November 07 , 2008

World Summits to Devise Ways to Overcome Global Economic Crisis

 

Leaders of the United States and Europe have proposed a series of world summits in order to develop a consensus on ways and means to overcome the current global financial crisis. President Bush is expected to host the first such global gathering after the November 4 presidential elections.

The idea was developed at a meeting at Camp David, Presidential retreat, between President Bush, President Nicholas Sarkozy of France and the President of the European Commission, Manuel Barroso. Mr. Bush is reported to have already discussed the proposal with Prime Minister Taro Aso of Japan.

Mr. Bush has emphasized that the summit, called in the wake of the worst financial crisis since the Great Depression, should “preserve the foundations of democratic capitalism - a commitment to free markets, free enterprise and free trade”.

Mr. Sarkozy has, on the other hand, called for an overhaul of the current international financial architecture set up after WWII at the conference of Western leaders held at Bretton Woods, New Hampshire, in 1944 towards the end of the war. (For full backgrounds, please read  my column in this very space in Link’s issue of October 24). 

Market forces, exploiting the flaws in the system itself or the laxity in its regulation, have taken almost all economies of the world, interlinked through globalization, to the brink of a disaster. Top-level financial managers in the US and of the other economies have speedily moved to buttress the system by injecting heavy flows of money to keep the fiscal wheels well lubricated and moving so that there is no repeat of the horrible depression of the early 1930s. Yet, the slide continues. 

Free market economy, or “democratic capitalism” as Mr. Bush prefers to call it, is driven by an unremitting pursuit of profit, and Mr. Adam Smith’s “invisible hand” has rarely moved of its own accord to promote a gregarious society. The policy of laissez faire served well the industrial powers of Europe during Mr. Adam Smith’s lifetime and even a century after that when country after country of Asia, Africa and Latin America came under the yoke of colonialism. Slavery was rampant in North America. All that is history now; but it does point out the inhumanity of greed and profit if left un-reined.  Multinational corporations are roaming around the world now in pursuit of their greed much like the gunboats of the colonial period. Globalization has made the world flat for them – no custom’s barrier, no hurdle by the assertion of the sovereignty of a small state, no currency convertibility issue, instant communication through satellites and so on.

Corporations and international market forces may be highly potential and powerful, but they cannot match state power that is backed by standing armed forces. If there is a consensus among world powers to keep operating the “democratic capitalism” and remain committed to market economy and free trade, they can indeed do so. That is exactly what is being tried right now as major players  - with the US and UK in the lead -  keep throwing enormous amounts of money on the market to calm it down. 

But, as the French President has unequivocally remarked, “The policy of laissez faire is dead”. Voices for a change in the system, for a more humanitarian and rational dispensation, are heard in all parts of the world. Mr. Barack Obama had “change” as the central theme of his campaign. He is no frothing demagogue, no communist leader masquerading as a socialist. He actually is a highly educated, patriotic and pragmatic leader who has correctly assessed the nation’s aspiration for a change.

The fiscal turmoil  pushing the economy into a deep recession and the US misadventures in Iraq and Afghanistan call for immediate policy shifts and remedial measures.  The actions taken by the Bush administration to pacify the economic turmoil have been criticized by some of his own party’s radicals as a severe deviation from the precepts of free market economy and laissez faire. Yet, the government intervention involving almost a trillion dollar has not yet restored the sagging public confidence.  This has prompted the administration and leaders of the capitalist system to look up to “the rich man’s club”, the World Economic Forum, to strengthen faith in the efficacy of the existing system.

The significance of the first ever meeting of the regional World Economic Forum for Europe and Central Asia, held in Istanbul from Oct 30 to Nov.1, 2008, may be seen in that context. Prime Minister Gilani attended on behalf of Pakistan. The three-day meeting ended on a note of cautious optimism arguing that the enormous growth potential of the region was likely to soften the impact of the fiscal crisis considerably. Turkish PM pointed out that the crisis “has sent the world a message concerning the unbridled desire for profits” and underlined the need for a new world economic order.  Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, presented, as expected of him, the silver lining: “A crisis is an opportunity and we have to use this opportunity to create sound conditions for economic growth in the world”.  A great proponent of globalization, he emphasized in his opening address the need to accept the interdependence and interconnected of the world, and the necessity to find new ways to global cooperation. Several economists of the developing countries have, on the other hand, maintained that globalization had engulfed their fragile economies in the turmoil.

To present and pursue their own points of view, leaders of the poor and down-trodden have also set up an organization –The World Social Forum - that has been holding annual meetings in various parts of the world since 2001. The World Economic Forum has been in existence since 1971.

These two organizations represent the conflict of interest in the existing system. Ruthless pursuit of profit by the managers of banks, investment set-ups, insurance companies and other top fiscal operatives, has caused the cracks in the well-knit capitalistic system necessitating the bailout packages. Third World’s weaker economies have been worst hit.  A few years back, the World Bank had pointed out that a sixth of the world population living in North America, Europe and Japan received 80 per of world income, while 57% of the world population in the 63 poorest countries received only 6 per cent of the world income, an average of $2 per person per day.

This disparity had little to do with the current world fiscal crash. But, no stable system could be introduced without concrete measures to alleviate the glaring poverty.

We are witnessing the fading days of the Bush administration. He is leaving behind a legacy of failures in foreign affairs, discrimination through the Patriotism Act against sections of his own people, upending so many basic tenets of this decent society, and now the fiscal crash. As Speaker Nancy Pelosi has said, he has been a failure in all departments of national life.

One hopes that the summit he proposes to call on the current economic crisis will be held under the leadership of a new President and that it will introduce a new world economic order by eliminating the weaknesses noticed over the past 64 years since the Breton Woods conventions of 1944.

                   arifhussaini@hotmail.com