By David Ignatius
Sunday, January 31, 2010; A17
DAVOS, SWITZERLAND The World Economic Forum is the last place I would have expected to encounter the new populism. But when a venerable European central banker, a man whose very bearing connotes the old capitalist values, told me privately that he is now convinced that the financial system is too important to be left to the free market, I knew we were wandering into new territory.
The value of this alpine kaffeeklatsch is that it can tell you when ideas have reached critical mass. And that seems to have happened this year in the general enthusiasm for what I will call "post-bubble" rules among the political and business leaders gathered here. They take it as a given that the free market failed in the crash of 2008 and that the new system will be more regulated, more interventionist, more prudential than was the old.
This change in the Davos consensus is important because for the past few decades, the forum has been the leading symbol of the freewheeling economic model known as "globalization" -- a connected world that was fostered by lower tariff barriers, deregulated markets, and borderless flows of capital and labor. In years past, calls at Davos for more financial regulation would have been met with guffaws and an escort to the anti-globalization "Open Forum" down the road.
The Davos vision of globalization -- of ever-rising tides that lifted ever more boats -- was itself a bubble. We can see this now. It burst in the financial crisis in 2008, with pulverizing consequences for the real economy in 2009. But it wasn't until this year that the forum fully reckoned with the mood shift. Its work was no longer to celebrate globalization but, in the words of this year's conference theme, to "Rethink, Redesign, Rebuild."
To quote from one of the session summaries: "There will be no return to 'business as usual.' . . . More intrusive regulation of the financial system is now inevitable."
The leading rabble-rouser was French President Nicolas Sarkozy, who opened the conference with a speech urging global citizens to reform the system. "From the moment we accepted the idea that the market was always right," he said, "globalization skidded out of control." An overemphasis on free trade had "weakened democracy," he argued. Human values had been undermined by soulless speculators for whom "the present was all that mattered."
Who but Sarkozy could make a diatribe on international economics so entertaining? The man is the most animated figure on the international stage: He scowls, he shrugs, he struts. Dressed in one of his skinny "Rat Pack" suits, he might be a Gallic Dean Martin.
When Sarkozy had finished his anti-capitalist rant, he got a standing ovation from an audience made up mostly of wealthy capitalists. The Davos magic, you might say.
But it wasn't just Sarkozy who was calling for more government intervention. This sort of anti-market talk was the patter of this year's Davos, and it scared me a little, frankly. I heard versions of it from financier George Soros, World Economic Forum Executive Chairman Klaus Schwab, Swiss President Doris Leuthard, and various other business leaders and economists. When the pendulum swings this far and this fast, you are sure to be getting some overreaction that will cause problems later.
Americans need to understand that the 2008 financial crisis proved a point that many Europeans and Asians have been arguing for decades: Economic "liberalism," of the sort found in Britain and the United States, creates a dangerous overreliance on the market. During the boom years, their complaints seemed like just so much whining. Not anymore.
In the new world, citoyens, we can expect lectures from Chinese officials about the need "to bring stability on a balanced level" by controlling exchange rates, as one Chinese attendee said privately. We can expect demands for global labor standards that mirror the rigidities imposed by European unions (as Sarkozy demanded). This is the price of globalization's failure.
The outlines of the regulated world were clear this past week, and this new stress on soundness and stability is in many ways overdue. I just wish that I had more faith in regulators' ability to solve problems. Wasn't the 2002 Sarbanes-Oxley Act supposed to prevent any more Enrons? Didn't Fannie Mae have its own special regulator that was supposed to audit its books? Weren't the most egregious speculators in 2008 the regulated banks?
Oh well, these are the problems for a future Davos to ponder, when it reckons with the mistakes made in 2010 in creating the "post-bubble" order.