Speech by Tony Blair at the 'New world, new capitalism' conference
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This is an immensely timely conference. I congratulate President Sarkozy
and my good friend Eric Besson for organising it. I am delighted to see
Chancellor Merkel with us. They are of course former colleagues of mine.
They are still in Government. I am now in the fortunate position of
being able to offer them brilliant insights and wise advice without the
responsibility of carrying them out. It is a luxury I can commend but
not too soon for either of them.
Let us start with the obvious. This economic crisis is the biggest, most
complex, most delicate economic challenge of our lifetime. It is the
most tricky intellectual challenge of any kind I have ever encountered.
And it is still evolving.
It has bought home to us the other side of the consequences of
globalisation with dramatic effect. It is rudely educating us as to the
integrated nature of the world we now live in. It is putting into
contention what seemed previously unshakeable orthodoxy. Conventional
wisdom appears not just complacent but fundamentally in error.
The combination of all of this means we live in an era of very low
predictability.
But certain things are clear. This crisis poses unique problems to
policy makers. Normally, as a crisis erupts, a leader will seek advice.
Experts are consulted. Their advice will be of varying shades. Some may
differ. But by a process of analysis, a reasonable outline of a policy
answer emerges.
Here you ask the experts; and the best and the most honest say: we don't
know. The most frequent description is "unprecedented".
What is plain is that the financial system has altered in its
fundamentals and can never be the same again. What is necessary is
radical action to deal with the fall-out of the crisis. What is
unavoidable in the longer term is a recasting of the system of
international supervision. What is sensible is to ask, as this
Conference does: what sort of free enterprise system, what type of
capitalism do we want for our future?
I will divide my remarks into these sections: the immediate solution;
the longer-term measures; and the values which should underpin global
capitalism.
In terms of the immediate solution, the policy debate has evolved as the
situation has. At first, it seemed as if there were a divide between
those who I designate " kitchen-sinkers" i.e. throw everything at it;
and those who were in the "wait and see" category. Actually that
division is largely gone. There is no doubt there needs to be radical
action. It is sensible to target it, however, as we better see how the
crisis has unfolded.
There is therefore an emerging consensus around four points:
1. The origins of this crisis lie in the changes in financial practice.
The impact is now felt in the real economy. But, unless we fix the
financial system, real economy measures will be limited in their impact.
Here it is important not to confuse short-term and long-term. The cause
of the crisis may have been irresponsible lending and a credit and asset
bubble. The long-term solution is to regulate to ensure responsible
practice. But the short-term problem now is not too much credit or
incautious lending; but too little and too cautious. There is a profound
lack of confidence in the financial system's viability. The crisis shook
its fundamentals. People worry there are bad debts still to be exposed.
This causes a crisis of confidence, not amongst those who lack the means
to spend but even amongst those who don't. So consumers don't spend,
businesses don't invest, banks don't lend.
This crisis of liquidity then impacts the real economy, which in turn
feeds back into the financial sector. This spiral is what must be arrested.
They key is to do whatever it takes - whether by hastening the proper
writing down of asset values and recapitalisation of bank balance
sheets, and /or the underwriting of credit to get the blood pumping back
round the financial system again. Failure to do this will outweigh
colossally any fiscal stimulus. It must be got moving again.
2. Because of the impact on the real economy, traditional demand-side
stimuli are necessary. There can be a debate about which stimuli. The
only point I would make here, is that we should spend to build for the
future. There is no advantage in "make-work" schemes. We don't live in
the era of the 1930's or the post-war. I would invest in renewable
energy, science, technology, education and innovation. Be relentlessly
fixed on the future. Government can't predict the winners of the future
but it can by investment, enable, empower and encourage.
3. There will have to be support and help for the victims of the crisis.
There is no doubt that unemployment will rise and amongst some of the
most skilled service sector employees. It may even be that we will
witness, in time, a paradigm shift in economic activity toward modern
manufacturing. Again it is hard to predict. But what is obvious is that
the traditional welfare systems are not properly equipped to deal with
the scale or nature of the Tsunami affecting us.
4. There will be many major challenges confronting the new U.S.
President in less than two weeks time, as well as the domestic effect of
this crisis. One such challenge we have all been dealing with this past
10 days is the Middle East. But somewhere near the top of the agenda I
would put the U.S strategic relationship with China; and the same
applies to us in Europe. Re-balancing this economic relationship is one
of the hardest things of all. But it is utterly crucial. It needs to be
worked on now. We must save more. China will have to spend more. We may
think we are competing and at one level we are. At another our
co-ordination and common understanding are of the essence.
This brings me to the longer-term framework we need in place. We need a
better system of financial regulation, better co-ordinated. Ok we can
all agree on that. I want to make a larger point. It arises out of, not
just this crisis but my experience of 10 years of office at the highest
level. We have mid 20th Century international institutions governing a
21st Century world. This is true of the global economy. The reform of
the IMF and World Bank, of the financial regulatory system are long overdue.
