Globalisation

‘The global financial crisis of 2008 marked the end of the era of “free market fundamentalism”’. Discuss.

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During a visit to Africa in November of 2011, Pope Benedict XVI warned against what he called “pitfalls of modernity” and included in it “An unconditional surrender to the law of the market or that of finance” amongst other things. What made it more significant was that this came following a 41 page document on free market ideologies which can at best be classified as controversial for its unwavering rejection of “neo-liberal” economic theories, its support for global regulatory authorities such as a world central bank, and its endorsement of the Tobin Tax.

This came in the aftermath of the crisis of ’08, which exposed the inherent frailties of the markets, the malaise of unbridled greed, and the incompetence of the regulatory framework at that time, which did (does) not match the sophistication of certain financial products, leaving certain segments unregulated or under-regulated. Ever since, there has been a growing debate on whether markets need to be regulated more comprehensively, to the extent of challenging market efficiency and rejecting Adam Smith’s “Invisible Hand” theory and effectively dismantling the idea of free-market efficiency. Although this notion has been in existence for quite some time and discussed by economists world over, most notably by the British economist John Maynard Keynes, it has got a lot of support in the last few years. Paul Krugman, while talking about how the politicians in the US have got it completely wrong, says, “Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.” He goes onto quote George Osborne, the Chancellor of the Exchequer, as saying “Ireland, stands as a shining example of the art of the possible in long-term economic policymaking” in order to illustrate, ironically, the short...