We are all saddened by the death of Deepak Lal, one of the great minds of our time. We owe him the most seminal insights and ideas in the field of Development Economics. Born and educated in India, Deepak’s work arose and developed from a comprehensive approach to various disciplines that condition and influence one another. His scholarship was not only original and erudite, he was also prolific with a publication list of well over 12 books and numerous academic essays and sundries. Deeply suspicious of governments and politicians, Lal successfully taught at Oxford University, at the University of London and since 1991 at the University of California, Los Angeles. He was also a Senior Fellow of the Cato Institute and served as president of the Mont Pelerin Society from 2008-2010. As a scholar, teacher or colleague, Deepak came as close to the vanishing ideal of a gentleman as perhaps human frailty will ever permit. He died on April 30, 2020 in his home in London.
To honor his legacy, we reprint here his influential paper, which he presented at the 4th ‘International Gottfried von Haberler Conference’, Vaduz (Principality of Liechtenstein) on Sept. 26, 2008.
Current Travails of Globalizing Capitalism
by Deepak Lal (USA) – James S. Coleman Professor of International Development Studies,University of California, Los Angeles
To start my talk, I would like to thank my friend Kurt Leube for the opportunity to address the 4th International Gottfried von Haberler Conference in the Principality of Liechtenstein.
I first met Gottfried von Haberler when I was a young official at the World Bank in Washington, on leave from University College, London, in the late 1970s. He and his wife became close friends, and I looked forward to our lunches at the American Enterprise Institute (which included William Fellner) as a classical liberal antidote to the daily dirigiste discourse at the World Bank. In 1983 I returned to the World Bank as the Research Administrator in Anne Krueger’s new research vice-presidency, seeking to steer the Bank’s thinking into more market oriented lines. This was the time when the 80s Third World debt crisis was in full flow. I was asked to do the first part of the 1984 World Development Report with Martin Wolf, on the global economy. We commissioned a number of background papers, one of them by Gottfried on “The slowdown of the world economy and the problem of stagflation”, which were published in a book Lal and Wolf (1986). Reading these papers and looking back at that first global financial crisis today, with the world embroiled in another crisis, the parallels are more striking than the differences.
First, both in the 1980’s and in today’s sub-prime mortgage triggered financial crisis, the crisis arose because there was a surplus of savings in a number of countries which was recycled through the international banking system, to maintain world aggregate demand. Second, highly liquid banks funneled cheap credit to borrowers who were not creditworthy by any prudential standards: the fiscally challenged and inflation prone countries of Latin America and Africa in the 1970s, the ninja (those with no income, no jobs, no assets) sub prime mortgagees of the current crisis. Third, there was a rise in commodity prices and a worsening of the terms of trade of the OECD. This posed the dilemma of stagflation for their central banks, having aided and abetted the earlier asset boom. Fourth, the imprudent banks sought bail outs from taxpayers, claiming their demise would fatally damage the world’s financial system …
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Current Travails of Globalizing Capitalism (Word Doc, 139kb)
*Kurt R. Leube is Professor Emeritus and Research Fellow at the Hoover Institution, Stanford University (USA) and Academic Director at ECAEF (European Center of Austrian Economics Foundation) in Vaduz, Liechtenstein.