The speech was intended to communicate the US position for the meeting of the G-20 countries — a group of highly developed countries and some influential developing countries called emerging markets. The crucial G-20 meeting was an occasion to address the collective action problems in response to the global financial and economic crisis.
The AP story quoted Bush extensively:
"We must recognize that government intervention is not a cure-all." "Our aim should not be more government. It should be smarter government." "It is true that this crisis included failures, by leaders and borrowers, by financial firms, by governments and independent regulators. But the crisis was not a failure of the free-market system. And the answer is not to try to reinvent that system."
The lame-duck president is living in a different world. He wears blinders. He wishes to apply his ideology at all times. But his conservative economic creed of less government loses relevance in times of economic crisis.
Bush dislikes more government. But what do you call the US government bailout of financial institutions, amounting to more than US$700 billion? The fact is, the bailout was a necessary though insufficient condition, to restore confidence in the financial system and keep credit flowing, so as to resuscitate the real economy.
And to disparage government intervention, Bush uses the trick of inserting a red herring in his speech: "government intervention is not a cure-all." Only dumb people believe in a panacea.
But Bush is correct to say that we need "smarter government." Indeed, a smarter government would have taken precautionary measures through policy and regulation and could have thus averted a deep crisis. Unwittingly, Bush’s statement about "smarter government" merely confirms that he or his government isn’t smart. The US and the rest of the world are fortunate for two related reasons: First, Bush would no longer be around to preside over US policies and institutions. Second, the successor is Bush’s opposite.
One metaphor that best describes the current crisis of capitalism is the "gale of creative destruction." Raul Fabella, professor at University of the Philippines School of Economics, reintroduced this metaphor when he spoke in a public forum about the Philippine economy. Raul borrowed the term from Joseph Schumpeter. The "gale of creative destruction" is precisely what makes capitalism resilient. Destroy the old and build the new. Thus, the current crisis will destroy the free-market model, which was dominant for at least two decades, and deflate its "triumphalism." Supplanting it will be a system that enhances the role of government, institutions, and regulation in a market economy.
Recent actions taken by the richest countries — e.g., recapitalization and nationalization of banks as well as enormous fiscal spending — have socialist characteristics.
But what’s wrong about having socialist features or having socialism? The conservatives have labeled Barack Obama socialist. His plan to introduce universal health coverage in the US is socialistic. In fact, Hillary Clinton’s proposed health reforms are more radical than Obama’s program. That makes Hillary not only a feminist but a socialist, too. So what?
Schumpeter, who did not advocate socialism, nevertheless thought that socialism could not be avoided. In his address titled "The March into Socialism," Schumpeter said "the capitalist order tends to destroy itself and that centralist socialism is...a likely heir apparent."
Schumpeter gave three reasons for believing that capitalism is destroying itself and that socialism is the likely alternative. It is not capitalism’s failure but its successes that will lead to its demise.
- First, Schumpeter thought that technological progress and bureaucratic administration in modern capitalism eventually stifle entrepreneurship and innovation.
- Second, the advance of capitalism leads to the dominance of large corporations and the decimation of social strata such as small businessmen and farmers that are pillars of individual proprietorship. This weakens capitalism’s institutional scaffolding.
- Third, capitalist culture promotes rational and critical thinking, and this leads to the emergence of deep intellectuals who turn against the system.
Socialism, too, has its own version of creative destruction. Old socialism — the central command economy — has vanished except in a surreal place called North Korea. The "actually existing socialism" is a market economy. And it is in the socialist economies of developing countries where rapid growth has occurred — in China and in Vietnam. The social democrats likewise claim they are socialists. And surely, living in the Scandinavian countries is like living in heaven. Markets and competition, on the one hand, and socialism, on the other hand, can thus co-exist. In fact, they can complement each other.
As leaders put in place the new reforms to tackle the present and future economic global crises, we can expect a further convergence of so-called capitalism and so-called socialism.
As the unrepentant communist but "capitalist roader" Deng Xiao-Ping once said, it does not matter whether the cat is black or white so long as it catches mice.
Mr. Sta. Ana coordinates Action for Economic Reforms (www.aer.ph)
Reporter: Alan Kohler
ALAN KOHLER, PRESENTER: President Bush's big speech on Thursday in which he defended free market capitalism and small government sounded a bit like the ravings of the captain of the Titanic as he went down with the ship, blaming the iceberg.
The crisis was not a failure of the free market system, he declared.
Actually, I think you'll find it was, Mr President. The crisis is now greatest wherever the market was freest. Governments around the world are being forced reluctantly to nationalise their banking system in various ways, including Australia, where the Government has guaranteed bank deposits. And the G20 government leaders are meeting in Washington, the global HQ of regulatory failure, trying to agree on a fiscal rescue for the world economy and to restrain themselves from protectionism in their hour of emergency.
And then there's the car industry. As much a foundation of capitalism as the housing sector and the financiers to which they are both coupled, the US car industry, including its offshoots in Australia, is the author of its own misery, having failed to deal with their customers' changing energy needs. Instead of preparing for the future the car barons lobbied congress to be exempt from it. But the future arrived anyway, and they're now for the wrecker's yard. Kevin Rudd has coughed up $6.2 billion of taxpayers' money to support the car industry here, and in America, a debate is raging over whether to bailout Detroit to save millions of jobs. Another triumph for the free market.
