"Capital flows to emerging markets in particular have been severely impacted – many businesses are literally shut out of the market and can’t get capital." Suzanne Nora Johnson, Trustee, Carnegie Institution of Washington, USA

As the current financial crisis continued to unfold - highlighting the limitations of the existing regime of global coordination and regulation - experts and thought leaders at the Summit on the Global Agenda painted the outlook for the global economy as the bleakest most have ever seen.

The risk of a serious economic slowdown is fast becoming reality in several countries. No country or industry is seen as immune from the repercussions.

The intensification of the current economic crisis threatens to derail the global economy, unless the public and private sectors can work together to come up with efficient and effective solutions. Financial stability and systemic risk rapidly emerge among the top political and economic concerns around the world. "We have witnessed a spectacular divorce of risk from responsibility," observed Richard O’Brien, Co-Founder and Partner, Outsights, United Kingdom.

However, the collateral damage will not be limited to the business and financial sectors; it will also impact wider society, where many beneficiaries of the incredible economic growth of the past few years, such as charities and NGOs, have traditionally depended on the largesse of the global economy.

The crisis is rooted in macroeconomic imbalances - among them long regimes of low interest rates and high asset prices as well as credit, trade and savings imbalances - and failures across the board in risk management and risk assessment. None of the market participants - be they governments, regulators, investors, financial institutions, rating agencies, media or households - are exempt from carrying responsibility. The lack of credible and accountable corporate governance structures portrayed as another ignored warning sign.

Governments around the world have been very actively engaged and have, according to the Council Members, employed the right sets of monetary and fiscal policies from their toolbox. And despite that very active engagement, severe dysfunction in credit, bank and inter-bank markets persists. "Capital flows to emerging markets in particular have been severely impacted - many businesses are literally shut out of the market and can’t get capital," stated theme Rapporteur Suzanne Nora Johnson, Trustee, Carnegie Institution of Washington, USA.

Real estate is described as a common entry point for investments in many developed and emerging markets facing relatively little bureaucracy and being a place to make a very measurable return. But the fundamental mismatch in the value of real estate assets relative to income and profit levels drove market prices too high and set the sector up for a sharp fall.

"The fuel to fire was very significant," said Nora Johnson. "Very ambitious short-term shareholder return objectives, management incentives and public policies across the board encouraged excessive risk taking and leverage."

The political knock-on effects are considerable too. The crisis has undermined the perceived advantage of open financial and capital markets, and even put into doubt the essence of capitalism itself.

The Global Agenda Councils on the theme of Finance and Business had a strong sense that in the short term, the key actors in the financial system will be governments. Acting both as regulators and owners, they will have two immediate responsibilities

•	Everyone who is engaged in the crises has to have a seat at the table with the objective of achieving a globally coordinated response. This is necessary for both immediate crisis management and the ongoing development of market regulations.
•	Intense government responses to date must continue - Council Members are convinced that the stimulus measures are key and monetary relief in the form of short-term interest rate cuts is very important. And while government intervention is here to stay - at least for the short term - it is necessary to much better communicate government intentions and actions to a sceptical public.

Councils focusing on Finance and Business

Global Agenda Council on: •  Corporate Governance •  Economic Imbalances •  Emerging Multinationals •  Entrepreneurship •  Financial Market Development •  The Future of Real Estate •  Global Capital Flows •  Marketing and Branding •  Systemic Financial Risk

In the intermediate and longer term, the following actions are described as critical elements for the naissance of a new global financial architecture:

•	Build capacity and capability of regulatory authorities both in national and international frameworks and forums (including quality of talent, compensation and the capability to compete with very complex and globally interrelated capital markets)
•	Improve governance in the private sector, both in developed and emerging markets
•	Ensure greater linkages between macroeconomic policies and regulators
•	Carry out greater synthesis and analysis in the aggregate, as transparency and information is not enough
•	Define the rules of engagement for government involvement in the private sector. There is a clear difference between being a regulator and being a shareholder. Changed competitive dynamics will emerge for private sector companies that are left out of government bail-out plans. Ongoing consultations on collaboration and in many instances government exit strategies will be critical
•	Continue to invest in the private sector and capacity within emerging markets - there are still massive growth opportunities for business
•	Engage the "underserved" to a much larger degree

Two caveats, however, remain. The first is the great concern that increased regulation will lead to more protectionism. The Councils advocated that everything be done to avoid restrictions to trade, capital market movements or regulatory arbitrage. An important role may be played by emerging multinationals that now have greater opportunity than in the past to emerge as two-way ambassadors of responsible globalization, engaging in international trade discussions while advocating fewer trade barriers in their home markets.

The second is that for any successful outcome, public stakeholders need to be re-instilled with a sense of confidence and hope for the future. Or as Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy, Singapore, so aptly put it, "You need the visible hand of good governance to balance the invisible hand of economic activity."

Councils focusing on Finance and Business