address the intergraded and complex markets. It is time to move away from obsolete ideas, deficit-driven welfare and laissez-faire economic framework. Being realistic, both are broken. To enable market-oriented economies to function as they should, they require returning to the right balance between markets, to do long term productive investments, and develop human capital that can create ideas.  

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment and energy and environment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial markets; breaking up too-big-to-fail banks.

Over time, the regulated financial markets will support economies to invest in energy supply (energy security), quality environment, skills and smart - healthy society that can check consumption in reasonable level. The smart – healthy societies will improve their members’ skills and lifestyles. It enables members to compete in every global-scaled economy.

Otherwise the world will witness once more, like the early twenty century, stagnation, depression, currency and trade wars, protectionism, capital controls, sovereign insolvencies, arm race, and massive social and political instability.