Saturday, November 15, 2008
MODEST EXPECTATIONS are in order for the global economic summit taking place in Washington today. The world is heading into what appears to be a deep and possibly long downturn. Yet among the nations in attendance -- everyone from Australia to China to France -- opinions differ greatly about both the causes and the cures. Meanwhile, the host country -- the United States -- is headed by an unpopular president whose successor won't be in place for another two months. And the summit participants have until tonight to accomplish something.
Nevertheless, the exercise could be more than just a political show. Indeed, it must be, because people all over the planet are looking for signs that their governments can manage the crisis cooperatively and effectively. A hollow or, worse, contentious meeting would undermine investor and consumer confidence when both are already dangerously low.
One achievable goal is an agreement to continue shoring up bank capital and purging bad assets, while pursuing expansionary fiscal and monetary policies. This should be doable: China and Japan have promised stimulus programs; the United States has slashed interest rates and enacted a tax rebate, with more stimulus likely after Barack Obama's inauguration, if not before. The European Central Bank's hesitancy to cut interest rates further is still to be overcome. A second feasible goal would be to beef up the International Monetary Fund and the World Bank so that they are prepared to help developing countries weather the storm.
Things will get trickier when it comes to devising a new global financial architecture to make the future more stable than the recent past. A clearinghouse for financial derivatives is within reach, as are new international standards for bank capital. New regulatory structures won't get off the ground today, and they shouldn't; these are questions best assigned to working groups that can deliberate more methodically. Countries are reluctant to cede control over their financial systems for reasons that are not only selfish but sensible: Good regulation requires detailed knowledge of local conditions.
Some have billed this summit as a second Bretton Woods conference. It is an appropriate and useful sign of the times that this meeting includes, at President Bush's insistence, not only the world's traditional leading economic powers but also emerging markets such as India, South Korea and Brazil. But when it comes to remaking the International Monetary Fund and the other institutions that were conceived at Bretton Woods in 1944, caution is in order. Yes, if the world is going to ask China and the Gulf states to supply more funds to the IMF, it will probably have to give them more authority, too. But giving non-democracies more global clout is a complex matter best worked out over months or years, not a day.
The assembled leaders can also help by not making things worse. A pledge to keep trade free or even to expand it by reviving the Doha round of liberalization talks would go a long way toward that goal. At times like this, political leaders tend to focus on the disasters of the moment rather than on the less spectacular but much more substantial growth of the past. The temptation is strong to heed those who say today's crisis proves capitalism's fatal flaws -- rather than its need for modernization and reform. In fact, over time, maximum economic freedom, responsibly regulated, delivers maximum economic welfare. The summiteers should carve out some time today to rededicate themselves to that basic principle.