The New World Order

A world beyond our control

CYBER AGE
ND BATRA
From The Statesman

The idea that markets are always right was a mad idea. ~ President Nickolas Sarkozy of France

It seems the words of comfort or condemnation by world leaders do not mean much to the financial world. The two-day Europe-Asia heads of the state conference held in Beijing last week called for a concerted and coordinated global action to control the global financial crisis and restore confidence. But the meeting did not amount to much because the leaders did not offer any concrete and specific measures to solve the problem, except issuing a call for the need for more rigorous regulations and monitoring of the financial markets. Perhaps they do not know enough.

Prime Minister Manmohan Singh, who participated at the Asia-Europe summit meeting attended by 45 leaders, summed up how helpless global leaders had become in dealing the crisis: “We are not in complete control. There are bigger players and we are victims of that. The crisis is not of our making.” Big or small, every country today has become a victim of the unknowable, which makes one wonder whatever happened to the early warning systems. Few people believe that the coming of the new United States administration, whether led by Senator Barack Obama or Senator John McCain, would make much difference to the global financial crisis. The financial world with floating currencies, innovations such as margins, credit default swaps and securitisation of debts has become too complicated for any single global leader or a country to handle, even though a dominant economy like the United States might have triggered the butterfly effect that developed into a raging storm.

The raging storm analogy may not be too disconcerting because eventually even the most devastating storm peters out on its own. At present every rescue step taken by governments, for example, the US $700 billion bank bailout package and infusion of another $250 billion for unfreezing bank credit, the U.K.’s $692 billion financial-rescue plan and sundry other steps taken by other European and Asian governments do not seem to have amounted to much in restoring confidence. Wild gyration in the market continued.

Since Wall Street is still the ultimate measure of global finance, whether you like it or not, whatever happens there cannot be ignored. From its record of 14,000 in July 2007, the Dow Jones Index has been mostly moving downward and last Friday it pulled back to 8,378. The die-hard optimists believe that during these wild gyrations the Dow has been going up too and touched 10,000, giving some hope that eventually the market would stabilise and rise again on its own.

n other words, government authorities or politicians, Senator Obama or Senator McCain, French President Nickolas Sarkozy or British Prime Minister Gordon Brown, do not have any decisive impact on financial markets, though they use impressive rhetoric to sum up the situation and make prediction about the future over which they have no control. Mr Sarkozy said a while ago that the era of Anglo-Saxon no-holds barred Darwinian market capitalism, symbolized by Wall Street greed from obscene bonuses to golden parachutes, is dead. But this kind of contemptuous anger against the system that has been responsible for tremendous global economic growth and reduction in poverty is perhaps not fully justified. It is also true that the system cannot be left alone because the marketplace cannot solve all our problems; nonetheless, it must be made to work in the public interest and necessity, which will require state intervention.

Financial market cannot handle so much freedom and need global monitoring because a mishap in one country might cause turbulence in the whole interconnected system, which can spin out of control. But the question is that since the global financial crisis began with irresponsible sub-prime lending in the United States, can the world afford to let the US do what it wants to do with its financial market?

Why should Iceland, Norway, or Pakistan, for example, pay the price for the greed and mismanagement by the tycoons of Wall Street? Does the world have a right to expect better behavior from the US since it has been the primal cause of the trouble? Just consider China-Japan-US financial relations. A substantial portion of the staggering foreign exchange reserves of China ($1.9 trillion) and Japan ($995 billion) are parked in US treasuries, which made cheap credit available to everyone, even to those who could not afford it.

Shouldn’t China and Japan expect some accountability as to what is being done with their funds rather than merely assuring the safety of their capital? What a country does with its resources is a matter of sovereignty about which every nation is very sensitive. For example, Pakistan has been warning the US that its sovereignty should not be violated by the US troops in pursuit of terrorists who take shelter in Pakistan territory. But now that Pakistan is in financial trouble, it rushed to China for help.

Having been rebuffed by its all-weather friend, lately it has asked the US dominated IMF for infusion of capital for which it will have to accept tough conditions, some affecting its sovereignty. What is the difference if a country seeks capital infusion to keep itself alive or let’s foreign troops into its territory to kill terrorists?

In the ultimate analysis, both capital infusion and troop intrusion violate Pakistan’s sovereignty. In the interconnected world of finance and terrorism, national sovereignty has become an unsustainable myth. And what is true of Pakistan is equally true of the United States, which cannot be left alone to mess up with the world.

(ND Batra is professor of communications at Norwich University)