Proponents of the “invisible hand” theory coined by Adam Smith will respond with a screaming “Yes” to the notion that the market issues will eventually resolve themselves. I was reading Al-Qabas daily today when I stumbled upon another proponent of the invisible hand theory; It isn’t Milton Friedman, but our Deputy Prime Minister for Financial Affairs. He too proposes that the Kuwait Stock Exchange cleanse itself. I personally oppose such a stance not only because my nickname is Keynesian and I advocate a more prominent government role especially in a market failure situation, but also because I believe our stock market doesn’t have the necessary structural elements to cleanse itself. For example, there are no bankruptcy laws and we don’t have a Capital Market Authority yet.
Where do you guys stand?
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well i think you’ve got structural problems that go far beyond the stock market to every corner of kuwait’s monolithic government-driven economy.
the fact remains that the government controls the source of all economic activity in kuwait i.e. oil reserves. it also has monopolies over production and refining and related industries. the income generated from this activity delivers the fuel for the rest of kuwait’s GDP. without it there would be effectively not much else considering that none of the pre-oil industries remain viable and no new ones have developed. consumer spending would dry up without the income the goverment pays to 90%+ of the working age populations and that is ultimately sourced from oil income.
in short, since the government wants to drive the whole economy why does it think it can leave the stock market to its own devices?
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Complete overhaul.
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Good food for thought. Market efficiency is a distant dream for the developed western economies as exposed by the current financial crisis; for frontier markets this is a hallucination to say the least. For the finance minister to come out and hope for market efficiency to cure the KSE is as good as me going to my garden and start dreaming of hitting oil if I start digging. The need for the hour is effective regulation. The problem is that there is no framework to develop and enforce regulations. Kuwait is not the only country faced with this issue; almost all the emerging economies are facing similar hurdles. Where Kuwait is falling behind is in developing a plan to lay the foundations for developing an effective regulatory framework in the future years..
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