But it is true across the board. Look at the G8. Reflect on its
absurdity. In fact, take the G7, the so-called economic club of the
world. Four European nations. No China. No India. No Brazil. No one from
the Middle East. No one from Africa.
Take the global negotiations over global warming and a new accord post
Kyoto. The UN negotiators are able, I would say, heroic, people. But be
serious: 190 countries sitting round a table trying to hammer out a
deal, with no global institution with the technical know-how, research
capability and political weight to guide them? And this is in an area of
inordinate technical complexity and political sensitivity.
Or take the awful events of the Congo. 6000 rebels on one side. 6000
militia thugs on the other. A UN force of 18,000 unable to keep people
from being subject to mass rape, murder and pillage? Are we really that
helpless? And don't think because the TV cameras have moved on, the
suffering has.
And where have they moved on to? The Middle East. By luck, France has
the Presidency of the Security Council. By his energy - to which I have
referred before - the French President got the sides together.
But examine the absurdity. Here is a conflict whose supreme importance
reaches across the world. It moves our politics, our economics, even our
society and culture. With even the limited mandate I have, these past 18
months have been an extraordinary instruction. You know what is most
frustrating? Not that it can't be solved; but that it so clearly could
be. Is it really beyond our wit to grip this, to co-ordinate our
international efforts and to see them bear fruit, so that Israel no
longer has to fear for its existence and Palestinians have the justice
of a viable state in which the two people can live side by side in a
land less than half the size of France's largest region? If it matters
that much, should our effort to resolve it not be commensurate with its
importance so that innocent young children no longer live afraid or die
needlessly?
What I am saying is that this economic crisis is vital in itself; but it
holds a deeper, broader lesson for us. In today's world, no nation's
governance, not even the most powerful, can work without a strong
dimension of global governance.
Which brings me to my final point. One part of the debate over these
next two days, will be about globalisation. Is it good or bad? There is
a myth that globalisation is the result of a policy driven by
Governments; and can be altered or even reversed by Governments. It
isn't. It is driven by people. Globalisation is not just an economic
fact. It is about the internet, its power to communicate, influence and
shape a world whose frontiers are coming down. It's about mass travel,
migration, modern media. It is not simply an economic fact; it is in
part an attitude of mind. It is where young people choose to be.
But what is absolutely apparent from the economic crisis is that it
requires values to function effectively. Note that I say effectively,
not just fairly. Yes, it has always been clear that globalisation needs
values to be equitable. What has been less clear but now is clear, is
that it needs values to work. If we want to keep our world economy open,
and not lapse into protectionism, we must strive to make it just. If
businesses want to succeed, they must embrace their stakeholders with
respect; they must develop the potential of their employees not just
exploit them. If the financial system is to recover, it must re-gain
confidence.
To re-gain confidence, there must be trust. To have trust, the system as
a whole needs to be inbred with values other than those of short-term
profit maximisation. It must be about more than mere speculation and the
clever bet. It must be also about investing and building. The best
business people I have met, have been first and foremost passionate
about what they are creating, rather than what they are accumulating.
The new capitalism is therefore not about a return to the past. The
change we seek should not be about replacing the free enterprise system
or the market but about sustaining them in a way that is stable and
enduring.
Look upon this crisis not as an occasion to regress in policy or
attitude of mind; but as a chance to renew, as an opportunity to open a
new chapter in humanity's progress to a better future for all.
Speech by the Rt Hon Tony Blair, Paris, 8 January 2009
http://tonyblairoffice.org/2009/01/speech-by-tony-blair-at-the-ne.html
Angela Merkel on "New World, New Capitalism"
Thu, 08.01.2009
Under this banner, politician and financial experts are meeting in Paris
to discuss how the world can protect itself from financial crises in
future. Chancellor Angela Merkel has called for new regulations for the
international financial markets, and proposed that an Economic Council
be established under the auspices of the United Nations.
The former British Prime Minister Tony Blair opened the conference by
pointing out that the financial crisis and the subsequent global
economic crisis are more complex than anything the world has ever seen,
so complex indeed that even experienced experts do not have the answers
at their fingertips.
The Chancellor sees the crisis that has shaken the financial markets and
the ensuing shock waves as an expression of poorly coordinated
globalisation. States around the world discovered that they were simply
not prepared for a crisis of this magnitude, she stated.
Rethinking and taking action together
So that crises of this sort do not repeat themselves, we must not lose
sight of the causes, the Chancellor argued. The next step must be for
the international community together to draw the right conclusions and
deduce the practical consequences for global capitalism. She already has
a clear idea of the form this should take. "We need new regulations for
the international financial markets and institutions," the Chancellor
once again underscored.
The crisis of capital is also a crisis of capitalism, declared French
President and host of the conference, Nicolas Sarkozy. Our aim must not
be to abolish capitalism, but to modify it. He would like to see moral
and ethical values more firmly anchored in the capitalist system.
Social market economy with global dimensions
In addition to an internationally agreed global financial architecture,
the Chancellor proposed international regulations for business. These
could be drawn up and monitored under the aegis of a reorganised
International Monetary Fund.
