Who's it to be - the German compromise candidate of Willem Duisenberg, a Dutchman who presently chairs the European Monetary Institute, or the prickly, no-nonsense Frenchman, Jean-Claude Trichet, governor of the Bank of France? Once the single currency is introduced, this position will become one of the most powerful positions in Europe. Both candidates for the post were in town for the conference, as were a number of leading European Commissioners, including Jacque Santer and Sir Leon Brittan.
Here, then, was the making of a story. What a coup for Davos and its organisers if they could pull this off, something which so far the British presidency of Europe has failed to do! It was a valiant attempt, but one that was perhaps doomed to failure. In the end Davos confirmed its reputation as more of a talking shop and place of reconciliation than one where things actually get done. Talk has its uses, though, and much of what is discussed and debated here strikes a cord, for governments and business alike.
Behind the headlines, what are the real talking points of Davos this year? Well, the Americans can't stop talking about Bill Clinton's sexual woes, but others have another aspect of the US on their minds - the triumph of the American economic model. This opinion is perhaps what you might expect from a conference aimed specifically at business leaders; but it is also the reality. The triumph of the American way of doing and organising things, the freeing up of companies to conduct business pretty much without restriction across national frontiers, the rolling back of government power across the world - these are the things that have come to represent the economic evolution of the late 20th century.
With the crisis in Japan and the Far East has come the final victory. Even after the collapse of the command economies of the Soviet bloc, it was still possible to identify a number of different economic models operating in the world. The most potent of these was the Asian, which in truth takes a number of different forms in the region despite common features. That too now lies in tatters. Japan, still struggling to pull itself out of the economic doldrums, is being forced to open up her markets to foreign competition, reform her labour practices, restructure and liberalise. Meanwhile the collapsed economies of the Pacific Rim are being required by the International Monetary Fund to undertake a massive and devastatingly painful programme of reform so as to restructure them along Western lines.
From speaker after speaker at Davos, there is a strong dose of schadenfreude - what's happened in the Far East represents a final triumph of Anglo- Saxon capitalism. There is now only one correct way of doing things and woe betide any country that differs.
Rudi Dornbusch, Professor of Economics at MIT, put it best. "This was a crisis of crony capitalism, of sleazy governments unwilling to tolerate proper rules of disclosure and independent regulation. This is a crisis of very, very bad government. These are countries that know everyone's shoe size but won't tell you how much money they've got lying in offshore accounts."
But is all this entirely fair? Is it not capitalism itself, with its free-wheeling, speculative ways, that is partly to blame for what's happened in the Far East? Even in this Alpine temple of mammon, there are some prepared to air this alternative view.
One of those was Eisuke Sakakibara, Japan's vice-minister of finance for international affairs. He had a very different explanation of what's happened in the Far East. This is not a specifically Asian crisis, he said, but one of global capitalism. "What caused it was a huge inflow of speculative western capital. There was reckless borrowing, yes, but equally there was reckless lending. ... Everyone talks about the structural problems of these economies now, the chaebols of Korea, crony capitalism and the like, but actually they have known about them for years. Nobody complained about these structural problems when they were pouring money into the region."
In other words, what the crisis in the Far East has done is expose the speculative weaknesses of unbridled, unregulated Western capitalism, as much as the drawbacks of the Asian economic model. His remarks were mirrored by John Sweeney, America's leading trade unionists, who put his own, social spin on the consequences of globalisation and the spread of the American model: "The US is hailed as the great model. Our prosperity is unmatched, the dollar is strong, our budget balanced. Unemployment and inflation are down and profits are up. At the same time, one-in-four children is born in poverty. One-in-five workers goes without health insurance. The blessings of prosperity have been largely captured by the few. ... If this global economy cannot be made to work for working people, it will reap a reaction that may make the 20th century seem tranquil by comparison".
Alarmist rhetoric, perhaps, but after the collapse of the Far East, nobody disagrees too much with the need to make markets work in a more efficient and equitable fashion. Even George Soros, the world's most famous speculator, bemoans the fact that the pain of correction in the Far East falls on its workers and ordinary people, not the politicians and financiers who created the mess.
Larry Summers, the US Deputy Treasury Secretary, gets to the heart of the matter when he says that "markets only function within a framework of transparency and laws that allow investors and business to make an informed judgement of risk. The answer to crises like those of the Far East cannot be ever-cascading amounts of finance into putting out the fire. We have to think about international policies to control these risks."
But Newt Gingrich, Speaker of the US House of Representatives, is glorying in America's superiority over Europe. "Our free markets have created more private-sector jobs in the US in the last two months than you in Europe have in the past 10 years," he told a despondent-looking Frenchman. And as Europe speeds down the road to monetary union, Continental politicians too now talk the language of the American model.
But it wasn't so many years ago that the US suffered its own banking paralysis - the "savings and loans" crisis. Poor levels of supervision and disclosure led to bad and sometimes fraudulent lending on a massive scale. Since then the US has rebuilt its market system with the emphasis on full transparency and firm regulation in financial markets. Thus reformed, the American model seems to be delivering employment and prosperity as never before.
Asia makes it imperative that this approach is applied in emerging markets, too. There has been general consensus among speakers at Davos that international institutions and reporting structures need to be strengthened, both to act as an early warning system and to ensure adequate supervision on a global scale. And consensus here means this is what we will see happening everywhere over the next year.
- More about:
- Eastern Asia (the Far East)
- International Monetary Fund
- Loans And Lending Market