We’re not talking about pure laissez-faire capitalism here. If that ever existed, it disappeared around the time of the trust busters and muckrakers of a century ago. Rather, we mean the basic concept that free markets are preferable to centrally planned economies.
Take Canada’s economy for instance. Three of its four largest economic expansions since the Second World War have occurred since the Canada-U.S. Free Trade Agreement and NAFTA were signed. Economic nationalism failed to produce the benefits its advocates envisioned. When bureaucrats and politicians tried to pick economic winners and losers, protect aging industries with direct grants, limit foreign investment and erect tariff barriers against imports to spark domestic production, our economy was flat (or at least flatter), and for longer periods, than during the period since free trade.
There can be no denying that free markets produce spikes and troughs, such as the trough the world’s financial markets are experiencing now. And each time one occurs, there are calls — as there will be this weekend from G20 leaders gathered in Washington. D.C. — for more international oversight by governments against future downturns. But, as history shows, government regulatory initiatives are just as likely to prolong hardship as they are to ameliorate it.
In a speech to the Manhattan Institute Thursday, U.S. President George Bush said “It’s true this crisis included failures — by lenders and borrowers and by financial firms and by governments and independent regulators. But the crisis was not a failure of the free-market system.” This is true, if ironic, coming from Mr. Bush. His administration’s initial $700-billion bailout package has done as much to deepen the current crisis as it has to solve it.
The idea that the government had to intervene to save the financial system was not in itself misguided. As others have noted, the financial markets are the equivalent of a basic utility: Their failure would mean the collapse of the entire economy. Amidst a credit freeze-up in which bankers had no idea who was hiding what radioactive assets on their balance sheets, lending ceased. Washington had little choice but to oil the gears with extra liquidity.
Unfortunately, the public servants controlling the $700-billion oil can had little idea where to direct the spout. Initially bureaucrat-driven, the Bush White House had to rework its stimulus plan this week to make it consumer-driven because financial regulators were doing preposterous things with the bailout money, such as using it to secure the credit of corporations and banks that were not in financial trouble.
Yet, even though Mr. Bush’s own cabinet has failed to live up to his faith in free-market capitalism, his words are nonetheless true. As he rightly pointed out, many European countries have lately experienced economic freefalls as large as the Americans despite being far more heavily regulated. Even Sarbanes-Oxley, the complex compliance regulations placed on U.S. business in the post-Enron era, failed to do anything to prevent or lessen the current woes.
Would any of us want to go back to the days of regulated airfares? The end of regulation in air travel has opened up flights and jet holidays to millions of Canadians who could never afford them when government set the price. The same is true of the cost of long-distance calling, cellphones and the rapid expansion of choice in cable television: The moment government ceased being the economic decision-maker, and turned over that task to the consumer, choice when up and price went down.
Canada and the world does not need a return to wage and price controls, rent controls, 6-and-5 inflation targets, foreign investment reviews or any of the other ways governments in the past 50 years have tried to smooth out the bull and bear cycles of the market.
If G20 leaders want to do something useful, they can look for ways to make markets work better, rather than trying to concoct ambitious news schemes to increase government presence in economic choices, something that almost always just makes matters worse.
US laissez-faire to battle European 'social market' at G20
14.11.2008 @ 17:31 CET
On Thursday, US President George W. Bush made an impassioned plea for laissez-faire capitalism and warned against turning away from free markets, while commission President Jose Manuel Barroso extolled the virtues of public intervention and the European welfare state model built at the end of World War Two.
The European 'social market' model has been celebrated by President Barroso (Photo: wikipedia)
"When our American friends now are ready to embrace a real commitment to fight climate change, this is exactly what we are been saying and promoting for some time. When our American partners are saying they want to engage more in a multilateral world, this is exactly what the EU has been saying and promoting for some time. When our American partners now are saying they should put some rules in a financially unpredictable, sometimes unregulated market, this is exactly what the EU has been supporting for some time," he told a European Network of Foundations conference on democracy promotion in Brussels today.
"When our American friends now are saying that they should find some ways of promoting some public tools, some public systems, in terms of social security, public education, this is exactly what we Europeans have been doing at least since the end of the Second World War, with the development of our social market economy," he said.
"The World Trade Organisation should be taken as a positive example of global governance," the 20 chambers said in a statement.
Their "Manchester Declaration", is a largely Keynesian document, calling for a European green investment package to put money in people's pockets and make the shift to a low-carbon economy, targetting in particular vulnerable households and small businesses.
Priming the global pump
However, despite his also being a member of the Socialist political family, he is expected at the summit to emphasise the need for co-ordinated global tax cuts to prime the global economic pump, although he also supports government spending increases.
"There is a need for urgency. By acting now, we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action."
The Labour prime minister has also repeatedly warned against new "over-regulation" in response to the crisis. Nevertheless, Mr Brown is also pushing for international oversight of the world's top 30 banks by a college of supervisors.
