Halt (stop) and help !

In my previous post I said that citizens should not feel powerless vis-à-vis the current economic crisis and leave its resolution to the policymakers. However, I’m afraid Western policymakers themselves are increasingly feeling powerless too. They do not seem to be able to stop the crisis.

Initially the focus was on irresponsible behaviour of the banks, but now Western governments are getting under fire. In France, where Sarkozy as chair of the EU was internationally praised for his energetic approach to the crisis, a large majority of the population (70% according to a poll) supported a wide-ranging strike against the government held yesterday. The strikers blame Sarkozy that he is responding inadequately to the crisis, and helping the banks but not the ordinary people. The BBC reported: “So where, the French people are now asking, did the 360bn euro shore-up fund to guarantee banks come from? This, at a time when the government was busy slashing thousands of public sector jobs, trimming pension benefits and planning massive cuts to the education budget.”

Yesterday, at the annual meeting in Davos, China’s premier Wen Jiabao blamed the US (and the EU) for the current economic breakdown. “Inappropriate macroeconomic policies,” an “unsustainable model of development characterized by prolonged low savings and high consumption,” and “the failure of financial supervision” all contributed, said the Chinese leader. He also attacked Western financial institutions’ “blind pursuit of profit” and their “lack of self-discipline”.

Premier Wen also blamed the Western-designed global financial system for the world's current economic problems. He said: “The current crisis has fully exposed the deficiencies in the existing international financial system and its governance structure. We should expand the regulation of the international financial system, with particular emphasis on strengthening the supervision on major reserve currency countries.” Pointing to “major reserve currency countries”, Mr. Wen clearly thought of the United States in the first place, as the system is still based on the US dollar.

I share premier Wen’s critique of the dollar-based global financial system. More than twenty-five years ago, in a long article, I blamed the same system for the outbreak of the debt crisis in Latin America and warned that it would create future international crises. In the following years, as director of FONDAD, I organised international meetings where, time and again, high-level experts discussed the flaws of the global financial system and suggested ways to remedy them. Policymakers participated in these meetings and welcomed the constructive ideas presented. But they did not have the willingness, energy or power to put them into practice.

Now we are in the midst of a mess that policymakers find difficult to address. We should not leave it to them to come up with a better system and better policies.

Why citizens need to express their opinion (and maintain hope)

Painting by Aafke Steenhuis

Everyone who is in a position to do so, should get involved with thinking and discussing ways to solve the current international financial crisis. “Don’t leave it to the economists!” warned Robert Triffin when I interviewed him more than twenty years ago in Louvain-la-Neuve. “Just as Clemenceau once said that war is much too serious a thing to be left to the generals, I think the economy is far too serious a thing to be left to the economists.”

Talking to friends and people I meet I notice disbelief and distrust that “normal citizens” can contribute to addressing the financial and “real” economic turmoil. Others, who write critically about the crisis in articles and blogs, seem to be absorbed by anger and a feeling of powerlessness and describe as gloomy a picture as possible – without hope.

We will not get a more stable, just and democratic system if citizens around the world keep feeling powerless. We better increase their (our) empowerment by imagining alternatives. The policymakers need democratic guidance; they need our views. Even though they might have some good ideas as to how to solve the crisis, we still need much more democracy in economic policymaking.

To keep things simple, I see three levels at which citizens can contribute. First, at the level of daily conversations with friends and others – stimulate each other to increase your knowledge and express your opinion. Second, at the level of public opinion – contribute to public debates in meetings and in media (including blogs). Third, at the level of discussions among economists – explore strategies that are broader and/or more in-depth than mainstream opinion among colleagues, and dare to be non-confirmist.

Citizens around the world, awake, and don’t feel powerless. Ask around, read, be informed and express your opinion.

The credit crisis and the crisis of capitalism

The credit crisis is a sign of deep problems of the capitalist world. But these deep problems are hardly considered by mainstream economists and policymakers trying to solve the crisis. Both groups tend to limit their scope and view. They see the resolution of the credit crisis mainly in terms of improved regulation and, possibly, some minor changes in the global monetary and financial system.

However, this is not the best way to find a long-lasting solution. Even though earlier crises were solved in the same way and even though the capitalist system has proven to be able to adapt itself to new circumstances, a broader approach is needed.

