BBC News is running a series of commentaries this week by economists on the challenges facing the global financial system. Today, Jayati Ghosh considers the implications for India.
Jayati Ghosh is Professor of Economics at Jawaharlal Nehru University
The financial crisis has drawn attention away from an important feature of the preceding boom: it created much more inequality, with the poor effectively subsidising the rich.
This was true internationally, as central banks of developing countries parked their growing foreign exchange reserves in the US, so that the South provided net finance to the North, instead of using such resources for its own development.
It was also true within countries, as profits soared but wage shares of national income declined sharply and agrarian distress persisted.
India is seen as a big success story of globalisation, but only a minority of Indians benefitted materially from the high growth.
Formal sector employment stagnated, real wages for most workers actually fell, nearly 200,000 farmers committed suicide in the period of 1995-2006 alone, and there was an increase in the millions of hungry people and malnourished children.
The neo-liberal economic model was always intellectually vacuous, but now we know it is also dangerous and destabilising
So the recent growth was not inclusive. But unfortunately the slump will be only too inclusive, forcing those who did not gain earlier to pay for the sins of irresponsible and unregulated finance, through their own loss of livelihood and reduced living standards.
To prevent this, globally we need a clear change in economic strategy.
Obviously, finance must now be controlled and directed.
But it is equally important to increase public expenditure: to revive demand in flagging economies, to manage the effects of climate change and bring in widespread use of green technologies, and importantly, to provide minimally acceptable standards of living for citizens of the developing world.
We must promote redistributive taxation and other policies to reduce economic inequalities, both within and between countries.
The neo-liberal economic model was always intellectually vacuous, but now we know it is also dangerous and destabilising.
The world has a real opportunity to abandon this bankrupt paradigm and replace it with more sustainable and democratic alternatives.
Jayati Ghosh is Professor of Economics at Jawaharlal Nehru University, in Delhi, India.
Also in the series:
Linda Yueh: China, engine of growth