Mr Sarkozy, who currently chairs the EU's six-month rotating presidency, will argue for the development of cross-border regulation of financial institution lending practices and investment decisions.
On Thursday he also used the opportunity of the lead-up to the summit to deliver an obituary for the US dollar as a world currency.
"I am leaving tomorrow for Washington to explain that the dollar - which after the Second World War under Bretton Woods was the only currency in the world - can no longer claim to be the only currency in the world. What was true in 1945 cannot be true today," he said.
While Germany put up one of the main blocks to French plans for the development of a common European stimulus package at a summit of EU leaders last week, Chancellor Angela Merkel supports Mr Sarkozy's wish to see regulation of hedge funds and an end to excessive remuneration for bank executives.
However, despite their differences, the EU leaders head to Washington united on a plan of action they are to take to the meeting that would see greater transparency of financial transactions through revised accounting standards, the construction of an early warning system to tackle risks and a central role for the International Monetary Fund (IMF) "in a more efficient financial architecture."
Many aspects of the European plan are likely to meet resistance from President Bush, who remains unconvinced that deregulation of financial markets had any role to play in the crash.
Thus while Brussels is impatient that action be taken urgently to deal with the crisis, in many ways does not expect much from this first summit, and the French EU presidency has called for a second G20 summit to be held next February in order to involve the Democractic president-elect, Barack Obama, who will only send former Clinton Administration secretary of state Madeleine Albright and and former Iowa Congressman Jim Leach to the Washington meeting.
G20 undemocratic, say NGOs
A coalition of 630 civil society organisations has criticised the meeting as undemocratic as 170 countries have not been invited even though the decisions reached by the G20 affect everyone.
They are particularly worried about giving the World Bank and the International Monetary Fund new powers.
"The policies of northern governments, the World Bank and the International Monetary Fund pursued for the past thirty years have failed spectacularly," said Vitalis Meja with Afrodad.
Friends of the Earth and the Jubilee Debt campaign criticised the positions of all the leaders heading into the summit.
"Let's call time on global greed," they continued. "The same systems that create poverty here – unfair trade rules and tax systems, debt burdens, privatisation and attacks on welfare spending – also create poverty in the developing world."
© 2008 EUobserver.com. All rights reserved.
THE SOCIALIST GROUP IN THE EUROPEAN PARLIAMENT
The Group, which has been holding talks in Manchester, UK, this week, issued a three-page Manchester Declaration on the financial crisis.
Said Socialist Group leader Martin Schulz today:”We support the call for a new Bretton Woods to create a new, more accountable, more stable and fairer system of global financial governance.
Said Pervenche Berès, chairwoman of the European Parliament’s economic and monetary affairs committee: “Only strong, coordinated government action both at European and international level can restore confidence, secure and create more jobs, fill order books, and boost demand from both business and consumers. The more coordinated such actions are, the more effective they will be.
“The European Union has a key role to play in raising and channelling funds. There should be no taboo. The member states should discuss the possibility for the EU to issue Eurobonds to invest in European projects.”
The Socialist Group called on its member parties across the 27-nation EU to take on board the substance of the Manchester Declaration.
Calling for strong European and international coordination, the Declaration urges:
- Targeting measures to help on those who need it most and in particular small firms and vulnerable households. This will involve rapidly restoring levels of lending to households and businesses, especially SMEs
[THIS SOUNDS VERY SIMILAR TO OBAMA'S 'SPREADING THE WEALTH' DOCTRINE!!]
- A European ban on mega-bonuses and golden parachutes;
- Refusal of compulsory redundancies [??]
- Implementation of a European Green Investment package to boost the economy, avoid a long-lasting recession and help Europe to meets its climate and energy goals
- Revival of the Doha world trade talks to reach successful, development-friendly conclusions.
[THIS SOUNDS VERY SIMILAR TO THE UNITED NATIONS & U.S. DEMOCRATIC PARTY'S 'NEW GREEN DEAL' AND TO OBAMA'S PLEDGE OF PROVIDING "5 MILLION NEW GREEN JOBS"!!]
In addition to addressing the current crisis, we will also need to make broader reforms to strengthen the global economy over the long term. This weekend, leaders will establish principles for adapting our financial systems to the realities of the 21st century marketplace. We will discuss specific actions we can take to implement these principles. We will direct our finance ministers to work with other experts and report back to us with detailed recommendations on further reasonable actions.
This is a decisive moment for the global economy. In the wake of the financial crisis, voices from the left and right are equating the free enterprise system with greed and exploitation and failure. It's true this crisis included failures -- by lenders and borrowers and by financial firms and by governments and independent regulators. But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need, and move forward with the free market principles that have delivered prosperity and hope to people all across the globe.
Like any other system designed by man, capitalism is not perfect. It can be subject to excesses and abuse. But it is by far the most efficient and just way of structuring an economy. At its most basic level, capitalism offers people the freedom to choose where they work and what they do, the opportunity to buy or sell products they want, and the dignity that comes with profiting from their talent and hard work. The free market system provides the incentives that lead to prosperity -- the incentive to work, to innovate, to save, to invest wisely, and to create jobs for others. And as millions of people pursue these incentives together, whole societies benefit.
