Sunday, January 27, 2013

'Why are banks the holy churches of the modern economy?'

Why indeed. Iceland president Olafur Ragnar Grimsson takes time out from the incestuous capitalists' gladhand-festival that is the World Economic Forum annual meeting to explain how his country went against all prevailing economic orthodoxy and recovered from banking collapse in four years.

They did it essentially by allowing the banks to go bankrupt. As he describes here to Al Jazeera, four years ago his country was a failed financial system and it is now has economic growth and low unemployment. Interestingly, Iceland also has one of the lowest Gini coefficients on earth, making it the planet's least unequal society by some measures.

Grimsson goes on to point out that socialising a private debt, then passing it on to the people in the form of higher austerity measures will not solve the problem of banks being run efficiently. It merely rewards unethical practice and punishes the victims whose money has been squandered and wrongly solicited by these financial charlatans in the first place.

The unrealistic profits of banks in a speculation bubble also allow them to hire away talent from other parts of the economy, distorting the labour market and strangling innovation in areas like information technology.

While Grimsson is optimistic that the same methods would work across Europe, Iceland remains a  relatively microscopic economy. Its GDP of $14 billion places it 117th on the UN world rankings, just above the Republic of the Congo.

South Africa, by comparision, is 28th, with a 2011 GDP of $408 billion. Because of domestic income inequality, SA's GDP per capita of $8 090 places us 75th in the world.

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