Protectionism has become the “crack cocaine” of modern politics and anti-globalization forces have been emboldened by the global downturn, according to Mike Moore, the former prime minister of New Zealand.
Speaking at the opening of the Doha Business Roundtable, “Gulf 2020: Scenario planning in a post crisis-economy,” in Qatar, Moore highlighted a recent report from the World Trade Organization (WTO) which exposed 130 new measures from the past 12 months that restrict trade.
Moore, who was New Zealand’s prime minister for less than two months in 1990 but served as minister for overseas trade from 1984-90, accused governments around the world of hypocrisy on trade, saying that politicians in 19 of the G20 countries are “knowingly breaking their own agreements” before lodging complaints about others to the WTO with a view to gaining 18 months of breathing space.
Citing the current spat between US and China — over the alleged dumping of Chinese tires in the US, and alleged dumping of US chicken legs and wings and vehicle parts in China — Moore said there was a risk that the WTO could be overwhelmed with complaints. “It could spin out of control,” said Moore. “So far, however, the system is holding together.”
Moore, who was the director-general of the World Trade Organization from September 1999 to September 2002, said he believes that “more blood needed to be spilled” — in terms of countries facing up to the economic pain of allowing new competitors to enter their economies — before the Doha Development Round that collapsed in July 2006 could be restarted.
Moore said correcting the global imbalances that precipitated last year’s financial crisis is going to place huge demands on emerging economies including China, the Middle East, and Latin America, and that their biggest challenge will be to rebalance their economies towards domestic consumption.
Chris Gibson-Smith, chairman of the London Stock Exchange, agreed, pointing out that China and India are still growing their economies at 8% per annum. “That is a ‘decoupling’,” he said.
Gibson-Smit pointed out that the transition towards domestic consumption is going to require educational, cultural, and political shifts in these countries.
Simon Cox, the Economist’s economics correspondent, who chaired the opening session of the conference which forms part of the Qfinance Global Debates, said he believes that rather than seeking to undermine chastened Anglo-Saxon economies, China is coming around to playing a more active role in the G20.
Gibson-Smith, also a director of Qatar Financial Center Authority, said, given the amount China has invested in the US economy e.g. through Treasury ownership, it has a vested interest in keeping it afloat. “It is extremely unlikely that they [the Chinese] will take any steps that will have a precipitous impact on the dollar.” Moore said “it is an iron reality” that the health of the Chinese economy is dependent on the health of the US.
Moore said: “It’s going to take some reckless optimism to do this [get free trade talks back on the road].”
Moore said the biggest challenge facing the Gulf Cooperation Council (GCC) states is maintaining social cohesion at a time when populations are youthful and migrant workers outnumber the local inhabitants. Speaking of the relationship between prosperity and social and political stability, Moore said: “If people have nothing to lose, dangerous things could happen.”
One questioner said the developed world is talking about free markets but in reality behaving in protectionist ways.
Also during the conference session, Moore said that the only thing that will prevent the US being the world’s dominant power in 20 to 30 years will be a slowdown in immigration to the United States. He pointed out that many of America’s most successful companies were founded by migrants. “That has been the genius of America. If that [immigration to the US] slows down then all bets are off.”
Gibson-Smith said the banking and financial crisis is over, but acknowledged that the biggest problems that need to be fixed remain inside the banking sector. “Essentially it started as a crisis of the investment banking model, due to excessive leverage, lack of transparency, and weak regulation,” said Gibson-Smith. He added it went on to taint other sectors including commercial banking, property, and the wider economy.
He said the biggest current problem is that banks are hoarding the capital given to them by central banks. “The normal lubricants of our societies — banks and their lending policies — have been withdrawn.”
This blog was written for Qfinance on 1 October 2009. Written by Ian Fraser as part of the “live blogging” of the Qfinance launch events at the Ritz-Carlton Doha.
Qfinance – The Ultimate Resource, a comprehensive website and reference work on finance and the future of finance published by Bloomsbury Publishing and the Qatar Financial Center Authority, was launched in Doha on 29 September 2009.