The global economic and financial crisis has dealt a severe blow to free market capitalism, already under challenge for its bias toward capital and the rich as against labour and the poor.

It should at least hopefully set the stage for evolving a new global order of equitable growth and inclusive development within a multilateral framework. While capital markets would remain without having to perform miracles, they need to be strictly regulated to prevent recurrence of the financial market turmoils of 2007-09. The crisis brought the world economy has pushed it a few years behind, aborting such social gains as developing countries could make through their own efforts.
US President Barack Obama, who will participate in the Summit on his first visit to Europe in early April, will press for more effective globally co-ordinated measures 'to lift ourselves out of the mire' and for a stronger regulatory regime for financial markets. The world has to act together to address global problems, he says. In the post-crisis economic model he has in view which would be based on productivity, investment and exports, spurring world demand has become essential for the American economy. Therefore, he would raise a powerful voice against protectionism in trade or finance.

Differing diagnoses

International institutions have identified differing factors leading to the global financial crisis. For IMF, it is more the failure of market discipline and regulation to keep up with financial deregulation and innovation but all concerned missing the big picture of the growing asset price bubble. UNCTAD blames governments for 'blind faith' in the efficiency of deregulated financial markets, ignoring the role of speculation in creating the illusion of risk-free profits and profligacy. Global imbal-ances and the absence of rule-based international monetary system made things worse. Human greed was left out of account in evaluating risks of financial deregulation or the new packaged instruments that were invented.

The Obama model

President Obama is making a clean break with the brash brand of capitalism which allowed market forces to operate unfettered and let economic expansion fuelled by debt-financing and asset price inflation. There would be no going back to "endless cycles of bubble and bust, basing our economy on reckless speculation and spending beyond our means, on bad credit and inflated home prices and over-leveraged banks," he declared at a White House Conference with US business chiefs recently.

Instead, a more sustainable pattern would be one based on investment, public and private, and exports for the world's largest economy, unrivalled in terms of productivity, innovation and free trade, according to him. Not that President Barack Obama has any ideological proclivity but, faced with a global crisis of unprecedented magnitude brought on essentially by 'greed' on Wall Street, on the one hand, and debt-fuelled consumption on the Main Street, he feels it is time 'to put our growth model on a different footing.' The days of growing the economy through an over-heated housing market or through people running up exorbitant credit card bills must end as the created 'illusion of prosperity' had hurt all.

When markets fall out of balance…

While he remains a strong believer in the power of free market as engine of America's progress and source of its unmatched prosperity, government has to step in when markets 'fall out of balance' causing economic upheavals. Business models creating a lot of 'paper wealth' and not real wealth cannot be the fashion, he says, and going beyond 'bubbles and busts,' USA should start establishing a foundation for long-term economic growth.

President Obama's ideas of such reshaping for the economy are implicit in both the massive stimulus and the budget in which his reform priorities - health care, cleaner energy to cut down carbon emissions and quality education system to equip students with knowledge and skills for jobs of future - are embedded. In short, Obama is seeking a change in the way business has been done in Washington over the last decade.