OSAKA – The American-led global economic and financial system is broken — you have only to look at the shenanigans in Washington these last few weeks to see that — so where are the clear thinkers who can dream of a plan to fix things, and where are the practical politicians who dare to try to shape a new world?
It is time for Japan to take a lead. This is easier said than done, not least because it requires imagination and statesmanship as well as a high level of diplomacy in cultivating relationships with new friends and old enemies, all of which have been in short supply in Japan’s relations with the rest of the world.
At the very least, Tokyo needs a strong alliance with India and careful and calm negotiations with China, as well as the help of internationally minded countries and organizations to devise a plan to reshape the financial and economic structures of a battered world. The task is immense and perhaps it is only a pipe dream to imagine that there are creative thinkers and hardheaded politicians who are up to the task, especially in Japan.
Postwar Pax Americana has brought an unprecedented period of peace and prosperity to the world. Japan rose like a phoenix literally from the ashes of war and defeat, under the tutelage of the American peace and with generous aid plus the hard work of its own people.
The last 20 years have seen the even more remarkable emergence of China, the growing strength of the Asian tigers and dragons, the rapid, though stuttering, growth of another ancient civilization of India, and lately economic stirrings in Africa, partly aided by China.
Recent events have seen just how arthritic the system has become. As the United States was on the verge of its own economic recovery, politicians stepped up their quarrelling to the point of making the U.S. ungovernable, and then forced the shutdown and took the country to the brink of reneging on its debts.
The long, weary and bitter negotiations show that America has lost the ability to govern itself, let alone to play the leadership role that the world needs.
All the financial leaders of the world were in Washington last month for the IMF/World Bank Group annual meetings at the very same time that U.S. political leaders were taking their country to the edge of a precipice. But the pleas of the world for the U.S. to pull itself together were like huffing and puffing in the face of a typhoon.
Christine Lagarde, the head of the International Monetary Fund, warned that America risked tipping the world into recession. Anju Jain, the head of Deutsche Bank, claimed that it would be “utterly catastrophic … a very rapidly spreading, fatal disease” for the world if the U.S. defaulted.
Jamie Dimon, the embattled head of JPMorgan was more prosaic: “Please, let’s not shoot ourselves in the foot.” America’s politicians ignored the dire views of outsiders and kept quarreling.
The Obama administration has shown how morally bankrupt the U.S. is. President Barack Obama came to office with such wonderful rhetoric about his hopes of presiding over a transformed world of peace that he was awarded the Nobel Peace Prize for his vision before he had achieved anything.
Four years later, his biggest achievement, Obamacare, otherwise known as the Affordable Health Care Act, forms the excuse for Republican attacks that pushed the U.S. to shut down to the brink of default.
The act was legitimately passed, upheld by the Supreme Court and in the court of public opinion with the re-election of Obama. To Europeans or Japanese used to universal health care backed by the state, Obamacare is an expensive, moth-eaten product with too many holes in its coverage.
U.S. commentators argue that Republican opponents trying to kill a legitimately passed law have thrown away the traditional rules of politics. This is why it will be hard to get to civilized government without new elections, new leaders and a better appreciation of America’s strengths and weaknesses in a changed world. It is hard to see that coming easily.
American capitalism, though still vibrant, is in danger of being captured and held to ransom by powerful interests.
The too-big-to-fail banks protected by billions of dollars in subsidies are just one example. Besides the subsidies to the big banks, there are also billions of dollars in aid to big oil, big pharma, big farmers, and many of America’s leading corporations. Fed by well-funded K Street lobbyists, the U.S. is increasingly turning inward.
Leading Washington think tanks have suggested changes to the global financial system to allow for bigger voices for China, India and emerging powers. Essentially their ideas tinker with a broken system, putting bandages on a raging cancer.
Lifting China’s shareholding in the IMF to 6.071 percent when the U.S. retains a veto 16.479 percent is laughable when Congress refuses to act on this modest reform, which will impose no financial cost on the U.S.
Proposed remedies so far do not tackle the complex mix of problems: The global financial system is an ailing, patched up version of Bretton Woods 1944 that needs radical overhaul; the U.S. is still the biggest economic power but is no longer the sole economic superpower; China is on the way to becoming an economic superpower, but it is reluctant to assume global responsibilities; other countries are afraid of how China will exercise its muscle; and European countries pretend to be part of a European Union but cling to ancient national privileges.
Sweeping root and branch reforms are needed to the global financial system. But who is going to propose them and work them out?
Japan, with help of India, should take a lead. Both have an intense stake in the future shape of the financial system, while neither can aspire to superpower status. Both have an intense interest in seeing that China contributes constructively with a global outlook — not a narrow nationalistic one — and both have experienced and articulate policymakers who know the way the world works even if they lack the imagination to think of a better one
Is it a post-retirement job for India’s Prime Minister Manmohan Singh, with the help of his Oxbridge buddy Amartya Sen?
Twenty years ago, when Manmohan Singh was finance minister, he told me that the Group of Seven should not be allowed to become the dictator of the whole world. I made the story the lead in the IMF newspaper I was editing, against the bitter opposition of my senior colleagues.
He and India now have the Group of 20, but frankly it is a mess. Singh has the experience, the economic knowledge and the wisdom to contribute to global economic reform, but does he have the spirit or the guts to try to reform the world when he has faced immense problems keeping India’s reform flame flickering?
Who will step forward from Japan? Former international finance vice minister and chief barbarian tamer Toyoo Gyohten claims that he is retiring from his public jobs, but his mind is still alert and his awareness of global problems is strong.
Dr. Yoichi Funabashi might consider that a stronger international world order would be an essential part of rebuilding Japan. Japan also has a number of distinguished ambassadors, for example former envoy to the U.S. Ichiro Fujisaki, who have retired from government service but who could provide a global vision that would benefit the country.
They have to involve China. A couple of years ago I would have said that this was difficult if not impossible because of Beijing’s nationalism. But Zhu Min, the deputy managing director of the IMF, has shown an ability to understand the global dimension of issues.
Will the United Kingdom, whose John Maynard Keynes was a founding father of the 1944 IMF and which has a profusion of economic thinkers, come on board?
Will Christine Lagarde contribute, remembering her role at the IMF?
Is there an American who understands that the antics in Washington are shooting the U.S. not in the foot but in vital organs?
Kevin Rafferty is a professor at the Institute for Academic Initiatives at Osaka University. He served on the staff of the World Bank in Washington from 1997 to 1999.