The Rich Country Trap
economix.blogs.nytimes.com
economix.blogs.nytimes.com
The big one is why banks in rich countries are too big to fail. In Indonesia if there was a banking crisis, there is no way that a bank like BCA could be bailed out. There would be no alternative to failure and while there are concerns about overly predatory practices regarding consumer debt, it is different than it is in the US.
Instead the economy is built on a very different basis. 60-70% of Indonesians are self-employed. There are a number of corporations which have institutional investment (including some very large companies) but on the whole the vast majority of the actual economy runs on the basis of small business and the self-employed without investment capital beyond friends and family.
What this means is that the amount of control that banks have over the economy is lower. In the event of a banking crisis, people would find ways of continuing to trade and work, and you can't have the massive and debilitating layoffs that occur in the rich countries. In essence the banking system may be less protected, but at the same time, it is less influential and so while the effects of a collapse can be temporarily severe, it doesn't have the same reach that it does in the US.
A big part of the rich country trap is a economy that runs on investment capital, where the banks are a major source of that capital. A small-business-centric economy is far more robust against this sort of crisis.
Many people in India operate under the same principles, small privately owned and financed businesses. However, the big banks do indeed deal with the major corporations. At this point of time, the reserve bank of India has published a report stating that the failure of ONE major corporation will prove catastrophic for our economy. [1] Sounds absolutely crazy but it seems to be true.
This is because banks have over extended credit (once more ?) and maintain very low liquidity. If one of their debtors defaults, the bank will be finished, thereby unleashing a domino effect on their creditors and debtors.. crash and burn. Add to this, the fact that the country runs on a major current account deficit (export/import imbalance) means that the government will not be able to do any massive bailouts. The foreign exchange reserves in the country are still small. Which means, we can't print more currency to hack our way out of the problem either because we'll see hyperinflation in a very bad way.
Of course, the regular joe here will be able to find a way to continue running his business because he may not have a big relationship with a big bank. But macroscopic factors like big banks failing and the economy collapsing will hit him and everyone else hard as well. There will be massive layoffs for folks who work in big corporations and while in absolute percentages of population this may not look like much, it'll still impact a few hundred million people easily in a country like India.
TLDR; Banks in India need to be reigned in, otherwise things are going to get very ugly sometime soon.
[1] - http://www.moneycontrol.com/news/economy/rbis-financial-stab...
I am not saying things would not be bad if, say, BCA and similar banks were to collapse here in Indonesia. If they did, the corporate world here (including the toll roads) would be sorely hurt. And people would lose savings. And much more. However, there are catastrophes and there are catastrophes. I am hard pressed to imagine a case where the results would be worse than the 2006 crisis in the US.
... looking at you, kid (tech sector)
Pope Francis is making statements, but I don't know what he can do beyond talking, and assuming he has useful actions to take, if he will take them.
But they are also underrated because what Francis has done is to put the pieces together differently. He's essentially pointed out that the Church's teachings on economics (again going back more than a century) are central because the modern capitalist structure leads to everything the Church deplores in the modern world. It leads to independent retirement (throwing old people away, in Francis's words), and that to abortion. In essence, what he's done is to step back from the fights of the 1960's and return to the fights of the 1930's, and for this the Progressives seem to love him.....
What the Catholic Church can accomplish is the further development of Distributist thought, as an alternative to Capitalism. But Distributism is no longer just a Catholic thing. I was introduced to the concept by a Russian Orthodox priest, and I find many of the most Distributist folks I know are Neopagans (particularly Asatru).
This Argentinian fellow has made some remarkable statements (on priest weddings, among other things), and if he follows through on them, the Church could change radically. He's also dismissed part of the old guard, promoting more "liberal" figures; among other things, he's finally admitted that the shady IOR (the Vatican bank) will have to clean up its act, and nominated new managers to do just that.
In terms of economic doctrine, I personally don't see much of a difference in what he's saying, compared to his European predecessors, but I admit I haven't studied this closely. What is clearly changed is the willingness to harshly criticise the North-American model. In a way, this guy is the first post-Cold-War pope; US donations are faltering (because of pedo scandals) so their political weight is diminishing inside the Church, and Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones.
What he has done is moved the economic teachings from a branch of Catholic social teaching into a more central role. I think that's easy to understate. But that's not the same as taking a new position on the issues. And I think the liberals have vastly overstated the way in which Francis seems to be one of them (he has excommunicated a bishop for calling for the ordination of women for example).
> "What is clearly changed is the willingness to harshly criticise the North-American model."
I don't know. Rerum Novarium, Centicimus Annus, etc. all included similarly harsh language. That's not something I see as different. It's just that Popes were ignored when they said this. In fact John Paul II complained heavily that such criticism of Capitalism were ignored by so many Catholics....
> "Bergoglio himself represents a South-American view of the world which is much more critical of traditional US policy in all sectors, including economic ones."
I think that's an important point actually, and I think it puts his attacks on independent retirement as poisonous fruits of capitalism (i.e. a society that "throws away old people") in a certain context. But the corrolary here is that he has legitimated Dorothy Day's withering attack on Social Security and thus attacking causes even more dear to the American left than abortion.
Can you tell more about Distributism that isn't on the Wikipedia page? I'll look it up more, but I've never heard of it before.
I wrote an introduction to Distributism for open source software developers, and an introduction to open source for Distributists.
You may find it interesting. You can read it at http://ledgersmbdev.blogspot.com/2013/04/a-distributist-view...
Would be happy to answer more questions of course.
I'd like to see the financial and insurance sectors run primarily by tech workers and leadership. I think this could help neutralize the problem. I think this alludes to zt's comment as well.
Of these, I think the most damning condemnation actually came from Minsky (who was an American economist).