Rethinking Government Assistance
Friday 29th January 2010 - 10:30am - 11:45am
Rethinking Government Assistance
The long-term effect of massive government assistance to aid struggling “national champions” and “too big to fail” firms is yet unknown.
How will current political mandates reshape competition within global industries?
• The lion’s share of government assistance and intervention over the past 18 months went to shoring up the sinking financial sector. The result is a new relationship between government and banks, the corporate sector and society. This radical reversal of the trend of less government intervention in the economy is causing varying degrees of apprehension all around.
• The golden era of self-regulation is over and global finance is being redesigned to make it more resilient. What next? What will a global regulatory structure look like? A new model is needed. When designing this new model, it is important to involve all stakeholders, not just the bankers and financiers responsible for causing the crisis. For example, discussions should be opened up to include trade union representatives and others.
• As the crisis goes into remission, there is a real threat that governments will retreat into protectionism as they attempt to stimulate economic growth and protect jobs at home. But it is now more critical than ever to push the Doha Development Round.
• Developing and emerging economies that were experiencing significant growth before the meltdown have suffered setbacks, but expect to recover quickly. The challenge will be to convince citizens that, despite the failures of the financial system in developed market economies, progress towards financial liberalization should continue.
The relationship between governments and banks, the corporate sector and society has changed irreversibly. There is a set of issues around an exit strategy from the extraordinary financial sector support measures. The regulatory relationship is set to change and there is an understanding that there is a need for better, not more, regulation. More challenging is how to craft a new relationship on the political side. Banks have been “stone deaf and shooting [themselves] in the foot” while some politicians have been demonizing the sector.
At the heart of the debates is the trade-off between how safe the financial system is versus how effective it is in supporting the real economy and creating jobs. Banks and the private sector are concerned that overbearing regulatory, supervisory and other policies could hamper industry and damage the real economy. There is concern that governments will pick winners and decide which sectors should create jobs.
It is important to learn the right lessons from the financial crisis. It was not the free enterprise system that failed; it was a bubble. The challenge for policy-makers is how to rebalance the economy. To reboot economic growth and create jobs, a new model is needed based on savings, investment and export rather than on housing, finance and government.
While retooling the global economy, it is critical to take the pulse of public sentiment. An estimated 34 million jobs were swallowed up during the crisis. Many people lost their savings, their homes and their pensions. Anger and mistrust should not be underestimated. Accountability must be built into the system and confidence must be restored.
A turn towards protectionism would be “a tragedy” for the world. Pushing the Doha Development Round is critical as it will create opportunities for growth and jobs through opening up trade. There are opportunities for growth and innovation in green energy, new technologies, healthcare, education, agrifood and a wealth of other sectors.
Developing and emerging market economy countries were not as exposed to the financial crisis. For example, India was nowhere near the frontiers of financial innovation. India’s 9% growth slipped to 7% over the past two years. However, progress towards financial liberalization must continue. On the supply side, the country has the capacity to grow at 9%; the challenge is where will the growth come from? To meet this challenge, India is investing in public-private partnerships that leverage private investment to build much-needed infrastructure.
Montek S. Ahluwalia, Deputy Chairman, Planning Commission, India
Dominic Barton, Worldwide Managing Director, McKinsey & Company, United Kingdom; Global Agenda Council on the Role of Business
David Cameron, Leader of the Conservative Party, United Kingdom
John G. Evans, General Secretary, Trade Union Advisory Committee to the OECD, France; Global Agenda Council on Employment & Social Protection
Andrei L. Kostin, Chairman and Chief Executive Officer, VTB Bank, Russian Federation
Peter Sands, Group Chief Executive, Standard Chartered Bank, United Kingdom; Co-Chair of the World Economic Forum Annual Meeting 2010
Jean-Claude Trichet, President, European Central Bank, Frankfurt
Michael E. Porter, Bishop William Lawrence University Professor, Harvard Business School, USA
This summary was prepared by Dianna Rienstra. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.
Copyright 2010 World Economic Forum
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of the World Economic Forum.
Friday 29 January
Keywords: government assistance, government intervention, global regulatory system, protectionism, Doha Development Round, self-regulation
Recommended reading for: Social Entrepreneurs, Young Global Leaders, CEOs, Financial Services Industry Partners, Investors Industry Partners, Technology Pioneers, Civil Society Leaders, Global Agenda Councils on Systemic Financial Risk, the International Monetary System, Economic Growth & Development, and Global Investment Flows
Group Chief Executive, Standard Chartered, United Kingdom
Graduate, University of Oxford; Master's in Public Administration, Kennedy School of Government, Har...
Andrey L. Kostin
Chairman and Chief Executive Officer, VTB Bank, Russian Federation
1979, degree in Economics, Moscow State University. 1979-82, General Consulate of the USSR, Sydney, ...
Chairman, Brussels European and Global Economic Laboratory (BRUEGEL), Belgium
Graduate: Ecole des Mines; University of Paris, Institut d'Etudes Politiques de Paris; Ecole Nationa...
Montek Singh Ahluwalia
Deputy Chairman of the Planning Commission (2004-2014), India
BA (Hons) in Economics, University of New Delhi; MA and MPhil in Economics, University of Oxford. 19...
Prime Minister of the United Kingdom
1988, degree (Hons) in Politics, Philosophy and Economics, University of Oxford. 1988-92, Head, Poli...
General Secretary, Trade Union Advisory Committee to the OECD, France
Studies in Philosophy, Politics and Economics, University of Oxford. Formerly: teacher in Introducto...
Global Managing Director, McKinsey & Company, USA
Twenty-seven years with McKinsey & Company: 2000-04, led Korea office; 2004-09, Asia Chairman; curre...
Michael E. Porter
Bishop William Lawrence University Professor, Harvard Business School, USA
BSE (Hons) in Aerospace and Mech. Eng., Princeton Univ.; MBA (Hons), Harvard Bus. School; PhD in Bus...