How to restore confidence?
Henry Kissinger says that today’s international order was “founded upon conceptions that emerged from the British Isles, were carried by Europe around the world, and ultimately took deep root in North America”
He adds that “American leadership in reinvigorating the contemporary order is imperative.”
In a few words, Kissinger shows a depth of understanding and a grasp of the underlying currents and opportunities that are quite out of reach of today’s politicians on both sides of the Atlantic. Let us hope his words of wisdom bring them to their senses.
Here on earth, Brexit is throwing all the dice up in the air. Economists and politicians now try to push their agendas – whether (on the right) for free trade, or a return to gold, or a bonfire of “burdensome regulations” and curbs on immigration, or (on the left) more employment protection, curbing corporate power, income redistribution and other interventionist policies.
The proper starting point and primary concern are different – as Kissinger seemingly alone understands.
The overriding aim should be to preserve the huge gains the world’s peoples have made, and the even larger ones available in future, from globalisation – the free movement of trade and capital – while cushioning the impact on those who stand to suffer in the short or medium term from this. We are rich enough to do that.
We do need to provide not only safety nets but also generous programmes of retraining and education to equip people for a volatile and vast-changing business environment.
But the priority should be to ensure that the system itself – the framework of rules and institutions – is and is seen to be fair. And it has to be global. It has to be robust enough to control (by agreed rules) the power of money, of big corporations, banks, etc to bend the rules and corrupt the process for their ends. It also has to be strong enough to discipline governments. They have to maintain order in their national accounts and external payments. The order must be market-friendly, since well-functioning markets promote freedom and economic progress.
Leaders should use this crisis to reinvigorate the world order, as Kissinger says.
Europe’s crisis is an opportunity for the US. It can lead in restoring such a global order. Europe cannot sort out its existential crisis except within such a truly global order.
EU leaders will never admit this if left to themselves. Yet they would eagerly seize the chance if the US held out a helping hand across the Atlantic
In this endeavour, we need to re-establish a sound monetary order. It has been done before. It is not impossible!
The classical gold standard provided a good monetary framework for globalisation. We must learn from that, not reject it out of prejudice. But so did the dollar-based Bretton Woods system (which retained a residual gold link).
I locate the roots of our discontents in the collapse of that international monetary order, which has led since the 1970s to excessive volatility in global money and capital markets, and in exchange rates, and as the old banking order collapsed also, to falling moral standards in finance, ending in an era of gross irresponsibility in banking – a free for all that has not been brought under control by financial regulation, despite increasingly burdensome and punitive restrictions.
Post Brexit leaders seems unable to find the largeness and generosity of vision demanded by Kissinger.
People retreat to traditional Left vs Right squabbles. Yet how boring is the exchange between extreme free marketeers and the socialist rump! It irritates me to find them all using the Brexit chaos to regress to infantile pleading for old, tired and discredited solutions.
The question is whether governments will finally under the pressure of repeated crises – not only in the EU but the US, Japan and China as well – come together and bind themselves to a system of rules and institutions, as at Bretton Woods, that would serve the long-term interests of their citizens. They are really no more than a codified book of good international manners. But at their heart must be a return to stable exchange rates, since only with such a mechanism is it possible to monitor the way in which and extent to which an individual country is keeping its house in order or imposing costs on its neighbours.
The IMF is the natural advocate of such a system, but it has been barred by the US from advocating or even researching how such a system would work in modern conditions. The US wants to retain the appearance that is has full freedom of action. The EU also is obsessively focussed on its internal problems – Greece, Brexit, etc. The same goes for China and India. Yet all lose from such a national free-for-all.
The urgent task is to analyse how and why the current collapse of confidence follows from the disintegration of the post-war monetary and economic order, and to articulate those reforms necessary to restore confidence.
True, the constituency for the reforms needed to make globalisation work is small. But so long as there are voices like those of Kissinger to raise our sights, there is hope.
To end with Dr Kissinger:
“The Brexit vote has unleashed the anxieties of two continents and of all those who rely upon the stability that their union of purpose provides. The needed restoration of faith will not come through recriminations. To inspire the confidence of the world, Europe and America must demonstrate confidence in themselves.”
“American leadership in reinvigorating the contemporary order is imperative.”
Mr. Kissinger was national-security adviser and secretary of state under Presidents Nixon and Ford. The article is entitled: “Out of the Brexit Turmoil: Opportunity” June 28, 2016