THE US capitalist system is in jeopardy. Major flaws that occurred over the past few decades were unraveled at the beginning of the millennium. Bad management, corruption and greed were the devils behind this disdain. Enron, IBM, Xerox, Arthur Anderson and others headed the lead for corporate bankruptcy. Accountability and credibility were principles that were ignored or taken lightly by the government and the judicial system. Public passivism and short-term gains were the ruling ‘isms’ of the time.
Subsequently, the US financial tsunami virtually wiped out everything that the American economic system struggled to produce and the US citizen had invested in. It started with the housing market mortgage crisis. The subprime predicament brought down major US investment banks with bad mortgage loans. Bear Sterns, Lehman Brothers, Fannie Mae, Freddie Mac were all names that once moved the US economy. Now they are burdened with major losses and threatened to be dissolved, nationalized, faded away in acquisitions or disappeared in bankruptcy acts. Then, the US stock market collapsed and worsened the situation. It elevated fear and increased the loss of confidence in the financial institutions inflicting panic to all global markets and economies. This had a grave impact on oil prices, which were cut by 50 percent. In consequence, recession was formally proclaimed in the United States, Europe and many developing countries in Asia.
The credit crunch or shortage of liquidity that hit most major banks in the United States, Europe and Asia confirmed the perception that true capitalism had serious diseases.
Absence of regulations, look out for short-term gains and shadow finance based on trust away from real financial collateral were some of the symptoms of the diseases. Much was overlooked and many mistakes were understated.
Today, the tide of the tsunami is still high with a US deficit of $10 trillion. The US government bailouts to the financial institutions seem to be sucked in the failing financial system. Major corporations in the auto industry such as, Ford, Chrysler and GM have declared financial troubles. Speculations are that the US airlines industry and the credit cards corporations may follow suit. It will bring more uncertainty, lack of confidence, global fears and increased panic.
Countries like Iceland, Poland, Hungary and Pakistan were also affected and are currently having difficulty in balancing their budgets. Other countries will suffer more from slower growth, lower stock values, scarce credits and reduced exports. Experts predict that some governments will fail and public dismay may occur.
So how does that global financial crisis and market break down affect America in the political and strategic areas and affect the world? Former US under Secretary of State, Richard Haas, in his article of Nov. 8 in the Wall Street Journal, indicated that “the appeal of free market is affected and democracy is tarnished.”
This is not a good omen for developing countries which are seeking economic and political reforms. America will definitely cut on its federal spending and US Aid will in turn minimize its power and influence abroad. This translates into less political influence and minimized military operations.
The irony that prevails in this worrisome global crisis is that with the collapse of communism and the demise of the USSR, during the beginning of the nineties, the developing countries were threatened with a unilateral superpower that was adamant on imposing its will in the name of freedom and democracy with an aggressive military doctrine. All developing countries explicitly cited their concerns for aggressive US military involvement in their areas. However, with the weakening of the American economy, global concerns over US policing role reside. An America taking ‘isolationism’ instead of ‘realism’ as its path in foreign policy is also not good for global peace and security.
Today, America is talking to the world seeking help globally to resolve the financial crisis. By calling for a G-20 meeting, there are hopes that a new economic order will see the dawn where government regulations and contained government intervention will be the guide in economic policymaking. The world must not let an economically weakened America to fail. However, G-20 must not accept the remake of the same mistakes. International banks and multinational corporations in America had negative effects on all the financial, economic and political sectors inside America and abroad.
There are hopes that the G-20 will also discuss the political and strategic ramifications of the financial crisis and its effects on global peace and stability. G-20 must seriously discuss the need for UN reform with the exploration of an enlargement of its Security Council members in order to take its rightful role in leading and protecting global peace and security and coordinating global economic and social interests.
(Dr. Mariam Al-Oraifi is a Saudi academic. She holds a doctorate from Canberra University in Australia. E-mail: [email protected])
