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| Zzzzz...Barack yaps too much...will set things straight in WaPo...zzzzz... |
I am utterly perplexed by this recent, bizarre
op-ed by former US Treasury Secretary Larry Summers in the
Washington Post. In many respects, he embodies negative stereotypes others (justifiably) have of Americans in general: fat, loud, self-important--and crucial for this post--hypocritical. After all, this is the
same guy who turned from grand architect of financial deregulation not only in the US but also worldwide using the American bully pulpit to financial regulator in the wake of the global financial crisis. Having played a part in bringing the latter on, he sought to downplay its proximate causes leading to, well,
him. To no one's real surprise, Summers is at it again while voicing his superior American insights to us unenlightened colored folks on How To Fix the World.
The historical reinvention he is attempting to make this time around concerns what I've mentioned above--use of the American bully pulpit. In decades past, American influence in international finance usually involved the Bretton Woods institutions--the World Bank and IMF--serving this purpose as the world's largest development lender and lender of last resort, respectively. Very oddly, he claims that the United States' loss of face as a result of so-called allies rushing to be charter members of China's newfangled Asian Infrastructure Investment Bank (AIIB) was avoidable:
But I can think of no event since Bretton Woods comparable to the
combination of China's effort to establish a major new institution and
the failure of the United States to persuade dozens of its traditional
allies, starting with Britain, to stay out.
This failure of strategy and tactics was a long time coming, and it
should lead to a comprehensive review of the U.S. approach to global
economics. With China's economic size rivaling that of the United States
and emerging markets accounting for at least half of world output, the
global economic architecture needs substantial adjustment. Political
pressures from all sides in the United States have rendered the
architecture increasingly dysfunctional.
Largely because of resistance from the right, the United States
stands alone in the world in failing to approve International Monetary
Fund governance reforms that Washington itself pushed for in 2009. By
supplementing IMF resources, this change would have bolstered confidence
in the global economy. More important, it would come closer to giving
countries such as China and India a share of IMF votes commensurate with
their increased economic heft.
At the same time, pressures from the left have led to pervasive
restrictions on the infrastructure projects financed through the
existing development banks — which consequently have receded as
infrastructure funders, even as many developing countries have come to
see infrastructure finance as their principal external funding need.
Actually, I am in agreement with the above: the United States should not only say that it welcomes the participation of other countries in global economic governance as they have become major economies in their own right, but also take the necessary steps to reform the World Bank and IMF. What's more, I agree that global economic governance should not be held hostage to domestic US politics:
First, U.S. leadership must have a bipartisan foundation, be free from gross hypocrisy and be restrained in the pursuit of our
self-interest. As long as one of our major parties is opposed to
essentially all trade agreements and the other is resistant to funding
international organizations, the United States will not be in a position
to shape the global economic system.
Other countries are legitimately frustrated when U.S. officials ask
them to adjust their policies — only to then insist that state-level
regulators, independent agencies and far-reaching judicial actions are
beyond their control. This is especially true when many foreign
businesses assert that U.S. actions raise real rule-of-law problems.
The legitimacy of U.S. leadership depends on our resisting the
temptation to abuse it in pursuit of parochial interest even when that
interest appears compelling [my emphasis]. We cannot expect to maintain the dollar's
primary role in the international system if we are too aggressive about
limiting its use in pursuit of particular security objectives.
Wow, this Larry Summers guy really
sounds like a statesman...at least on par with Lee Kuan Yew! The only problem is that this "dysfunction" and "gross hypocrisy" can again be traced to, er,
him. The AIIB is but the latest manifestation of other countries wishing to address their financial challenges...but the US trying to frustrate them. During the Asian financial crisis, Summers was the American official tasked with dissuading others from creating international financial institutions not dominated by the US. From
yours truly in a
handbook on international monetary relations:
Just as James Baker vigorously sought to kill
the East Asia Economic Caucus behind the scenes for excluding America, so did
Clinton-era officials seek to undermine plans for an “Asian Monetary Fund” (AMF)
when they caught wind of its proposed existence [during the Asian financial crisis]. For instance, US Deputy
Treasury Secretary Larry Summers called Vice Minister for Finance Eisuke
Sakakibara—better known as “Mr. Yen” in trading circles—at his home at night,
starting a testy conversation opening with “I thought you were my friend”. Seven days later on 21 September 1997, Japan tabled the
formation of a $100 billion AMF at the annual World Bank-IMF meetings held that
year in Hong Kong, but it proved to be a stillborn gesture due to entrenched
opposition. Despite concessions such as statements to the effect that the AMF
would supplement rather than bypass the IMF by increasing the monetary
firepower available in dealing with monetary crises, objections were made on
the lines of moral hazard and duplication of efforts vis-à-vis the IMF.
The phone rang on Saturday night, September 14, 1997, at the Tokyo home of Eisuke Sakakibara, the Japanese vice minister of financial for international affairs. The caller was Larry Summers, obviosly angry and apparently in no mood for conversational niceties. "I thought you were my friend," he sputtered.
Bottom line: the "failure of strategy and tactics" Summers faults the Obama administration with regarding AIIB can be traced to himself and other American predecessors. Nobody's changed them yet. They've always been haughty and smugly self-important like Summers, but the difference is that, unlike say Japan in 1997, the likes of China now have enough influence to sway others to ignore American pleas to stick with US-dominated institutions like the World Bank and IMF. That's all, Larry, and there's no need to come up with some alternative US economic history in which others are to blame insofar as you exemplified exactly this sort of attitude way back when.
It was not so long ago. I remember and do not forget.