Free market capitalism is far more than economic theory. It is the engine of social mobility -- the highway to the American Dream. It's what makes it possible for a husband and wife to start their own business, or a new immigrant to open a restaurant, or a single mom to go back to college and to build a better career. It is what allowed entrepreneurs in Silicon Valley to change the way the world sells products and searches for information. It's what transformed America from a rugged frontier to the greatest economic power in history -- a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod.
Ultimately, the best evidence for free market capitalism is its performance compared to other economic systems. Free markets allowed Japan, an island with few natural resources, to recover from war and grow into the world's second-largest economy. Free markets allowed South Korea to make itself into one of the most technologically advanced societies in the world. Free markets turned small areas like Singapore and Hong Kong and Taiwan into global economic players. Today, the success of the world's largest economies comes from their embrace of free markets.
Meanwhile, nations that have pursued other models have experienced devastating results. Soviet communism starved millions, bankrupted an empire, and collapsed as decisively as the Berlin Wall. Cuba, once known for its vast fields of cane, is now forced to ration sugar. And while Iran sits atop giant oil reserves, its people cannot put enough gasoline in its -- in their cars.
The record is unmistakable: If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go. (Applause.) And it would be a terrible mistake to allow a few months of crisis to undermine 60 years of success.
Just as important as maintaining free markets within countries is maintaining the free movement of goods and services between countries. When nations open their markets to trade and investment, their businesses and farmers and workers find new buyers for their products. Consumers benefit from more choices and better prices. Entrepreneurs can get their ideas off the ground with funding from anywhere in the world. Thanks in large part to open markets, the volume of global trade today is nearly 30 times greater than it was six decades ago -- and some of the most dramatic gains have come in the developing world.
As President, I have seen the transformative power of trade up close. I've been to a Caterpillar factory in East Peoria, Illinois, where thousands of good-paying American jobs are supported by exports. I've walked the grounds of a trade fair in Ghana, where I met women who support their families by exporting handmade dresses and jewelry. I've spoken with a farmer in Guatemala who decided to grow high-value crops he could sell overseas -- and helped create more than 1,000 jobs.
Stories like these show why it is so important to keep markets open to trade and investment. This openness is especially urgent during times of economic strain. Shortly after the stock market crash in 1929, Congress passed the Smoot-Hawley tariff -- a protectionist measure designed to wall off America's economy from global competition. The result was not economic security. It was economic ruin. And leaders around the world must keep this example in mind, and reject the temptation of protectionism. (Applause.)
There are clear-cut ways for nations to demonstrate the commitment to open markets. The United States Congress has an immediate opportunity by approving free trade agreements with Colombia, Peru*, and South Korea. America and other wealthy nations must also ensure this crisis does not become an excuse to reverse our engagement with the developing world. And developing nations should continue policies that foster enterprise and investment. As well, all nations should pledge to conclude a framework this year that leads to a successful Doha agreement.
We're facing this challenge together and we're going to get through it together. The United States is determined to show the way back to economic growth and prosperity. I know some may question whether America's leadership in the global economy will continue. The world can be confident that it will, because our markets are flexible and we can rebound from setbacks. We saw that resilience in the 1940s, when America pulled itself out of Depression, marshaled a powerful army, and helped save the world from tyranny. We saw that resilience in the 1980s, when Americans overcame gas lines, turned stagflation into strong economic growth, and won the Cold War. We saw that resilience after September the 11th, 2001, when our nation recovered from a brutal attack, revitalized our shaken economy, and rallied the forces of freedom in the great ideological struggle of the 21st century.
Thanks for coming and God bless. (Applause.)
Canadian National Post
In a speech in New York, Mr. Bush even delivered a much needed paean for the easily forgotten achievements of economic freedom. Mr. Bush’s address to the Manhattan Institute might be dubbed “the speech John McCain never gave, but should have, and that Barack Obama never will.” He referred pointedly to the voices both from the left and right who were equating the crisis with “greed and exploitation.” They were, he suggested, very wrong.The Dow, as if picking up the president’s positive message, gained almost 1,000 points in the wake of the speech. That obviously wasn’t the only reason for the rally, but there’s no doubt that the market welcomes some respite from six months of relentless Wall Street and capitalism bashing.
Typical of anti-capitalist humbug were the noises emerging this week from a UN meeting on inter-faith tolerance promoted by one of the most religiously intolerant regimes on earth, Saudi Arabia.
One of its masterminds was the recently elected head of the UN General Assembly, Miguel d’Escoto Brockmann, a former Sandinista government official and perpetual proponent of rabid, anti-Western “liberation theology.” Señor d’Escoto kicked off the conference with towering condemnation of the West’s “unbridled greed.”
“It is a time of numerous bankruptcies,” declared Father d’Escoto, “but the worst is the moral bankruptcy of humankind’s self-proclaimed ‘more advanced societies,’ which has spread throughout the world. It is not only Wall Street that needs to be bailed out. We need to bail out all of humankind from its social insensitivity.”
