Analysis: The faith behind your bank

Felipe Calderon, Gordon Brown, Han Seung Soo, Kgalema Motlanthe, CNN, February 2009 (Video) (On the global financial crisis)

Interview by Soleine Leprince-Ringuet. February 25, 2009
(Creative Commons photo, Reuters/RFI.fr)

“Credit” comes from “credo,” i.e. “I believe,” notes Gordon Brown in this CNN-sponsored panel discussion. If today credit is lacking, it may well be because investors no longer share any common economic faith. The pure market capitalism model has been severely hurt by this crisis, just as the state economy paradigm had been killed by stagflation in the 1970s. With both models having shown their vulnerability to shocks, investors, workers, and consumers are left without any grand economic idea to lay their trust upon.

Hence, the world needs a new economic faith for it to embrace. That is at least the conclusion that arises from this rather exceptional interview, which brought together four heads of states from four different continents: President Calderon (Mexico), Prime Minister Brown (United Kingdom), Prime Minister Han (South Korea), and President Motlanthe (South Africa).


Their discussion about values for the world economy --held in Davos-- was sadly ironic. Davos had for many years been a forum for neoliberal ideas. But in these gloomy days, the debate is shifting back to what the foundations of the world economy should be. Signs of change have come, and it is no longer Milton Friedman and Arthur Laffer who are invoked as spiritual leaders. Rather the only economist mentioned here --and repeatedly-- is John Maynard Keynes, for whom the early twenty-first century might well be the height of a long post-mortem career.

The Weberian idea of a strong link between values and economic performance seems well established in all four participants’ minds. But if it is all good to have general principles and values to look up to, it is still unclear how these will translate into economic reforms. At the end of the Second World War, an appraisal of “solidarity” translated into welfare policies and state interventions. In the 1970s, the choice of “individual liberty” as a core value gave way to liberal policies favouring freer trade and capital investment. What kind of concrete economic policies will a renewed focus on “work” and “effort” for Brown, or on “frugality” and “thrift” for Han, lead to?

How is a new economic faith to be invented? Quite ironically, again, it is Mexico’s and South Korea’s leaders who are asked to provide their “expertise” on financial crises to their Western counterparts. With 30 crises in 25 years of time, Latin America has indeed well experienced the pains of the boom and bust. But what is striking is that in the Latin American debt crises or in the Asian financial crisis, the West still had the faith that a remedy existed, that absolution was possible: high interest rates and structural reforms. What makes this crisis so particular is not its economic impact, but the fact that because it originated in the epicentre of the world economy rather than in its periphery, no longer can countries set their hopes in any “magic potion” to sweep them out of recession. States and business have lost trust in the solutions of the past --the Washington consensus is far from being a consensus anymore, even in the United States. And yet it has not been replaced with any convincing paradigm.

One possibility is that the new paradigm brought about by the crisis will be regionalism. Indeed, with both U.S. leadership and neoliberal ideas damaged, it may be difficult for all World Trade Organization (WTO) member-countries to structure a global economic order. It could be easier to find values and trade-offs at a regional level than at a global one. Moreover, the countries and companies which have most suffered from the crisis are likely to pursue more protectionist measures, as is already the case in France (and the United States?).

What if regionalism does indeed become the cornerstone of the world’s new economic faith? This may represent a welfare loss for the global civil society. Indeed, large protectionist blocks are likely to result in trade diversion. Labyrinthine rules of origin could make international trade more costly and complex. And weaker countries are likely to be left out of these preferential trade agreements, hence their possibly ever-reduced chances of finally developing in full. For most of sub-Saharan Africa, the crisis is not only financial or economic; it is a long-lasting malaise which encompasses disease- and water-treatment along with education. So when the G20 pursues its quest for a new economic faith in the coming months, let it remember that this crisis will have different impacts for the world’s numerous stakeholders.

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