|
Europe's politicians have long expressed ambivalence about the virtues of financial markets. But last week they turned up their scepticism to near-maximum volume.
Reflecting a sharp leftward lurch in Germany's political discourse, Horst Kohler, the president, demonised global financial markets as a "monster" that must be put back in its place. He compared modern bankers to medieval alchemists, saying they were responsible for the "massive destruction of assets".
Nicolas Sarkozy, France's president, has similarly denounced financial speculators, calling for a "re-moralisation" of capitalism. In Italy, Silvio Berlusconi has returned to power thanks to a campaign that expressed deep misgivings about globalisation. European Union finance ministers have also been busy condemning the "social scourge" of excessive executive pay.
The Dutch government is even pushing a law capping executive payouts.
It would be easy to dismiss all this anti-capitalist noise as the overwrought - and at times tiresome - rhetoric trotted out by European politicians to deflect attention from their own economies' shortcomings. Blaming monstrous outsiders is so much simpler than implementing the self-evident - but politically painful - market reforms that would benefit the most marginalised members of their own societies.
In so many areas, Europe still needs more market, not less. The relationship capitalism of the Rhineland model, based on intimate links between governments, banks, industrial groups and workers, may have proved wonderfully effective in the postwar world. But this form of capitalism has proved glaringly deficient in fuelling innovation and entrepreneurship needed to build vibrant 21st century economies. Kohler risks provoking further hostility to the vital financial forces that are already reinvigorating Europe's economies.
This line of argument is more than partially true. Yet there is a more benign interpretation of Kohler's remarks, especially considering that he is a former head of the International Monetary Fund.
First, it is hard to argue that he does not have a point. Many banks have indeed acted with monstrous, verging on criminal, irresponsibility. They originated and distributed toxic products that poisoned credit markets. In many cases the link between risk and reward has been snapped.
Second, Kohler is reflecting growing public concern, if not outright anger, about developments in the banking and corporate world. All this is being played out against a background of increasing unease in the developed world about the negative effects of globalisation and rising inflation. The latest global public opinion survey published by the Pew polling organisation in October 2007 showed that support for free trade had dropped sharply in Europe - and even more so in the US - over the past five years.
Describing Kohler's comments as "welcome and well judged", John Monks, general secretary of the European Trade Union Confederation, suggests that Eur-ope's politicians are finally catching up with reality. "I do not think they are criticising the essence of capitalism, but its excesses. They are criticising what they see as a certain type of capitalism which has expanded enormously since the liberalisation of capital markets particularly in the English-speaking world in the 1980s," he says.
In his compelling history of global capitalism in the 20th century, Jeffrey Frieden, the Harvard professor, noted that globalisation was not a one-way process. It could be - and has been - reversed, with tragic results. Two conclusions could be drawn from the 20th century's experience. "First, economies work best when they are open to the world. Second, open economies work best when their governments address the sources of dissatisfaction with global capitalism."
The challenge for the 21st century, he argued, was therefore to "combine international integration with politically responsive, socially responsible government". How well does he think governments are responding today?
Globalisation
"In the US - and to a lesser extent Europe - globalisation is no longer presented in a positive light. It has become a dirty word," he says in a telephone interview. "There was too much euphoria about globalisation before and too much scepticism about it now." This is partly because developed countries - the US in particular - have done poorly in cushioning the negative effects of globalisation, he says. However, this issue has moved to the top of the political agenda.
For the moment, at least, the policy response in Europe seems a lot less drastic than the politicians' neo-protectionist talk would suggest. Although Kohler's rhetoric may owe much to Karl Marx, his remedies come straight out of the IMF: tougher regulation, higher capital ratios for financial institutions, greater transparency and more global oversight of financial markets.
Although Monks would like governments to do more to recreate stakeholder capitalism, he certainly does not expect any sweeping re-regulation of Europe's economies - especially given that the financial services lobbyists are "more agile than a wagonfull of monkeys".
Prof Frieden suspects that European - and global - economic integration will continue, but that there will be a "mid-course revision".
Given what has happened in financial markets over the past few years that may be no bad thing.
|
