♠ Posted by Emmanuel in Credit Crisis
at 11/15/2008 01:09:00 PM
Today may be remembered as an important one in the annals of economic history; then again, it may be largely forgotten. The so-called Summit on Financial Markets and World Economy has been styled as a successor to the now-legendary Bretton Woods meeting. (See the natty logo I picked up from the US Treasury site.) Sebastian Mallaby and others have styled it as a 21st Century Bretton Woods, though those attending the summit are more circumspect. To me, their circumspection may prove to be correct in the sense that far-reaching changes in the global economic architecture will not be forthcoming. Not only is Bush a lame duck, but there are clear differences among the attending parties that won't likely be settled in one go.To begin with, I am rather dismayed that the US is hosting such a meeting given that it has contributed more than any other country to our current woes. In a manner of speaking, it's like Gary Glitter hosting a summit on "Protecting Children From Sexual Predators." Smart aleckiness aside, the choice of host is important as it can set the agenda for discussion. Call me a dyed-in-wool cynic, but I believe Bush's primary concern isn't arriving at long-lasting solution to current woes but of ensuring that even more drastic measures are not initiated which would undo what Bush and Co. believe are in America's best interests. As his father said in a similar context, "The American way of life is not up for negotiation." With a humbled US no longer in a place to make such an arrogant statement, mounting a largely empty dog and pony show is better than having others take the initiative.
With that in mind, I believe that the Bush administration would prefer things remain largely as they are with regard to global economic governance. In any event, let me mention a couple of things which may be on the table and their prospects:
(1) A final push in the Bush term for completing the WTO Doha Development Agenda - an effort at is a given, though a deal isn't by any stretch of the imagination provided things like undying French intrasigence on agricultural subsidies [also see a recent post];
(2) Tighter regulation of hedge funds and derivatives - the US has long resisted this but will probably have to give in this time around;
(3) Better LDC representation at multilateral financial institutions like the IMF and World Bank (especially by major emerging economies) - this is likely, though the purpose is tied to making others ante up emergency funding when many LDCs' finances are worsening;
(4) "Early warning system" or "college of supervisors" for global finance - a nice, empty UNesque gesture of little political cost to anyone is likely to prove, well, inoffensive;
(5) More oversight of credit rating agencies - let's face it: these institutions cannot help but be backward-looking as there is nothing much else for them to go on. From the Asian crisis to the subprime crisis to whatever future crisis, I am not convinced that they can remedy this fundamental flaw;
And moving to the more Francophone-ish agenda:
(6) Cracking down on tax havens - the US hosting this summit suggests to me that this is not going to be on the table in a meaningful way;
I have given further thought to this G-20 meeting: What would a more comprehensive package look like of interest to folks from the developing world? Let me say that I have few qualms about (1) through (6). It would be very good if a number of them could be agreed to in this and subsequent meetings. However, there are others that I am rather keener on, many of which are more meaningful to LDCs. Fortunately, I have the help of accumulated IPE Zone posts for these things:
(a) Creation of a genuine multilateral framework for migration - the gains to be had from further trade liberalization are trivial compared to those from further migration. If there ever was a poor man's agenda, migration would be it. Of course, it will be ignored at the G-20 despite the potentially overwhelming economic gains ranging up to an estimated doubling of world GDP upon removal of all migration barriers;
(b) Adoption of more comprehensive measures of well-being - measures of opulence such as GDP per capita capture a limited picture of human progress. In the same way that thinking like a hammer makes everything look like a nail, a "growth fetish" mistakes accumulation as the desired end goal as opposed to the proper view that such accumulation is only useful insofar as it facilitates fully human functioning. On this see [1, 2, 3];
(c) Moving away from quarterly earnings as measures of firm success - the whole system of make-or-break quarterly earnings pressures companies into adopting short-term outlooks that harm their various stakeholders. Just as (b) seeks to remedy hackneyed notions of progress for persons, this seeks to do the same for firms;
(d) Proper economic valuation of environmental considerations - conventional economics has rightly been faulted for being uneconomic when it comes to the environment. That is, finite natural resources are often treated as limitless resources, externalities of pollution are not properly accounted for, and so forth. There are blogs that regularly feature intelligent commentary on these topics; I leave it to them for a more comprehensive discussion of these matters;
(e) Seaching for life after export-led growth - the export-led growth model has been a development staple for so long. Yet with the likes of even Japan and South Korea now feeling pain over dwindling export markets, the time is nigh to think about designing products and services that appeal primarily to those in LDCs instead of the West. Let's face it: export-led growth works a treat only when you have people to sell to abroad. With a massive American slowdown in place, many LDCs will now have to think twice before becoming so export-reliant;
(f) Put in a real effort to remedy global economic imbalances - this crisis has exacerbated the worst tendencies of two important protagonists, the US and China. While private saving in the US is set to improve as marginally solvent Americans have no alternatives when they hit the wall, public saving will worsen to heretofore unreached levels. Thus, it remains to be seen if America's need for external financing will shrink in any meaningful manner. Meanwhile, China is doling out ever more export incentives to forestall the inevitable--a significant diminution in export growth. Again, more demand creation at home seems to be a more sensible path at this point in time.
(a) through (f) won't be on the table for reasons ranging from xenophobia to Lomborgism. However, any list of important matters for multilateral economic discussion would be remiss in leaving them off.
