Maurice Allais: An Economic Visionary
At this time of crisis, when the international community, disoriented, is desperately searching for “prophets,” an article in Le Monde1 has highlighted the foresight of Nobel laureate Maurice Allais2, who as early as several years ago had warned of the risks that excessive speculation presented for the global economy. Le Monde took this opportunity to unearth a few excerpts from the book Allais published during the Asian economic crisis (La crise mondiale d’aujourd’hui, 1999), on the pitfalls of economic financialization, which has caused the market to increasingly resemble an enormous gambling table.
momagri Editorial Board
Selected excerpts:
“In 1974, massive speculation began to expand worldwide. 1983 was the start, in New York, of a period of breakneck expansion of gigantic markets for stock-index futures, stock-index options, hedge funds, and all derivative instruments, presented as cure-alls (…).
With speculation on the currency market, speculation in stocks, and speculation in derivative instruments, the world has become a vast casino, with gambling tables located at all latitudes and longitudes. The gambling and bidding, in which millions of players participate, never stops. New York prices are followed by Tokyo and Hong Kong prices, then London, Frankfurt and Paris prices. This speculation on all markets, feverish and frenetic, is permitted, fueled and magnified by credit. Never before has it reached such heights (…).
Never before, certainly, has such potential instability emerged with as significant a threat of global collapse.”
This excerpt quite skillfully casts light on the destabilizing power that speculators intervening on the capital markets have, and the marked disconnect they may cause to appear between reality and the financial world. The risks of the speculative bubble bursting were very high at the time, as in 1929, 2000 and, more recently, starting in 2007. An even closer look brings the striking realization that Maurice Allais’ observations fully apply to today’s agricultural commodities markets.
The agricultural sector, along with all other sectors, did not escape this trend of the past thirty years3 ; much to the contrary, financial instruments and reliance on forward markets in particular were long presented as cure-alls for agricultural risk. Although the buy and sell orders traded on these markets can undeniably play a role in ensuring some predictability for farmers’ incomes, their development has come with the disadvantage of encouraging speculative behavior, which exacerbates price volatility.
An ever-increasing number of actors are intervening on the agricultural markets; so much so, that an estimated 95% of futures transactions today are purely speculative, in that they never reach the liquidation stage. Given that motivations related to short-term profit gain lie very far from the food-related, environmental or even economic considerations specific to the agricultural sector, the risk that a speculative bubble will develop, and possibly explode, continues to grow.
This fact is what Maurice Allais was already denouncing in a broad sense in 1999, without quite garnering a genuine response from politicians. Indeed, at the time, his warnings against total market reliance and blind application of laissez-faire principles cut sharply counter to the neoliberal thinking then in vogue; and so despite his worldwide reputation, Maurice Allais was seen to be on incorrect ideological footing.
Since that time, a series of major crises has swept the rug from under the well-established neoliberal doctrine, which was incapable of proposing an effective strategy for ending the cycle of crisis; this, because (in the current case) the vaccine that doctrine proposes is crafted from the same viral strain that spread the illness: deregulation. Even though there has been some consensus (temporary and limited) in the financial world regarding the need to regulate, consensus over this statement has not even been reached among international agricultural policymakers, at the World Bank or the World Trade Organization (WTO). And yet, conditions are almost fully ripe for a change in our vision for the future. One irrefutable sign of this? The Madrid conference on food security, held from 26-27 January, ran aground as no decisions, even symbolic in nature, were reached.
We are nonetheless aware that situations do not change in the space of a few months. Time will need to pass before assumptions give way to reality. This was our motivation in building the momagri model; objectively show the impact of liberalizing international agricultural trade, by modeling, for the very first time, the endogenous risks to which the agricultural markets are exposed – i.e., by modeling the anticipations of farmers and those speculating on the forward markets. Consideration of these economic hypotheses largely rests, what is more, on the theoretical developments of Maurice Allais, whose contribution proved to be invaluable in developing the model.
The international crisis opened the door to a true realization of the implications of blind application of laissez-faire principles. It is time to leave ideological battles behind, and instead propose an effective exit strategy for the crisis that draws on the work of visionaries such as Maurice Allais. Indeed, two of the questions Allais considered in developing his thinking stand out in particular during this time of crisis:
> How can the economy be sheltered from external disruptions of all kinds?
> How can a truly appropriate institutional framework be defined nationally and internationally, to achieve the objectives of social justice and economic efficiency?
The ideas of Maurice Allais, firmly pragmatic, could prove to be particularly useful today, at a time when the international community is searching for ways establish a “new capitalism.”4
momagri Editorial Board
1 Le Monde, “Maurice Allais, prophète maudit,” published 24 January 2009.
2 Maurice Allais received the 1988 Nobel Prize in Economics.
3 Cf. Interview with Jacques Carles, “La financiarisation de l’agriculture est un drame pour l’humanité,” Planetlibre, summer 2008
4 According to the title of the most recent international colloquium, held 8-9 January in Paris, at which several dignitaries were present, including Nicolas Sarkozy, Michel Rocard and Tony Blair, along with Nobel laureates (Economics) Amartya Sen, Joseph Stiglitz and Edmund Phelps. |