Not Quite Mt. Everest
THE WORLD leaders who assembled in Washington on the weekend managed to make it into town, deliver their speeches and issue their communique while financial markets around the globe remained closed. This ensured that investors would be able to digest whatever the summiteers did -- or failed to do -- well before the next opening bell. There would have been no use having a summit on financial stability only to trigger some wild new gyration in Hong Kong or on Wall Street.
And, in the event, the summit produced cause for neither euphoria nor alarm. Hosted by the lame-duck president of the United States, whose crippled economy is nevertheless the world's most important, it met the modest expectations with which it began. The leaders issued a broad but fundamentally nonbinding agenda for overhauling financial market regulation the details of which will be debated at a subsequent meeting in London in the spring -- and probably many more meetings after that.
According to the document, regulators should move credit derivatives from over-the-counter transactions to more transparent clearinghouses -- as U.S. authorities are already doing -- and should make credit rating agencies avoid conflicts of interest. Banks won't get a global super-regulator, but they might have to report regularly to a "college of supervisors." There won't be international controls on executive compensation, but there will be a study on how to keep bank bosses' pay from providing an incentive for excessive risk-taking. Countries won't be required to enact fiscal stimulus programs all at once, but they have been advised that it might be a good idea to take action separately. The International Monetary Fund will be expected to help bail out developing countries, but, except for $100 billion that Japan has committed, it's still not clear where the extra resources will come from. At least the summiteers promised to avoid adding protectionist measures for the next year -- a "do no harm" pledge they would be wise to extend well beyond that period.
The historical importance of this meeting consisted less in what it accomplished than in who attended it. For the first time, the major industrial countries of Western Europe, North America and Japan consented to talk seriously about global economic management with such nations as China, Brazil, India and Saudi Arabia. To some extent, the greater inclusiveness was simply a recognition of necessity: These and other emerging markets are predicted to generate all of the world's economic growth in 2009; China and the Gulf states are among the few countries with sufficient reserves to supply the IMF and other multilateral financial institutions. But these are not mere short-term trends. For the West, the delicate business of sharing more wealth and power with non-Western countries, not all of which are democracies, has just begun. The challenge of completing that task, on terms consistent with U.S. interests and values, now belongs to President-elect Barack Obama.