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Neo-Liberalism: The Crisis and the Dissent


Arindam Banerjee

AFTER CRISIS: ADJUSTMENT, RECOVERY AND FRAGILITY IN EAST ASIA
Edited by Jayati Ghosh and C.P. Chandrasekhar
2009, pp. 316, Rs. 650.00

THE WORLD BANK IN INDIA: UNDERMINING SOVEREIGNTY, DISTORTING DEVELOPMENT
Edited by Michele Kelly and Deepika D'Souza
Orient Blackswan, Delhi, 2010, pp. 507, price not stated.

VOLUME XXXIV NUMBER 9 September 2010

The first book under review is a mustread for social scientists not only because of the elaborate and lucid assessment of the diverse post-crisis recovery trajectories experienced by the East Asian countries but also for its contextual importance in the contemporary global economic situation. The global financial crisis of 2008, although unique due to the location of its epicenter in the core, has much in common with the earlier crises under neo-liberal policy regimes which this book delves into. The fact that the book goes beyond the East Asian crisis and also explores some of the other country and region experiences facilitates a comprehensive treatment of economic crisis and macroeconomic management issues. The theoretical expositions of macroeconomic crisis in the age of finance, in the incisive papers of Prabhat Patnaik and C.P. Chandrasekhar go a long way in setting the background for the several explorative case studies of economic crisis and recoveries that are contained in the book. Patnaik’s paper focuses on the central contradiction that emerges in developing economies, particularly for the macroeconomic management by the Central Bank, with the escalated flow of finance in the neo-liberal era. The Central Banks are caught between two choices, whether to hold foreign reserves, prevent exchange rates from increasing and thereby protect income and employment in the economy or to allow free functioning of the capital account, which can ensure stability in the financial markets through inelastic expectations in the exchange rate. As rightly pointed out by Patnaik, this represents the main dilemma for macro-economic policies in the event of large hot money flows into the economy. The paper contends that the use of capital controls can rescue the Central Banks from this dilemma although such policies are not favoured under the neo-liberal consensus. Chandrasekhar’s paper complements Patnaik’s arguments by elucidating how the recent developments in the global financial markets, particularly in the core, has led to a situation with excess liquidity and a simultaneous increase in the systemic risk associated with financial flows. The profit-driven, speculative derivative markets have played a major role in enhancing the volatility in the financial markets thereby, creating the conditions for the precipitation of a crisis at regular intervals in the contemporary world capitalist systems. These two papers, elaborating the causes and processes that have led to economic crises in recent history, provides a historical, theoretical background to studying the paths of recovery ...


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