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The current shock began with bankers in the principal role, and in the United States, which has taken this philosophy to the extreme. The leveraged buyout of businesses and the heavy personal debt among the people – with bankers taking full advantage of the situation – brought the whole house down. We blame the bankers, but in fact, the underlying principles are rotten.
Last month’s G20 summit in London put forth an outward show of unity among the world’s top economies. Internally, however, the French, German, Chinese, Brazilian and Indian leaders were critical of the lack of rules and regulations for financial markets. Brazilian President Luiz da Silva was so outspoken as to say that the current financial meltdown was a U.S. problem, albeit a free-market problem, created by the United States, which therefore should be solved by the United States.
French President Nicolas Sarkozy let it be known before the summit that he would walk out of the meeting if the United States and Britain kept insisting on increased debt and expenditures by other nations without limiting the power of Anglo-Saxon economics – in other words, bankers. He did not walk out, but he energized others to stand with him on this.
German Chancellor Angela Merkel, upset by the events of the last two years, sided with the French. She called for new rules on financial markets, financial products and participants including hedge funds and other private pools of capital that may pose systematic risks, saying they should all be subjected to appropriate oversight or regulation. She called this the continental European view, as opposed to Anglo-Saxon economics.
The Chinese remained mute during the G20 meeting – perhaps following British and U.S. advice, or perhaps feeling that their US$1.8 trillion in foreign reserves, obtained through currency manipulation, could be at stake if any changes were made to the present set-up. They were determined to oppose protectionism and currency reevaluation.
Indian Prime Minister Manmohan Singh was the best listener at the summit. India had nothing to offer; rather it needs the West to bring China-style development to India.
When world leaders criticize Anglo-Saxon economics, what exactly are they criticizing?
There is no quarrel over capitalism or liberalism. The last two-and-a-half millennia have seen the rise of empires practicing capitalism and enjoying its rewards. The British and later the Americans have taken undue credit for inventing it. It predates the Anglo-Saxon invasion of England after the fall of the Roman Empire in the fourth and fifth centuries AD.
The Indians and Chinese already had societies with profit-driven businesses that made them economic powerhouses when the Anglo-Saxons were still locked in a struggle for survival in England. The Silk Road trade came into existence without Anglo-Saxon influence. Alexander the Great was chasing money and glory when he reached the borders of India. The Europeans adopted capitalism because it was the only system available, with the Italians of Venice and the emperor of Constantinople leading the way.
All of Western Europe, including Britain, benefited from Italy’s commercial success. When the Dark Ages in England ended, a new dawn heralded commercialism – not at the expense of the agricultural society but to its benefit. A commercial revolution of sorts took shape from the 11th and 12th centuries onward.
When the British built their colonial empire they carried the free-market system to their new subjects. The United States, itself a colony, received this gift and prospered. The United States rebelled against England in 1776, but the free-market attitudes remained.
Continental Europe is not completely sold on Anglo-Saxon economics, but the Americans are. France, Germany, Eastern Europe, Spain and the Latin American nations influenced by Spain do not fully subscribe to a completely liberal model. In Europe there was no other model available except Marxism, which was tried and failed in the last century. Hence everyone was persuaded that the free-market economy was the only way.
The nations that oppose Anglo-Saxon liberalism do not believe that a state should be run like a corporation. They especially oppose the view that the state exists for the benefit of shareholders. They also have no confidence in the view that markets are self-regulating. They point out that the current financial meltdown could have been avoided if regulations had been in place to check financial excesses.
Continental Europe views the state as a socially conscious power structure. Business, commerce and finance are instruments of the state in which the general welfare of the people is paramount, rather than that of shareholders.
Luckily there has been some intermingling of Anglo-Saxon capitalism and socially conscious continental European ideas. Continental Europe has adopted a fair amount of capitalism and Great Britain has some characteristics of a welfare state. The United States is the most extreme in the direction of free markets, as evidenced by the fact that they spend the lowest percentage of GDP on social welfare.
Despite conflicting views, everyone agrees that something must be done to avoid future catastrophes. U.S. President Barack Obama thinks that all economically sound nations should have economic stimulus packages of their own. The idea is to spend their way out of recession. This idea is seconded by Britain but opposed by everyone else except China, which has introduced its own stimulus package. Being dependent on exports, China approves of stimulus packages because spending is good for its exports.
The only good thing to come out of the G20 meeting was that US$500 billion was added to the International Monetary Fund to help nations in trouble. The United States saved the IMF from a management overhaul lest it lose control over this useful foreign policy tool.
The theoretical arguments will continue, but in the meantime, legally binding and globally acceptable rules to regulate the global economy and financial markets must be enacted. In other words, banks will no longer be considered facilitators of the market. They will be servants of the people. Banks will acquire a much more political role, filling the power vacuum that self-regulated markets are unable to fill. “People power” will be the buzzword in the marketplace.
Take India for example; had it listened to the proponents of Anglo-Saxon capitalism and free markets for the last 20 years, it would be in financial ruins today. Nobel laureate Joseph Stiglitz recently complimented India for resisting pressure to deregulate its banking sector. He called India a bright spot, with 6 to 7 percent economic growth expected in an otherwise bleak year.
The state of the Chinese economy is unclear; it cannot be good with exports falling dramatically. But China has huge cash reserves saved for times like this. Unluckily, the Chinese cannot readily access their cash held by the United States and Europe; hence they may have more problems if the recession lingers. This is a serious reminder to them that the Anglo-Saxon free-market approach will sooner or later lead to trouble. Luckily for the Chinese, they control their banks well.
In short, Anglo-Saxon economics need not be consigned to the flames, but they do need to be overpowered and strictly controlled.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
