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Global crisis not from failure
of market economy – ICC
In a key message global business group
warns economic nationalism must be avoided but lists boosting demand
and credit; better governance as priorities
The global economic crisis does not stem from a failure of the
market economy system nor does it call into question the system’s
successful record in creating wealth and significantly raising
global living standards, ICC said in a position paper on the current
emergency
The global economic crisis does not stem from a failure of the
market economy system nor does it call into question the system’s
successful record in creating wealth and significantly raising
global living standards, ICC said in a position paper on the current
emergency last week.
The statement, which was first issued in November and is updated
regularly to reflect developments in the current crisis, said the
immediate priority should be to boost demand and credit in order to
resume economic growth. ICC added that it is particularly urgent “to
boost trade finance on which international trade – forecast to fall
this year for the first time since 1982 – so heavily depends.”
“ICC continues to urge official development banks and export credit
guarantee agencies to sharply expand their trade finance facilities
in these exceptional times,” the statement added.
ICC placed particular emphasis on the need to avoid economic
nationalism at all costs.
“Governments must avoid the temptation to seek isolation from the
global crisis through protectionist measures to restrict imports and
foreign investment,” ICC said. “With the world as economically
integrated as it has become over recent decades, any lurch into
economic nationalism would dislocate commercial activity even
further and risk turning the global crisis into a depression.” ICC
believes that the government stimulus packages being put into place
should give priority to projects that will have a rapid impact on
demand and jobs and that measures which “unavoidably distort
competition and international trade should be kept to a minimum and
should be clearly stated to be temporary.”
In addition, the current situation should not allow a “mood of
regulatory enthusiasm” to spill into other economic sectors where
light-regulation or self-regulation is working well.
ICC stated that any efforts “to put globalisation into reverse” must
be opposed and called on governments to “finally summon the will to
complete the long-stalled Doha Round of multilateral trade
negotiations.” It also said that the current crisis should not be an
excuse to further delay effective action to combat climate change.
Analyzing the current crisis, ICC stressed that a market economy
system can work well only within clearly established rules. It said
that the rules governing financial markets “were either inadequate,
unsuitable, or simply not enforced.”
In ICC’s view, key actors including governments, central banks,
credit rating agencies and bank regulators as well as consumers must
share in the responsibility for the crisis.
“What has been astonishing,” ICC concluded, “is the speed at which
the crisis has spread around the world and the severity of the
impact on the real economy beyond the financial sector.”
The full ICC statement is as follows
- 1. The global economic crisis does not stem from a failure
of the market economy system, nor does it call into question the
system’s successful record in creating wealth and raising global
living standards
- The economic crisis has its roots in the near-collapse of
the financial system last autumn after a decade of cheap money,
high leveraging, easy credit, and associated real estate bubbles
proved – yet again in history – an explosive mixture.
- Key actors in the financial sector in many countries –
retail banks, investment banks, central banks, bank
regulators/supervisors and credit rating agencies – must each
accept a share of the blame. Nor can governments, legislators
and consumers be exonerated: so many encouraged and enjoyed the
illusion that the bubble was creating real wealth.
- What has been astonishing is the speed at which the crisis
has spread around the world and the severity of the impact on
the real economy beyond the financial sector.
- ICC has always stressed that a market economy can only work
well within a framework of rules. Clearly, the rules governing
financial markets were either inadequate, unsuitable, or simply
not enforced. Public authorities seemed oblivious to the
colossal risks that financial institutions were taking. The
consequences of the financial sector’s mistakes are now
devastating other sectors of business where the market economy
was functioning normally to allocate scarce resources
productively and to create real wealth.
- The mistakes and failures in the financial sector will
doubtless lead to greater regulation and supervision. However,
governments should bear in mind that the biggest failures appear
to have been in the quality of regulation in that sector rather
than in the quantity. Furthermore, care should be taken not to
allow a mood of regulatory enthusiasm to spill over into other
sectors of business where the market, or current light
regulation, and or self-regulation, is working well.
- 2. The immediate priority is to boost demand and credit
- Now that government intervention – at enormous cost to the
taxpayer – seems to have prevented the wholesale collapse of the
financial sector, the most immediate priorities are to halt the
nosedive in economic demand and restore credit and confidence to
more normal levels. Getting the banks to start lending again is
especially vital for small- and medium-sized companies
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Deloitte Global
CEO calls for avoiding protectionism
Maintaining open markets, avoiding protectionism in
all its forms to bolster investment and trade, and reigniting
confidence in the enormous U.S and European economies were the key
points delivered by Deloitte Touche Tohmatsu CEO and U.S Co-Chairman
of the TransAtlantic Business Dialogue, Jim Quigley, at a gathering
of U.S. and international business and government leaders organized
by the Center for Transatlantic Relations at Johns Hopkins
University in Washington, D.C. recently.
Also speaking at the gathering was U.S. Senator Jeanne Shaheen,
Europe Subcommittee Chair, Senate Foreign Relations Committee. The
event was also hosted by Senator Jim DeMint, Europe Subcommittee
Ranking Member, Senate Foreign Relations Committee.
Quigley spoke about the importance of maintaining and expanding an
open and free trade and investment environment in the face of the
deepening downturn. These issues are particularly relevant in light
of the upcoming G-20 summit meeting, which will take place in London
beginning April 2nd.
To illustrate why continued transatlantic cooperation is important,
Quigley pointed to the highlights of Professor Dan Hamilton’s book
launched today, The Transatlantic Economy 2009: Annual Survey of
Jobs, Trade and Investment between the United States and Europe. The
book is co-authored by Joseph Quinlan.
The book quantifies the extent of the transatlantic market. The
combined gross domestic product (GDP) of the U.S. and the E.U.
reached an estimated $30 trillion in 2007 – more than half of global
GDP in 2007. In addition, the transatlantic economy generates $3.75
trillion in total commercial sales a year and employs up to 14
million workers on both sides of the Atlantic.
“The only tried and true recipe for sustainable growth and
prosperity is to expand trade, investment and innovation in all of
our markets,” said Quigley, adding “that a freer market among the
transatlantic countries would provide a powerful catalyst for
economic growth and job creation.”
He also stressed the need to rebuild confidence in markets around
the world.
Citing President Franklin Roosevelt, Quigley said, “We have nothing
to fear but fear itself. I believe for many these days, the
predominant emotion is fear. We need to replace fear with confidence
and let’s start with confidence that a strong transatlantic economy
can be restored through trade, investment and innovation. We need to
reject protectionism in all its forms.”
Quigley urged governments around the world to do more to create a
well coordinated international response to the crisis. He expressed
hope that the upcoming London G-20 summit would offer an opportunity
to move in that direction. Quigley also urged the continuation of
progress toward the adoption of a single set of global financial
reporting and accounting standards, adding that he believed these
reforms were more important than ever to rebuild confidence among
investors and other stakeholders. “A common language and reporting
standards will provide a common vocabulary worldwide and will help
build confidence.” he said. The benefits resulting from closer
cooperation between the U.S. and European Union markets are
numerous, Mr. Quigley said, pointing to efforts to combat piracy and
counterfeiting in developing markets, as well as intellectual
property protection in areas such as energy and healthcare.
“Given the size and scale of economic activity between these
markets, closer collaboration can only help get capital off the
sideline and on to the playing field, and drive the global economy
towards a sustained recovery,” he concluded.
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