NICOLAS SARKOZY, for the first time in his presidential career, had no neat solutions or pat answers to offer in a 90-minute broadcast last Thursday night. The “man with the answers” struggled even to formulate convincing questions.
It is actually difficult to blame him or his peers – Brian Cowen, Gordon Brown and others – for we are embarked on a global economic rollercoaster, a transformational revolution that we cannot yet even accurately describe, never mind control.
Our economic model, sometimes referred to as the Washington consensus, has simply destroyed itself: a cataclysm that leaves us without maps, models, or off-the-shelf solutions, however painful. We are condemned to fumble our way forwards in the most expensive trial-and-error global experiment our species has ever known.
Nationalised banks, those recapitalised by governments and those surviving on state guarantees, have transformed the global banking industry into a state-operated entity.
Piecemeal emergency detox measures have failed to resuscitate anything approaching normal banking. So governments are now having to replace banks in supporting an ever-growing range of subjectively determined “vital industries” – a revolutionary transfer of power. It will be up to historians to trace the economic, social and political impacts of this unsung revolution, but the transfer of power from private to public is already our new global reality.
What we had before did not work. Even if we could return there, we wouldn’t. Our present hotchpotch of sandbags and bandages will hopefully keep us afloat while we figure out where we want to go, and how to get there. We face political rather than economic decisions. Our political structures offer our only chance of survival and our only chance to emerge from this global crisis by building something new, something different, and something better and more sustainable.
We are in an ideological desert, as was perfectly illustrated by the paucity of policies to emerge from the World Economic Forum in Davos and the World Social Forum in Belém, Brazil, last month. Neither captains of industry nor the “alter-globalisation” activists had coherent analyses, never mind anything remotely resembling a solution, to offer.
Last weekend’s security conference in Munich hinted at some major changes. The G20 summit in London at the beginning of April will probably outline others – including a death sentence for offshore tax havens.
The Guardiannewspaper ran a series on corporate tax avoidance in the UK last week. It reported that over 200 of the country's 700 top firms paid no tax in 2006. The House of Commons Public Accounts Committee estimated the annual cost to the exchequer at some €9.4 billion, or the equivalent of the tax paid by some 1.7 million UK households.
Such tax avoidance was always inequitable; it has now become politically unsustainable. Chancellor Merkel and President Sarkozy have already made it quietly clear to Andorra, Liechtenstein, Luxembourg, Monaco and Switzerland that things have to change. The G20 is going to apply significant pressure on the British government, for instance, over the Channel Islands, the Isle of Man, Gibraltar and the British Virgin Islands.
Much of the solution is not overly complex. Were governments to deduct standard rate taxes from all transfers to accounts in tax havens, they would effectively wipe out such havens and their hedge funds.
Germany goes to the polls this autumn. The incumbent grand coalition of the Christian Democrats and Social Democrats faces a tricky balancing act of simultaneously offering voters continuity and change.
German voters could easily return a centre-right government by boosting the pro-market FDP to produce a Christian Democrat-Liberal coalition. They could also theoretically move significantly to the left by returning a Social Democrat-Green-Linke government. The balance of probability has to favour another grand coalition as long as the current one continues to offer cautious competence and relatively equitable policies.
The political confusion that has reigned on our neighbouring island cannot survive this tumult. Blair governments, from the Iraq war through championing the “economic miracle” of the City, stole much of the Conservatives’ traditional clothing. Gordon Brown has cautiously, sometimes clumsily, sought to reposition his administration, but if the polls are to be believed, David Cameron will succeed him. As prime minister, Cameron, against a background of high unemployment, fragile banking, an anorexic City struggling to maintain itself, and declining flows of North sea oil, would be obliged to introduce a range of measures which are the exact opposite of everything the Tories cherish.
The Government proposes €16.5 billion of savings in government expenditure by 2013. Yet the Taoiseach warns of a possible 400,000 unemployed who would cost the exchequer nearly €8 billion a year. If cutting public expenditure increases the ranks of the unemployed, most of the initial savings disappear. In our global depression the traditional safety valve of mass emigration has vanished, and thankfully the medieval approach of leaving the poor to starve to death is no longer acceptable.
The argument that the economic rules which guided us into this mess must continue to be scrupulously respected is, at the very least, open to question. We need to imagine new rules and approaches. We are in a completely new economic and political ball game – one without much in the way of useful precedents or rulebooks. As Senator Charles Schumer of New York observed last week, “it’s a new world”.
Leaders incapable of grasping the need for innovative action will be replaced by ones who can. Sarkozy gazes nervously at French street protests. Others dread the ballot box. Leaders who fail us should fear both.