Davos, the largest ski resort town of Switzerland and the highest city in Europe, was once again host to the World Economic Forum. The political and business elite from all over the world gathered there to discuss social development and economic progress.
SHADOW OF FINANCIAL CRISIS
This year the Forum was expectedly dominated by the devastating global financial crisis although the organisers wished to have other topics like the environment and poverty to be on the agenda. For five days more than 2000 business and political leaders discussed ways to rebuild the shattered economic system. The Forum’s official theme “Shaping the Post-Crisis World” did not resonate with the speakers who seemed to be unsure about the depth and scale of the crisis and the time frame required for the world to come out of it.
THE BLAME GAME
Business and government leaders blamed the United States for starting the financial crisis that is turning into a global recession. Stephen Roach, chairman of investment bank Morgan Stanley in Asia remarked, “Davos just sort of encapsulates the broader global debate. We’re now moving into the ugliest phase of every crisis, the blame game. Wall Street made mistakes. Regulators made mistakes. Rating agencies made mistakes. Central banks made mistakes. Politicians made mistakes we all did it.” Roach added, “So let’s be careful that we don’t let this blame game get out of hand.”
Chinese premier Wen Jiabao was diplomatic when he blamed the crisis for “inappropriate macroeconomic policies of some economies and “prolonged low savings and high consumption” and “excessive expansion of financial institutions in blind pursuit of profit and the lack of self-discipline among financial institutions and ratings agencies”.
High profile global financer George Soros laid into the US Treasury and the Federal Reserve for triggering meltdown by failing to save Lehman Brothers. “How could Lehman have been left to go under?” he railed. “The responsibility lies squarely with the financial authorities, notably the Treasury and the Federal Reserve. The claim that they lacked the necessary legal powers is a lame excuse. In an emergency they could and should have done whatever was necessary to prevent the system from collapsing. That is what they have done on other occasions. The fact is, they allowed it to happen.”
GROPING IN THE DARK
“Everybody’s lost in Davos,” said Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy in Singapore. “No one seems to have a clear understanding of how big this crisis is and what we need to do to get out of it.” he told AP. “My own view is that you really need to do a fundamental re-examination of the whole global system to see what went wrong, and nobody here is yet ready to ask these kinds of fundamental questions in Davos.”
Klaus Schwab, the founder and executive chairman of the World Economic Forum called for a redesign of the global systems of banking, financial regulation and corporate governance. Terming it the “Global Redesign Initiative,” Schwab indicated that “there is a continuing mismatch between 20th century institutions and 21st century challenges and hence the international system needs to intensify collaboration and develop innovative solutions.”
South African Archbishop Desmond Tutu summed it beautifully when he said, “We worshipped in the temple of cutthroat competition, and so some cooked the books, because the treasure is so great. We spend billions on banks when we know that a fraction of this money could save all the children in the world.”
SHYING AWAY FROM THE TRUTH
Having realised a fundamental flaw in their economic system, the experts are aware that going back to the same ways of running the economy is bound to make the problem worse and only a complete diversion and search for an alternate system will yield dividends. Yet they continue to examine only man made theories and ideas and are trying to get quick fixes without going back to the basics.
Using words like fundamental re-examination and global redesign and calls for the creation of an international economic body, similar to the United Nations Security Council, to help avert the wrenching financial crisis currently engulfing the world seems a half-hearted attempt and may prove to be too little and too late.
THE UNAMBIGUOUS BASICS
Focus on the distribution of wealth and not just produce more and more for people to consume. Exerting all efforts in increasing the size of the cake, believing that it will somehow trickle down into the bellies of the hungry, is now a well established fallacy.
Basic needs like food, healthcare, education and employment must be guaranteed.
No hoarding or monopolising to control market prices.
Investment should be equity based where the risk is shared and not ‘interest’ based where the risk is solely held by the entrepreneur and not the bank that finances the capital.
ZIRP (Zero Interest Rate Policy) to assure market liquidity.
Focus on the real economy and not allow speculative financial instruments to trade without regulation, thereby expanding the economy virtually without any relationship to the market basics. The size of the world’s stock markets is estimated at $51 trillion, the world derivative markets are valued at $480 trillion, 30 times the size of the US economy and 12 times the size of the world economy. This bubble economy had to burst sometime or the other.
All types of short selling and forward trading needs to be cut down as people should not sell something they don’t own.
Currency must be backed by real gold or silver and no more fiat currency.
Winston Churchill once famously remarked, “Capitalism is the worst system except for all those others that have been tried.” After Reverend Archbishop Desmond Tutu, we hope next year the Davos organisers invite noted Islamic scholars like Yousuf al Qardhawi and Dr. M. Nejatullah Siddiqi.
[Arshad Shaikh can be contacted at [email protected]]