Financial regulation in the light of the current global economic crisis

Abstract

The regulation or non-regulation of finance and its extent and forms has always been an issue in the historical development of capitalism. This issue is crucial for the system's modus operandi since in capitalism money (and its provision, i.e. finance) operates as capital (i.e. the provider of the means for entrepreneurial activities), whereas its importance in previous socioeconomic systems was significantly less. This paper argues that there is an inherent insoluble contradiction between capitalism's tendency to unleash finance and its need to rein in the resulting instabilities. The paper argues that although the crisis shows the need for re-regulation, there are significant vested interests that deny this need. The rampant internationalization of money and capital markets in recent decades has created a global power structure that favours internationalized finance. This global power structure has promoted national reforms that have curtailed regulation and led to extreme open-market practices (i.e. the model of private banking). The crisis signifies the failure of this model. However, the global power of international finance remains and thus blocks any moves to circumvent it. The paper ends with a call for public banking as a means of reforming the financial aspects of the current crisis to the benefit of labour.