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Tuesday, February 22, 2011

Financial Crisis and Democracy

One of the features of the current financial crisis is the way it interacts with democracy. The crisis touches the very core of democracy both in principle and by its sheer size. In this, the current crisis is far different than any we have seen previously.

First, the way in which necessities of few banks have been scaled to compulsory levy on the masses is one example. Within a country, the stress on the lowest income class has increased due to lack of jobs and increased burden of taxes. It will increase further with inflation and cost of basis services rising. All this for no fault of theirs. 

Second, this crisis also spans across democratic divisions of countries. Icelandic population must consider bailing out those of UK and Netherlands who made idiotic investments. In a similar fashion, Germans must consider bailing out Spain, Portugal etc. The US consumer is effectively bailing out the world.

Third, the size of bailout and enormity of impact of actions is such that common people are suffering. Even earlier, there were bailouts and recessions. But never was the scale this large and impact so lasting.

In such a scenario, one can understand why there are political issues. The developments in Middle East and North Africa (MENA) are, in all likelihood, the first steps. The citizens there were confident that their governance structure was not the best and felt compelled to deploy better mechanisms like democracy. In developed and democratic world, we are not sure what is a better alternative. But in any case this situation will not resolve in a year. We will have to live with this for the better part of this decade.