On board Air India One: The “seven big messages” that Prime Minister Manmohan Singh saw emerging from the Washington Summit on Financial Markets and the World Economy include a celebrated Keynesian formulation that is surely unpalatable to the event’s orchestrator and host, President George W. Bush.
This is a message relating, in Dr. Singh’s words, to “the harm that excessive speculation can do.” In this connection, he appears to have surprised his G-20 audience by quoting from John Maynard Keynes’s great 1936 classic, The General Theory of Employment, Interest, and Money: “Speculators are harmless as bubbles on a steady stream of enterprise. But the position is serious if enterprise becomes a bubble on the whirlpool of speculation. When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.”
Mr. Bush, on the other hand, continues to celebrate the unfettered free market and opposes any move towards regulatory stringency advocated by the likes of France’s Nicolas Sarkozy. The concept of a Keynesian stimulus is anathema to Mr. Bush’s far-right ideology. “Those of you who have followed my career,” he said summing up the outcome in typical Bush-speak, “know that I’m a free market person — until you’re told that if you don’t take decisive measures, then it’s conceivable that our country could go into a depression greater than the Great Depression’s.”
Mr. Bush claimed, against the evidence, that the United States had taken “some extraordinary measures” in response to the crisis of the financial system and further that “the significant actions we’ve taken are beginning to work.” This is certainly not the reading of tens of millions of Americans who feel that this administration is only for the fat cats. Their vote for change was propelled, in large measure, by the deep unpopularity of the Bush administration, especially on economic issues. Nor is it the reading of Congressional Democrats who have abandoned hope that the present lame-duck session of Congress, with Mr. Bush in his last two months at the White House, will achieve anything worthwhile. They have decided to defer the initiation of any major fiscal stimulus plans until after Barack Obama is inaugurated as President.
In his intervention on Saturday at the Washington Summit on Financial Markets and the World Economy, Prime Minister Manmohan Singh offered his fellow summiteers an economist’s analysis of how “the financial crisis has exploded into a systemic crisis affecting the whole world” and demonstrated that “we are in a globally integrated world and globally coordinated action is essential.”
Developing countries were in a peculiar situation: they were, asserted Dr. Singh, “not the cause of this crisis, but they are amongst the worst affected.” He warned that the contraction of exports, a credit crunch, and lower flows of capital and foreign direct investment would “slow down their economic growth … [and] push millions of people back into poverty, with adverse effects on nutrition, health, and education levels.” Further, they would “reduce growth impulses in the world economy.” Bring the present crisis “under control as quickly as possible” had to be the immediate priority.
Of the “seven big messages” that Dr. Singh saw emerging from the Washington summit, the first was the recognition by all the G-20 leaders that “this is a global crisis and therefore calls for a global response.” Secondly, “the continuing weakness of the real economy suggests that the steps we have taken to increase liquidity must be supplemented by a coordinated fiscal stimulus.” The third message was the need to take special steps to provide resources to developing countries; towards this end, the World Bank and the International Monetary Fund must be provided with adequate additional resources to fulfill their new responsibilities.
The fourth message highlighted by Dr. Singh is hardly radical: the need to introduce regulatory reforms in the financial system “improving existing standards and aligning them internationally.” The fifth message was that “we need much better multilateral surveillance of both macro economic and financial developments.”
In this connection, Dr. Singh welcomed the signal in the communiqué to expand the Switzerland-based Financial Stability Forum (FSF). He also wanted the G-20 leaders to work for “a reform of the global financial architecture, which must include a strengthened IMF and one which is more broadly reflective of changing economic realities.”
Dr. Singh identified the sixth message emerging from the summit as the imperative of avoiding “a retreat into protectionism.” Towards this end the WTO’s Doha Development Agenda needed to be brought to an early conclusion “achieving a balanced outcome.”
The final message was on the harm done by excessive speculation, by enterprise becoming “a bubble on the whirlpool of speculation.” Many in the audience would have admired the eloquence of Lord Keynes but it is not clear how many G-20 leaders — who will presumably be joined by Mr. Obama when they meet in London around April 30, 2009 — are willing to go as far as this saviour of capitalism proposed at a time of unprecedented crisis in another age.
7 months ago