Jan 20, 2009 (LBO) – The meltdown of the global economic system is not a collapse of capitalism and markets but rather a failure of government, World Bank’s Sri Lanka country director Naoko Ishii said. Ishii said the collapse of banks and falling prices of financial markets have been interpreted by some as a failure of markets and that the state should be substituted.
“On the contrary in my view — it is government that has failed and not the markets,” Ishii told a forum organized by the Society of Management Accountants in Colombo.
“Governments have not been able to keep pace with markets. Regulators have failed to assess risk association with complex instruments and incorporate them into the regulations.”
Ishii said there was a need for governments to catch up with markets, and not to restrict markets.
The effective regulation of markets was the fundamental role of the state in the capitalist system, she said.
Selective state intervention has been shown to work, especially in East Asia, provided policy decisions were insulated from politics through strong institutions and support was given through a market based contest.
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