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Editorial – Reforming the system

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In the past months, politicians and newspapers have trumpeted about the global financial crisis, the fall of the Euro, the need to recover markets. On the other side of the coin, people, especially the youth, have been protesting in many Western countries, camping out in symbolic centres like Zuccotti Park in New York and St Paul’s Cathedral in London. These young people were not sure what to ask, they were uncertain on the concrete steps of change to be made, yet they were adamant they wanted a reform of the financial system; a reform that would bring a sense of justice in the marketplace, control of the economy in the hands of who produce things, and not on those who speculate on debts and credits.

In the middle of all this, the Churches have raised their voices, but they have not being heard. The media paid little attention. The Pontifical Council of Justice and Peace, in Rome, released a lengthy document, Rowan Williams, Archbishop of Canterbury, wrote an insightful article on The Financial Times, but little came out of it.
Yet, the Vatican document, for all the wishful thinking that could be attributed to it, makes a good analysis of the crisis and has good proposals. It claims that what has driven the world in such a problematic direction for its economy and also for peace is “first and foremost, an economic liberalism that spurns rules and controls”. It is clear that a financial structure built on theoretical principle, without measuring them against reality, easily becomes a tool subordinated to the interests of the countries that enjoy a position of economic and financial advantage.
ed2“The inequalities and distortions of capitalist development – the document points out -are often an expression not only of economic liberalism but also of utilitarian thinking: that is, theoretical and practical approaches according to which what is useful for the individual leads to the good of the community. This saying has a core of truth, but it cannot be ignored that individual utility – even where it is legitimate – does not always favour the common good. In many cases a spirit of solidarity is called for that transcends personal utility for the good of the community”.
In practical terms, private financial groups have gone out of control. The Bretton Woods institutions – International Monetary Fund and World Bank – have lost their ability to regulate overall money supply and vigilance over the amount of credit risk taken on by the system. Private investors can now move more capital that the IMF, or at least can influence large economies without creating any good or service. It must also be said that the global financial market which has grown much more rapidly than the real economy. The old rules do not apply any longer, and there is now need for international institutions to rein back deregulation of banking and financial activities.
There is nothing new, really.ed3 The Churches, especially the groups dealing with Justice and Peace, have sounded the alarm long ago. Missionary institutes are tired to say that finance is the last barrier to evangelization, i.e. that we need to bring justice in a system blind to the suffering it creates, especially in the South of the world. The proposals are simple: taxation of financial transactions, recapitalization of banks with public money, and a sharp division between credit and investment banks.
Taxation would generate funds to promote global development and sustainability according to the principles of social justice and solidarity. A small rate of 0.05% would generate in excess of US $400 billion a year. Recapitalization would give governments the opportunity to support credit institutions on condition they work to develop the real economy. Spelling out the difference between credit and investment would help bringing under control the “shadow markets” which have no controls and limits.
ed4The first two proposals have now wide support from governments and capitalists alike. The third one will prove more difficult to apply. Financial markets are too keen in making money on speculations. They also generate great income for people who can influence governments. On case in point are the financial groups in the City of London. They resist regulation and threaten to move to more complacent nations if outside regulatory bodies would start interfering with their practices; de facto forcing the government to defend them.
Yet the Churches cannot stop raising a prophetic voice, reminding people that technology and overachievement can be dangerous, as the story of the Tower of Babel teaches. The antithesis of Babel is Pentecost, the coming of the Spirit who guides people to live and grow together in diversity; the only way to really become a human family.

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