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| Re-Thinking, Re-Designing and Re-Setting Values |
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By Božidar Đelić, Deputy Prime Minister and Science Minister of the Republic of Serbia The first crisis factor is certainly a financial gamble and an international financial system that is out of control. The pressure exerted by financial lobbies, especially in the United States, can be precisely determined in thousands of billions of dollars that the government had to pay via recapitalization and acquiring worthless financial assets, while at the same time, fearing that the entire system would collapse. Making the accounting standards even more lax is becoming absurd. Also, there was a problem with transitioning from market evaluation of stock to theoretical evaluation (!) which happened in the U.S. in April of last year which resulted in bankers being reimbursed with billions and billions of dollars in bonuses at the tax payers’ expense, amidst the terrible crisis. The second factor is global macro-economic imbalance. In only fifteen years, the disparity of the global current account balance grew fivefold from $200 billion to over $1,000 billion in 2008. In order to stop the crisis from spreading in the financial sector and spilling over into the real sector, the economic theories by Keynes have been gaining momentum. Last year, state subsidies led to an unprecedented state debt generated in OECD countries in excess of $5,300 billion, which is 9% of the afore-mentioned countries’ GDP. In 1993, Serbia lived through devastating hyper-inflation, the second worst in the history of humankind, prompted by Slobodan Milošević’s printing money without having real economic backing. That’s why we held our breath in March of 2009 when the central banks of Great Britain and the United States decided to do the same, under the pretense of “quantitative mitigation.” Although, this time around the circumstances were different, this decision was a surprising choice, to say the least, by those countries who had been teaching other states for decades how to implement a sound monetary policy while making sure central banks remained independent. In this context, we can rightly say that a new world is being created. Now the world no longer has the American super-power at its helm, like immediately after the fall of the Berlin Wall and the disintegration of the Soviet Union. This is not a multi-polar world either, like at the time of the Cold War, when power centers butted heads because of opposing ideologies. The economic growth of BRIC countries (Brazil, Russia, India, and China) is still high, i.e. much higher than in the developed world. In China alone, it stands at 8%. The influence exerted by new economies and oil producing countries has been gradually growing. We are witnesses of many regional and global initiatives that exclude western countries. ASEAN, for instance, is progressively turning into a united Asian market, just like the EU. In only two years, the financial sector has become completely transformed. In 2007, nine out of ten leading financial institutions (in terms of market capitalization which stood at $1,500 billion) came from the West or Japan. Today, 55% of the overall capitalization of the ten leading banks is in the hands of four Chinese institutions. The Central and East European countries, which have developed their financial systems the most, as well as the Baltic countries, have been hit the worst. However, Serbia and Southeast Europe were not as affected since their financial mechanisms are not developed to that extent. We should view this as a warning as to which economic model should we adopt and apply. We can also see that the crisis served as a sort of development impetus to industry, agriculture, economy of knowledge, with finances, services, and non-export sectors taking a back seat. However, we still haven’t found a new model of managing this new world, although the crisis did result in rather useful initiatives. G7 officially became G20 (which has already met three times), while Europe was quick to develop a joint operational framework. In the case of Lithuania, Romania, Hungary, and Greece, the advantages of being EU members or joining the euro zone have been very obvious indeed. Europe has also established a joint European Financial Supervision System and European Systematic Risk Council. For the first time ever, the fight against tax evasion and offshore centers yielded significant results in the U.S., France, and throughout Europe. The initiatives launched by President Barack Obama at the beginning of 2010 are pointed in that direction. Still, global management of the world is absent. There is no consensus about required bank capital, managing and limiting bonuses, or the so-called Tobin tax on all spot conversions. Decisions made by G20 are still not mandatory. The recent Copenhagen summit on global warming clearly demonstrated the risk of G7 turning into G2 rather than G20, and the risk of confrontation between the U.S.A.and China, where Europe and the rest of the world would be mere spectators. Climate issues pose a special challenge to Europe, since Europe has been the global leader in this area. Also, the Doha Development Agenda has still not been concluded. The German initiative for setting up the Economic Security Council in the UN failed to materialize. Countries are implementing uncoordinated fiscal policies which could lead to a new crisis where overindebted states would no longer be safe havens, like two years ago. Regardless of the irrefutable progress made in the last few years, the world and capitalism are still facing economic problems and there is no sustainable value system as yet. So, what needs to be done? First, we need to eliminate the two aforementioned causes of the crisis. Political leaders need to put state interests first in order to overcome the huge influence that financial lobbies exert. The current structure of bank balance and loans they provide to the real sector cannot please anybody. We should not subject banks to a new witch hunt, but rather reduce the system risks for the population and economy alike. We should reinstate the Glass-Steagall Act and split the biggest banks into two categories – low risk banks that will deal with retail and corporate sectors, and high risk ones that will operate on the capital market. Also, we should introduce certain mechanisms in order to avoid the syndrome of a bank being too big to fall down, and create a global reserve system as an introduction to a multi-monetary world. It is time for an institution like the World Trade Organization to be set up which would supervise the financial sector. Finally, the new global public goods like climate, water, energy, and health, should be good enough reason for G20 and other countries to get involved with the UN system and specialized international organizations in an effort to guide the world along a sustainable growth trajectory. For its part, Serbia is doing everything in its power to maintain the country and region’s stability and to continue to attract investments ($2 billion worth of investments were made last year), with the country’s expected economic growth of 2% in 2010. We are building an infrastructure that is of European importance, especially the road and railway Corridor 10. At the end of last year, we formally applied for EU membership, and our citizens are now free to travel to the EU without visas. Serbia’s aim is to become an appealing and constructive member of the European family.
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A discussion ensued about re-designing the existing world as painlessly as possible, while harmonizing national poli-cies, setting up supervision institutions, and reforming in-ternational organizations with the aim of preventing future downfalls and securing sustainable development. Re-thinking, re-designing and re-setting values, norms, and incentives that will re-shape the society, the global economic model, and the way we manage the world were the key topics of this year’s World Economic Forum in Davos.