Download this report in PDF
On May 17th and 18th, 2012, the President of the United Nation’s (UN) General Assembly and Secretary General jointly convened a High Level Thematic Dialogue on the State of the World Economy. High level thematic dialogues are used by the UN to address important challenges that are not being thoroughly addressed conceptually by standing departments and committees of the UN
In his remarks, Secretary General Ban Ki-moon called for a “conceptual revolution” in addressing what was wrong with the world economy. Other speakers insisted it was time to “think outside the box” or that “business as usual” will not trigger enhanced, economic growth. The old model is believed broken: it is four years from the 2008 collapse of credit markets and no real reforms have been put in place.
I believe it was a moment for innovation – a perfect environment in which the Caux Round Table (CRT) and our partner, the Convention of Independent Financial Advisors (CIFA) – should step forward and lead.
The dialogue was called by the majority of member states who are left out of G8 and G20 discussions on global financial architecture. Their perceptions were that the strong economies failed in the 2008 collapse, the ongoing crisis of Eurozone finances and in tolerating systemic imbalances in current accounts and financial reserves, which led to unsustainable swings in global finance. The majority of these countries view themselves as dependent on the wealthy ones for investment, absorption of exports, steady currency values and reasonable prices for energy and food. They believe they suffer most when the global financial system performs poorly.
These countries voiced three main concerns: 1) growth to create jobs; 2) moderation in the prices of energy and food; and 3) investment in their economies.
The perception was that the world economy has not delivered on these essential outputs. Growth has not resumed sufficiently to make up for the losses in employment, income and production caused by the 2008 collapse.
Qatari Ambassador, Nassir Abdulaziz Al-Nasser, President of the General Assembly, stated that the pressing issue was global recovery – escalating inclusive development to reduce poverty, while sustaining the environment and its future fecundity. The role of the UN, as compared to the G8 and G20, was to be the only inclusive, multi-lateral forum, where a common vocabulary and agenda for real action could emerge. A system is needed which can provide sufficient jobs under conditions of climate change and growing resource scarcity.
On May 19th, G8 leaders met at Camp David with President Barack Obama and declared that “Our imperative is to promote growth and jobs.” But, how is this going to be accomplished? Therein, lies the rub.
Paul Volcker, former Chairman of the Federal Reserve, reminded participants that only private sector trade and finance lead to growth. Imbalances and speculation lead to financial strains. He said we are faced with no intellectual or political consensus on what is to be done, which has produced a paralysis of will and contributed to policy stagnation. The need, therefore, is to think well before acting – to arrive at a consistent set of rules for bank capital requirements and accounting conventions and a commitment to open markets. He called for a partnership between private capital, business and national public responsibility.
José Manuel Barroso, President of the European Commission, said that irresponsible, private behavior, coupled with lax regulation, led to the misallocation of capital, which added to public expenditures, which increased public debt levels, producing the current crisis in the European Union (EU). The EU governments, he affirmed, have delivered a robust response of creating firewalls between unsustainable financial practices, reforms of government programs and help to vulnerable, member states. The EU now recognizes that debt-fueled demand to stimulate growth is unsustainable. Fiscal consolidation is needed to cut borrowing costs and provide confidence for financial markets. New infrastructure projects will be financed with bonds secured by such projects. More capital has been contributed to the European Development Bank to finance new loans. The EU is a political process, not just a source of monetary advantage. It is facing up to its internal needs and international obligations.
Leaders and ambassadors, from a variety of countries, spoke to the common theme: the financial system must be placed in service of the real global economy. This high level dialogue was far better at defining the problem than in providing specific guidelines for actions that would accomplish that objective.
In the subsequent dialogue sessions, I was made aware of how ahead of the curve the 2008 recommendations of the CRT’s Global Governing Board had been. The CRT’s understanding of the ethical responsibilities on the respective parts of business and government is still cutting edge, with 4 years of hindsight now available – a most credible record of intellectual leadership, but a poor reflection on the actual leadership which has been confronting our global economic shortfalls.
The CRT’s ideas, along with the insights provided by our colleagues from CIFA, were very welcome. Jean-Pierre Diserens, Secretary General of CIFA, expressed his belief that private investors now have little to no trust in great financial houses, regulators or in sovereign responsibility. Without trust, markets stagnate and investment-driven growth is fitful. Professor William Black of the University of Missouri-Kansas City reminded participants that criminality is a constant in private affairs; no system of private ordering is entirely free from predators. In financial intermediation and corporate profit-seeking, it is often “control fraud” – providing misleading information that permits executives to “loot” companies of current income, as was the case with Enron. Under these procedures, current income is privatized and long-term losses are socialized to owners or the public.
--- end ---