After the Storm? Can We Discern and Learn What the Economic Crisis Is Disclosing About Us?

Moderator: Tomáš Sedláček

Participants: Jan Švejnar, Yegor Gaidar, Chao-Shiuan Liu, Sandra Kalniete, Jorge Quiroga, Vladimír Dlouhý, André Glucksmann

 

 

 

“We were not prepared and we are not sure how to get out [of the crisis],” suggested Jan Švejnar, Professor at the University of Michigan, Chairman of the Center for Economic Research and Graduate Education, Economic Institute, in his keynote speech. In answer to the question of whether the “storm” really is over, he replied that we simply don’t know; there seemed to be signs indicating a movement in a positive direction, yet unemployment was still on the rise. The unpredictability of how the crisis would develop was a view shared by most of the panel.

 

In the future economists should learn to better recognize the warning signs. Speaking about the Russian experience, former Prime Minister of Russia Yegor Gaidar admitted that the crisis was unexpected as the Russian élite failed to realize the economy’s dependency on commodity prices (of oil, gas, etc.), which are especially vulnerable to developments in the global economy. However, in the long term, “even the finest experts in the field can be wrong”, contended Jan Švejnar. The economic crisis, which started out as a financial market crisis, has shown us that we are not infallible.

 

The speed of steps taken to deal with the crisis was identified as a key aspect in the recovery of many economies. Jan Švejnar praised the U.S. approach for being quick and decisive. Offering the Taiwanese perspective on the crisis, Chao-Shiuan Liu, former Prime Minister of Taiwan equally underlined the positive effects of the government’s quick reaction of introducing a series of “support policies” – economic growth rate was expected to reach 6.14% by 2010.

 

Sandra Kalniete, member of the European Parliament and former EU Commissioner from Latvia raised the issue of the EU becoming “a fragmented power”, relying too much on national governments in the context of the EU response to the crisis, and tending more generally towards protectionism. The reaction to the crisis should be a renewed solidarity and common policies within Europe. As for the next steps, “we have to preserve and enforce the internal market” and “provide a fast track to the eurozone for new member states.”

Former President of Bolivia, Jorge Quiroga, called for a major change in the system and shared the view that integration and fighting protectionism both in Latin America and within the EU were important to prevent the recurrence of the factors that led to the crisis. He also mentioned other key concerns of population growth, oil dependency and fighting the drugs trade.

 

For the Czech economist and international advisor of Goldman Sachs, Vladimír Dlouhý, “it is only by solving the macroeconomic imbalances in today’s world that we will provide the final framework for getting out of the crisis.” Jan Švejnar called for greater coordination at the international level. In the eyes of Chao-Shiuan Liu, the crisis has shown the “need to restructure the world’s financial institutions.”

 

French philosopher André Glucksmann asserted that the crisis reflected a deeper crisis within us. However, it is not “an illness to be cured”, but “a movement of capitalism itself.” Those very aspects which caused the crisis – globalization being one – are not necessarily bad, for many people have also been brought out of poverty as a result. To believe that risks and conflict are now over is an unrealistic, postmodern idea based on the assumption that “nobody makes a mistake, nobody steals, no one misbehaves against their neighbor.” André Glucksmann suggested that global reform starts with personal reform, and that rather than chant “Yes we can!”, we should realize that it is more about: “No, we should not.”

 

In a similar tone, Vladimír Dlouhý strongly refused the idea of needing to change the political or economic paradigms of our society, i.e. capitalism. It was to be expected that mistakes would be repeated and “financial innovation will always be ahead of financial regulation”. However, we must learn from the mistakes and “minimize the chance of moral hazards” also emanating from the population of developed economies living in a worsening “welfare state mentality”. He concluded that it would be the emerging markets that would take the more developed economies out of the crisis.

 

Czech Chief Macroeconomic Strategist of the ČSOB Bank, Tomáš Sedláček, closed the session by asking the panel whether the crisis was simply a “flat tire”, or whether a “whole change of engine is needed.” It seemed most people agreed that in the past, developed economies had accepted higher risk than was socially responsible and had rewards that did not reflect the value they added, but the way forward was difficult to agree upon.