Father d’Escoto’s social sensitivity is more than adequately attested to by the fact he is a past recipient of the Lenin Peace Prize (previously the Stalin Peace Prize). When he was elected head of the General Assembly, he declared, “I do not want to turn this presidency into a place to take it out on the United States.” But then since he had described Ronald Reagan as the “butcher of my people,” U.S. representatives were a little cynical of such professed even-handedness.
Father d’Escoto has called for a more democratic UN, although we have to remember that his idea of democracy is of the one-way variety embraced by the former Sandinistas.
The red cleric, it should be noted, appointed Maude Barlow as the UN’s special envoy for water. Upon her appointment, Ms. Barlow told the Wall Street Journal: “I don’t think I would have been offered a role there by anyone but someone like Father Miguel. He cares deeply about the poor.”
But not deeply enough, it seems, to reflect on why socialism has proved so disastrous for them. Mr. Bush’s speech yesterday was a welcome antidote to such drivel.
Although no Senator Obama — the new gold standard (if that’s not an oxymoronic term) for political rhetoric — Mr. Bush elicited enthusiastic applause several times when referring to the resilience and financial status of New York, and to how free market capitalism was “more than an economic theory.” It had been, he said, “the highway to the American dream.” It had produced the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod. It had worked wonders in other economies, from Japan and South Korea, through Singapore, Hong Kong and Taiwan. The United States, he also pointed out, had bounced back many times before; in the 1940s, in the 1980s — at the end of which it had won the Cold War — and after 9/11.
The President also delivered one very clear warning to his successor that a key policy response to the 1929 stock market crash had been the introduction of the disastrous Smoot-Hawley tariff, which had been designed to protect jobs but had served only to lengthen breadlines by destroying trade.
Mr. Bush’s speech was more directly aimed at the world leaders he will be meeting over dinner tonight at the White House, and on Saturday, to discuss the financial crisis. He is obviously keen to ward off the assault of dirigistes such as French President Nicolas Sarkozy. Mr. Bush declared that G20 participants should reaffirm that “free-market principles offer the surest path to lasting prosperity.”
In a piece in the Financial Times (which you can also read on our site) meanwhile, Mr. Flaherty too had rare kind words for the invisible hand, downplayed grand global financial architectural plans and suggested that reform — like charity — should begin at home. “The open market system did not fail in this crisis,” he said.
When it comes to regulation, it seems, we have myriad examples of what doesn’t work, but in terms of bringing people out of poverty, in promoting innovation and even, as Mr. Bush suggested, “social justice,” there is no substitute for capitalism. It was inspiring to hear the President reaffirm that fact, and point out that the perpetual danger is not from too little government, but from too much, especially of the kind promoted down at Turtle Bay.
Bush makes case for the free markets
Speech in advance of economic summit defends American capitalism
The Associated Press
updated 2:40 p.m. ET, Thurs., Nov. 13, 2008
NEW YORK - President George W. Bush asserted Thursday that the global financial crisis is “not a failure of the free market” and urged world leaders to adopt modest financial reforms that stop short of the tighter regulations Europeans favor.
“Our aim should not be more government. It should be smarter government,” Bush said during a speech in New York, a day before about two dozen world leaders converge on Washington for a weekend summit he is hosting.
Bush called on the leaders to embrace “reasonable” reforms, saying changes won’t work if they shun the free market system or restrict trade.
The president delivered a vigorous defense of free-market capitalism and easier global trade to frame his approach to the high-level gathering. Bush invited representatives of some of the world’s biggest industrial democracies, emerging nations and international bodies to Washington to start developing a more coordinated world response to the economic woes that have millions of people struggling to keep their jobs, their homes and their hopes.
With the severe economic downturn threatening to end Bush’s tenure on a sour note before President-elect Barack Obama takes over, he will host the leaders at a White House dinner Friday and review causes and solutions for the financial mess Saturday.
It was fitting that Bush’s argument against regulatory overreach was delivered not in Washington but from the heart of Wall Street. He spoke at venerable Federal Hall, which was home to the first Congress and is within shouting distance of New York Stock Exchange.
Bush called for reforms to strengthen the global economy long-term and said leaders at this weekend’s meeting would “discuss specific actions we can take.”
Among the areas for possible agreement, Bush listed:
Bolstering accounting rules for stocks, bonds and other investments so investors have a clearer sense of the true value of what they buy.
Requiring “credit default swaps” — a type of corporate debt insurance — to be processed through a central clearinghouse. That would help provide crucial information on the parties involved in these complex, unregulated products. Prices for this insurance soared in the aftermath of the Lehman Brothers’ bankruptcy and imperiled American International Group, a major insurer of this kind of corporate debt.
Taking a fresh look at rules aimed at preventing fraud and manipulation in trading of stocks and other securities.
Better coordinating financial regulations among countries.
Giving a wider variety of countries voting power at the International Monetary Fund and the World Bank.
Notably absent from his speech was any talk about what the U.S. might do to bail out the troubled auto industry or the debate over a second U.S. stimulus package.
“The crisis was not a failure of the free market system,” Bush said. “And the answer is not to try to reinvent that system.”
