Beyond miracle and debacle in East Asia (Part 2)

Some of the most important economic problems in the world in recent times have been posed by 'financial liberalisation', with the rise of 'finance capital' in the last two or three decades.

The deepening of financial markets, especially after the demise of the Bretton Woods system, closely associated with the post-war Golden Age when there was relatively rapid growth, and some decline in inequality, not only internationally, but also within most economies, partly due to social policies in Europe and Japan.

The promotion of financial liberalisation has had very serious adverse consequences for the developing world, undermining financial arrangements, institutions and relations conducive to overcoming economic backwardness and market failure problems, as suggested by Alexander Gerschenkeron and others.

This would also contradict the Keynesian dictum that where industry leads, finance follows. To make matters worse, the current advocates of financial liberalisation have ignored the warnings of the gurus of financial liberalisation.

For example, McKinnon emphasised that correct sequencing is of the essence in pursuing financial liberalisation, and capital liberalisation should come last, rather than first - as has happened in some economies including those in East Asia before the 1997-98 debacle.