"Capitalism" and "capitalist" societies show different varieties. Capitalism in Germany is different from that in France, and capitalism in the US is different from that in China. The US is often seen as a "pure" or neoliberal capitalist society, but it has many governmental business-supporting institutions and mechanisms. Private companies are grateful for these mechanisms and have no problem in asking for government support, neither yesterday nor today. On the contrary, commercial banks and other companies have asked for massive government support and still continue to do so. And both the US government and European governments have been willing to provide the hundreds of billions of dollars private companies asked for.

The above illustrates two serious problems with the current steering of capitalist economies. First, there is a lack of vision in the policies pursued so far and envisaged tomorrow. Second, there is a lack of ideas and institutional mechanisms to make the economic policymaking more democratic.

The resolution of the credit crisis still lies in the hands of a very limited group of economists and policymakers. The rest of the world is merely bystander – hoping for the best.

"Dreaming" about ways to tackle the democratic deficit in economic policymaking is not a childish hope (see my post of November 27). It is an ideal politicians and citizens around the world should energetically defend. Addressing the democratic deficit in economic policymaking is one of the great challenges of our times. Citizens and politicians should take this challenge much more seriously.

Bill White: "The current financial system is inadequate"

On this blog I have included on various occasions the views of Avinash Persaud and Bill White (see e.g. posts of June 29, May 7, and May 4, 2008). A few days ago, Avinash sent me an e-mail to thank me and others for the support we gave to his work "on the inevitable failure of banking regulation". He referred to a column by Martin Wolf in the Financial Times who had praised, among others, Bill White and Avinash for their excellent writings on the dangers of a credit crisis.

I would like to draw your attention to a speech made by Bill White on the prevention and management of financial crisis. In the speech he addresses the important issue of whether the current international financial architecture is adequate.

"My answer must be that it is not," says Bill White. "Financial crises are generally enormously costly, and we have been faced with them repeatedly over the course of the last few decades. Indeed, we are currently in the midst of a crisis which, being at the heart of the global financial system, could turn out to be the worst of them all."

If you want to read Bill's analysis you can click here.

Childish hope

When making coffee in my Bialetti Venus 4 I thought: the reason I have difficulty in writing that long article which includes the views of Triffin, Witteveen, D'Arista, Kenen, Williamson, Sheng, Persaud, Woo and others is that I realise too many written pieces are waiting to be read, and long articles will never be read seriously, I mean seriously by people who should read them as they are the ones taking decisions about the future course of the world economy.

I also thought: the plea, the longing in my post of yesterday is too idealist, too childish, because how can you expect or hope (esperar expresa ambas cosas) that we may live one day in a world where everybody has equal chances?

However, it is that hope or longing that inspires my work.

Is it too early?

Who has a vision of the future of global finance and the global economy? It seems that most social scientists and other thinkers are absorbed by crisis management.

Is it too early to think about a different world, a world where everybody is enjoying economic stability and the benefits of economic welfare?

Is it too early to envision the vision, the global institutions and the global and national institutional attitudes needed to realise such world?

My uncle Gino's advice

When I look at my face in the mirror while shaving my beard, I always think of my uncle Gino from Toronto, who used to give investment advice (he had his own investment letter for many years). One morning, the only morning I stayed at his home near Toronto, he told me that I did not need to hurry when shaving, as this would not finish the job more quickly. "Just do it quietly," he suggested.

This morning I had to think of my uncle Gino's advice when I was hurrying back to my computer to finish a post I've wanted to write for a long time, about visions of the future of finance in the global system. Why should I be in a hurry, I said to myself, if it won't speed the writing of a good piece?

The picture shows my uncle Gino in his youth, in the Netherlands. He died a couple of years ago, in Canada, the country that had become his new home when he emigrated in the late 1940s or early 1950s. I know him as one of my many uncles and aunts in Canada (my brother also lives in Canada). Gino was a successful investment adviser until he lost his money, not because of an international credit or debt crisis but because of something else.

PS: I see that the original date of drafting the first two paragraphs of this post appears as the date of this post. However, today it's 25 November 2008 and not 13 October 2008, so "normally" I would have felt that I should hurry to finally finish that post on visions of the future. But, listening to my uncle Gino's advice and seeing the speed of information and the speed of financial transactions as one of the problems of global finance and development, I know that slow writing (and slow financial transactions) may make a better contribution to world stability than all this frenzy chasing after financial news and financial opportunities.

Es esa locura de "breaking news" y "today's financial opportunities" (Act now!) en que vivimos que es una de las causas de la crisis... It is this madness of "breaking news" and "today's financial opportunities" in which we are living that is one of the origins of the crisis...