But Bush’s argument that “government intervention is not a cure-all” came as some critics think his administration already is overstepping in private markets. The federal dollars being spent or put on the line to rebuild the nation’s financial system could easily run into the trillions. Already the Bush administration has enacted a $700 financial rescue package, backed the purchase of investment bank Bear Stearns, bought stock in leading banks, engineered a government takeover of mortgage giants Fannie Mae and Freddie Mac, guaranteed money market fund holdings and funneled billions to stabilize troubled insurance giant American International Group.
“I’m a market-oriented guy, but not when I’m faced with the prospect of a global meltdown,” Bush said.
At the same time, the president aggressively defended the U.S. against charges from around the world that insufficient U.S. regulation led to the credit collapse worldwide.
This was his way of pushing back against both the criticism and the calls by allies for more intrusive rules. Heading into the meeting, Europeans are seen as looking more urgently for broad changes and tighter universal banking regulations than is the United States.
“Many European countries had much more extensive regulations and still experienced problems almost identical to our own,” Bush said.
Some critics have said that lax oversight by U.S. and other regulators failed to detect problems and respond with action that could have prevented the meltdown. The crisis began with the collapse of the U.S. housing market, which froze credit, then shook the broader financial sector and finally rippled overseas.
“History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market,” he said. “It would a terrible mistake to allow a few months of crisis to undermine 60 years of success.”
Dan Price, Bush’s deputy national security adviser for international economic affairs, rejected suggestions of discord with other nations and said it was “grossly inaccurate” to suggest the U.S. was not taking a firm lead in reform.
“We are no less committed to fixing the problems, and addressing regulatory and other deficiencies, than any other leader,” he said.
While in New York, the president addressed a conference at the United Nations on religious tolerance and met privately with King Abdullah of Saudi Arabia.
The summit is just the first in a series intended to deal with the enormity of the economic meltdown, and the next meeting won’t be until after Bush leaves office on Jan. 20.
In the United States alone, the nation’s jobless ranks zoomed past 10 million last month, the most in a quarter-century, as 240,000 more people lost jobs. In the latest dire sign, American automakers say they are struggling to survive.
Obama is steering clear of the summit but will have a couple representatives available to meet with leaders on his behalf.
Besides the United States, the countries represented will be Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey. Those countries and the European Union make up the so-called G-20.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Bush defends capitalism on eve of economic summit
By BEN FELLER
NEW YORK – President George W. Bush fervently defended U.S.-style free enterprise Thursday as the cure for the world's financial chaos, not the cause. He warned foreign leaders ahead of a weekend summit not to crush global growth with restrictive new rules.
"We must recognize that government intervention is not a cure-all," Bush said from Wall Street, setting his own tone for the two-day meeting that begins Friday in Washington seeking solutions to the economic crisis that has spread around the world. "Our aim should not be more government. It should be smarter government."
The president acknowledged that governments share the blame for the severe economic troubles that have hit banks, homes and whole countries.
He spelled out his prescription, which includes tougher accounting rules and more modern international financial institutions. But he stopped short of the tighter oversight and regulation that European leaders want. All his ideas came with a warning: Don't disturb capitalism.
"In the wake of the financial crisis, voices from the left and right are equating the free enterprise system with greed, exploitation and failure," Bush said.
"It is true that this crisis included failures, by leaders and borrowers, by financial firms, by governments and independent regulators," Bush said. "But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system."
That warning about the dangers of too much government intervention came not long after he championed the biggest bailout in U.S. history: a $700 billion taxpayer-funded plan to rescue the financial industry. His government has also signed off on costly rescues for housing, insurance and other financial institutions.
The U.S. wields enormous clout in any global response to the economic crisis, and Bush is host for the weekend gathering, bringing together heads of state from the world's biggest economies as well as emerging nations. It is intended to be the first in a series.
But Bush's personal influence is waning.
In about two months, Democrat Barack Obama will take over as president. Though the president-elect does not plan to attend this summit, he has authorized former Iowa Rep. Jim Leach and former Secretary of State Madeleine Albright to represent him. Obama's transition team says they will primarily be listeners on the periphery of the meetings.
The world leaders come to Washington with their own ideas for change. French President Nicolas Sarkozy, British Prime Minister Gordon Brown and others are advocating a broader overhaul of financial regulations than Bush wants. The Europeans also want a pledge for concrete changes in just 100 days.
The stated goal for this weekend is to examine the causes of the crisis and begin mapping out principles for a response.
But Britain's Brown, on his way to the summit, declared, "There is a need for urgency."
It was fitting that Bush's argument against regulatory overreach was delivered not in Washington but on Wall Street. His speech venue was venerable Federal Hall, home to the first Congress and within shouting distance of the New York Stock Exchange.
There was freshly sobering news on the U.S. economy: The number of newly laid-off people seeking unemployment benefits jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks. Still the Dow Jones industrial average surged 553 points at the end of the trading day.
Some of Bush's admonitions raised questions about his own past actions, including last month's big bailout law.
Also, he is one of those voices from the right who railed about greed, saying in an unguarded moment in July that Wall Street "got drunk and now it's got a hangover."
