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25 / 09 / 2004
Economist Daniel Cohen holds that we “desperately” need global institutions that control the financial markets

As the debates in the Dialogue “From the Washington Consensus Towards a New Global Governance” progress, the general opinion increasingly points towards creating and/or reinforcing bodies that regulate the economic globalization. Today, economist Daniel Cohen stated his position through the speech he gave at the session “Towards a New Modus Operandi of the World Financial System”. “We desperately need global institutions that control the financial markets,” said Cohen, a professor at Paris University.

According to Daniel Cohen, the task of financial markets is to provide capital where there isn’t any and to mitigate the risks faced by national economies, even though, paradoxically, the money does not reach the poorest countries. This is why, Cohen has made “good governance” a priority” in these areas, to attract investment. “The problems lie in the good market and in the lack of integration,” he said.

Cohen stated that financial markets “do very little” to tackle the “silent crises” in the economy, which, systematically, every three years, and in combination with natural disasters, devastates developing countries. “The measures that are taken during natural disasters are not applied,” he lamented. To overcome the volatility of the price of consumer goods, these countries, which drag along the failure of reiterate attempts to stabilize, Cohen calls for a statistical calculation of the average market value of these goods over the past 5-10 years in order to “predict what their price will be, to cushion the crises and avoid bankruptcy.”

Another contradiction of financial markets that Cohen denounced is what he refers to as “crises in the form of prophecies.” This is how he referred to the confidence crises of financial markets as a result of an initial belief that a country is not solvent, thus leading to a the application of one of the numerous differentials in the interest rates of loans that are granted. In Cohen’s opinion, this is a cocktail that ends up throwing the country into bankruptcy as result of its inability to face its external debt. “In many cases, the burden of the interest owed surpasses the benefit of the growth generated through the loaned capital,” explained Cohen, who suggested that the solution could be “protecting the resources that are to be used for paying back the debt.” Cohen, who is in favor of the International Bankruptcy Tribunal, suggested that these countries issues sovereign bonds with collective action clauses, that would serve to “coordinate the creditors in the case of debt, thereby ensuring a swift reaction in the even of bankruptcy,” explained Jaume Ventura, a professor at Pompeu Fabra University in Barcelona. He applauded Cohen’s proposal, though he did point out the difficulties caused by the current “dispersion” of investors in sovereign bonds.

Labor Mobility Regulation
Cohen’s allegations in favor of regulating financial markets did also receive criticism. Dani Rodrick, professor at Harvard University in the United States, holds that “the important thing is to know the national priorities in the framework of the international support they receive, without it conditioning or regulating them,” he stated. Rodrick did say he was in favor of an international regulation that controls labor mobility in response to the prior speech given by Deepak Nayyar of India, in which he compared the mobility of professionals to that of capital. “The current social levels in advanced countries impose restrictions on the entry of labor because the welfare state cannot sustain itself in a situation of liberalized migration,” he said, in support of Rodrick Paul Krugman, a winner of the Príncipe de Asturias prize.