Equally, however, an influential economic council could be established
under the auspices of the United Nations. Like the Security Council it
would have to follow binding rules. "Just as we have a charter laying
out human rights, we need a charter for international business in the
long term," said Angela Merkel. And it should have a clear goal -- "a
social market economy with global dimensions. That is what we are
fighting for," she underlined.
The Chancellor admitted that for many states it would be "an enormous
step" to put their faith in an international organisation. Thanks to the
European unification process, Europeans are well prepared. This is a
process which has brought not only growth and prosperity, but also peace
and good relations between neighbours.
The next G20 summit is scheduled to be held in London at the beginning
of April. At this second summit meeting Europe must once again play a
major role, Angela Merkel demanded. The heads of government of the
euro-zone states will be meeting in advance in Berlin to agree on a
common position.
Support for Renault, Volkswagen and their opposite numbers
After the conference, Angela Merkel and Nicolas Sarkozy met in the
Elysée Palace to discuss the next economic- and financial-policy steps
to be taken within the European Union. In view of the massive assistance
promised to the American automobile industry by the US government,
France and for support for European car-makers too to help them master
the current crisis.
In particular the companies must be helped to hold on to their
specialists, who will be needed again after the crisis, the Chancellor
stated afterwards. The two countries aim to help businesses survive the
crisis with loans and short-time working models.
Seeing the crisis as an opportunity
Both Angela Merkel and Nicolas Sarkozy see opportunities in the current
crisis. If European businesses can now be put on a sound technological
footing for the future, they could be in a stronger position post-crisis
than before, they both hope.
This applies in particular to the automobile industry. "The motor car
was invented here, and we will build the car for the 21st century," the
Chancellor stated with conviction. Engine technology will determine
success and failure in the branch in future, she continued.
Step by step against the crisis
With a second investment package, Germany aims to ensure that the
economy can survive with no major damage, the Chancellor explained to
her French counterpart. After the branch-specific measures laid out in
the first package adopted in November "systematic solutions" are now
called for, from short-time working models to state investment and tax cuts.
"We need more action," the Chancellor pointed out, and added, "We cannot
counter the crisis with a one-off package. We will have to take one step
after another". The action needed will depend on how the markets develop.
From the Irish Times:
CHINA MUST help save the world economy, we need "new institutional
architecture" and state intervention is back in fashion. These were the
main themes that emerged at the beginning of president Nicolas Sarkozy's
two-day seminar entitled New World, New Capitalism: Values, Development,
Regulation.
Former British prime minister Tony Blair opened the conference yesterday
morning, calling the crisis "the most tricky intellectual challenge I
have ever encountered". It is "utterly crucial" that the US and Europe
reach a new balance in their economic relationship with China, he said.
"We must save more, China must spend more."
German chancellor Angela Merkel said the world was destabilised by
China's EUR200 billion surplus and the US's huge debt.
Former French prime minister Michel Rocard noted that total known debts
are five to six times global gross national product. "It's about
purging," he said.
Mr Blair deplored the fact that "we have mid-20th-century international
institutions governing the world economy in the 21st century". Bodies
like the G8, in which China, India, Brazil, the Middle East and Africa
are not represented, have become an absurdity, he said.
In the panel discussion on "values of new capitalism", Mr Blair ducked a
killer question from Financial Times editor Lionel Barber. During the 10
years he was in power, Mr Barber asked, when Mr Blair was urging Britain
to "get filthy rich, as long as you pay taxes", did the former prime
minister never suspect that capitalism was becoming disconnected from
democracy?
Dr Merkel hinted that the crisis was a vindication for Germany's "social
market economy with a social dimension" -- which is ideologically at
odds with Anglo-Saxon neoliberalism. It was the role of the EU, she
suggested, "to make the voice of the social market economy heard in the
international community".
"My view is that this is not a crisis of capitalism per se, but the end
of the Reagan-Thatcher model, which has been dominant for the last 30
years," said Francis Fukuyama, professor of economics at Johns Hopkins
University.
Dr Merkel noted that the crisis was forcing governments, including her
own, to accrue substantial debts. She twice stressed that the West must
stop "living beyond our means" and "spending more than we really have".
Mr Sarkozy repeated one of his favourite themes of the past four months:
a distinction between good, entrepreneurial capitalism and
"irresponsible and immoral" financial capitalism based on speculation.
"We must moralise capitalism, not destroy it," said the French leader.
"We have got to find those responsible for hundreds of billions going up
in smoke. The public demands this."
While cautioning against protectionism or "the creation of a whole pile
of regulations", Mr Sarkozy said the rule of the state has been
strengthened. "We are not trying to create state capitalism, just
re-establish the balance."
The seminar will not propose a solution to the world's economic woes.
"We will take decisions in London on April 2nd," Mr Sarkozy promised.
"It will be a turning point."
http://www.irishtimes.com/newspaper/finance/2009/0109/1231454443089.html
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