On Thursday, he defended his administration against charges from some leaders that insufficient oversight and regulation in the U.S. contributed to — even caused — the mess by failing to raise alarms. Obama is among those who say no one was minding the people's business as the housing market plunged, credit markets ground to a halt and the broader financial system went into distress.
White House aides play down Bush's differences with other nations, saying the leaders have much in common, as evidenced by the gathering itself.
Bush's list of possible areas for agreement include:
- Bolstering accounting rules for stocks, bonds and other investments so investors have a clearer sense of the true value of what they buy.
- Requiring "credit default swaps" — a type of corporate debt insurance — to be processed through a central clearinghouse. That would help provide crucial information on the parties involved in these complex, unregulated products.
- Taking a fresh look at rules aimed at preventing fraud and manipulation in trading of stocks and other securities.
- Better coordinating financial regulations among countries.
- Giving more countries voting power at the International Monetary Fund and the World Bank.
Australian Prime Minister Kevin Rudd said before he left for Washington that he would raise with fellow leaders his view that a system in which executives of financial firms are rewarded for maximizing risk "cannot be sustained." He said, "That's just dumb, it's wrong and it's bad."
Trade union leaders from participating countries planned to join AFL-CIO leaders Friday in meetings with several foreign heads of state, including Brazilian President Luiz Inacio Lula da Silva, and with IMF Managing Director Dominique Strauss-Kahn and World Bank President Robert Zoellick.
The labor leaders are calling for re-regulation of global financial markets, an internationally coordinated fiscal stimulus and balanced economic growth to address income inequality.
AP Writers Jeannine Aversa and Jim Kuhnhenn contributed to this story from Washington.
STERN Business (Fall/Winter 2007)
Throughout the Western world, a vast region generally viewed as dominated by capitalism, people’s attitudes toward the virtues of free markets vary widely. According to the World Value Survey, only 22 percent of French people believe that owners should run their businesses and appoint their managers, while as much as 58 percent of Americans agree with this statement, to cite one example.
Academics have focused on a range of issues to explain the dispersion of pro-free market attitudes. Some argue that the uniqueness of US history – a large, ethnically heterogeneous society – has endowed modern American citizens with persistent anti-redistributive beliefs. The political economy view holds that people that gain the least from globalization are less likely to support it (for example, unskilled workers in the North, skilled workers in the South, people working in industries with high trade exposure). Still others argue that differences can be ascribed to cultural factors such as patriotism, neighborhood attachment, or a strong sense of identity.
We set out to understand what determines attitudes toward free markets by investigating how beliefs about the market economy vary across individuals, time, and countries. We constructed a dataset based on economic data like pension funding and stock market participation, and on opinion surveys, like the World Value Survey (WVS), which collects data on age, gender, and income, and measures attitudes toward economics, marriage, and religion across dozens of countries; and the Internal Social Survey Program (ISSP), whose 1996 wave contained questions on ethnicity, private property, and attitudes on state interference with free competition. By running regression analysis on this data, we were able to investigate the influence of certain factors in accounting for the differential attitudes.
Our analysis of the WVS focused on the answers given to questions about (1) the benefits/harms done by competition; (2) whether owners, employees, or the state should run the firms; (3) the merits of private ownership of business and industry; and (4) the trustworthiness of large firms. The data show a large variation in cross-country attitudes toward free markets. Two examples are given in Table 1, which focuses on the 18 richest countries in our sample and displays mean variables for all three waves of the WVS.
In the cross section of countries, preference for redistribution and attitudes toward free markets showed little, if any correlation. But this was less true at the individual level. People that tended to favor income equality also tended to distrust competition, large companies, and shareholder control of firms. In order to isolate the pure effect of “pro-free market” beliefs, we used as control variables attitudes such as: trust (many existing studies have shown that trust explains well the cross section of various economic outcomes, such as GDP growth); aversion to inequality (defiance toward free markets may stem from a concern for equality); pro-trade (in many instances, defiance toward market forces can be defiance toward globalization); and religion (academic work has shown, in general, that being religious is positively correlated with a positive perception of work and thrift). When we ran the data, we found that the unconditional correlations were not very high, which suggests that individual determinants of opinions are very diverse across attitudes. And yet we found that all four “market” variables are positively correlated with each other. Pro-competitive people also tend to support less equality, seem to favor free trade, and tend to be less religious and less confident in other people, for example.
Why do attitudes toward free markets vary so much across individuals? The political economy view holds that self-interested individuals hold the beliefs that suit them best. In the developed world, for example, those least supportive of free trade also tend to have lower levels of education or work in industries where foreign competition is high. To test this hypothesis, we explored responses on two broad and distinct sets of issues: attitudes toward competition and attitudes toward the profit-motive. Attitudes toward ownership and competition shared some common determinants that proved to be statistically significant. Support for competition and owner control was also more prevalent among older people. (One possible explanation is that older people, being closer to retirement or more entrenched in their jobs, are more sheltered from the shocks of competition.) People with higher levels of income also showed strong support for market forces and self-interested behavior. Our preferred interpretation of this finding is that income is a proxy for the ratio of financial wealth to human capital. Another possibility is that income is a proxy for skill. Skilled labor is more protected from off-shoring and creative destruction that accompany for-profit management and tougher competition.
A more powerful test of the political economy view consists in combining the individual characteristics with country-level institutional features. We did so by looking at the cross-country dispersion in pension funding and financial development as a measure of the extent of financial markets institutions and compared how young and old people answered the questions. In theory, older people, who control a greater chunk of financial wealth, should display more free-market support in countries where they are the most likely to hold a larger fraction of financial wealth. Generally speaking, we found that in countries where pensions are funded, in financially developed countries, the old are much more likely to be supporters of the free market than the young. The probability that the young favor owner control was larger by 18 percentage points in the pension-funded countries. The probability that older citizens do so is larger by 30 percentage points.
It’s natural to wonder whether the institutional determinants that impact the support for markets come from very far in the past or are largely driven by recent developments. Several scholars have argued that in a cross-section of countries, distant legal origins matter. Compared with countries whose systems derive from French civic law, countries whose systems derive from British common law have a stronger propensity to protect debtholders and shareholders, have lower job protection, and facilitate entry by making business creation easier. When we ran the numbers, we found that legal origin has a significant impact. Notably, French legal origin was strongly related to competition aversion, and British common law was related to a strong preference for owner control. These findings suggest that long-run institutional determinants rooted in the history and culture of a country dominate more recent developments in the organization of its economy.
There’s more evidence that culture matters. Consider that only about 48 percent of American households own stocks directly or indirectly. This makes it unlikely that the median voter will support owner control or free competition just because it boosts the return of its portfolio. And yet, 57 percent of US respondents agreed with the statement that the “owners should appoint the management,” and more than 70 percent of US respondents who work for others agree with the proposition that “management should only care about profits.” The diffusion of equity ownership in the US cannot alone explain why American citizens support free markets more than do citizens of other countries.
Culture may be a factor in explaining such results. Scholars have argued that attitudes are affected by ethnic origins because they have a cultural component, and that culture is transmitted within the family. To test this hypothesis, we constructed two indices of cultural proximity to seven major western cultures: France, Germany, Russia, Spain, Sweden, the UK, and the US. The first index measures proximity to economic culture using as controls an aversion to inequality and a pro-trade attitude. The second index of cultural proximity is related to non-economic values, such as religious proximity.
For country differences in beliefs about markets to be permanent and unexplained by self-serving behavior, divergent beliefs of individuals need to persist throughout generations. But we also know that ideas and attitudes change over time. We tried to get at this issue by focusing on former communist countries and comparing attitudes toward free markets held by younger generations to attitudes of generations that were already adults when the Berlin Wall fell. We found that in the West, younger generations tend to be less pro-market in general. For people born after 1970, the probability of supporting owner control or competition was lower by 1 percentage point. The probability of supporting state ownership over private ownership was higher by 5 percent, a much larger difference.
To investigate further how fast beliefs can adapt from one generation to the next if the economic context changes, we looked at evidence from immigrants. For our purposes, we grouped country/language/ethnicity of origin into four broad categories: English-speaking countries, Continental Europe, Eastern Europe, and Nordic countries. The regressions we ran broadly confirm the results obtained on individual and country data. Respondents from English-speaking countries show consistently more support for both free markets and private property. Respondents of Eastern European origin show the strongest support for state ownership and an activist industrial policy.
We ran the same regressions focusing on US residents. The focus on the US is useful because it is the country where regions of origin are the most diverse. Here, we found mixed evidence that indeed, free market attitudes are strongly transmitted within the family and are weakly dependent of the economic context. For instance, respondents of Eastern Europe origin were 22 percent more likely to support redistribution; US residents of such origin were 6 percent less likely – not statistically significant – to do so. In general, the difference in attitudes between US citizens of Anglo-Saxon descent and other origins was both small and insignificant statistically, while the difference was strong on the worldwide sample. This suggests that such beliefs are much more conditioned by environmental characteristics than by transmission of family values.
What should we conclude from this investigation? First, we find that the traditional political view according to which individuals hold political opinions that are self-serving is consistent with the data. In general, individuals that would benefit more from a pro-market agenda exhibit stronger pro-market opinions. But this tendency alone can’t explain the sometimes significant differences between countries. The attitudes of a country toward markets are slow-varying and seem, on aggregate, to be strongly determined by historical and cultural factors. When it comes to explaining differences between countries’ views toward fundamental issues of markets and competition, economic theory matters. But so, too, do other factors, such as culture, legal systems, ethnicity, and family, matter.
Augustin Landier is assistant professor of finance at NYU Stern, David Thesmar is professor of economics at the Ecole Nationale de la Statistique et de l’Administration Economique (ENSAE) in Paris, and Mathias Thoenig is professor of economics at the University of Geneva.
[See: European Governments Educate Young Against Free Markets & American Capitalism in Favor of European Welfare State Dream - Europe's School Books Demonise Enterprise, ITSSD Journal on Economic Freedom, at: http://itssdeconomicfreedom.blogspot.com/2008/01/european-governments-educate-young.html ].