Editorial

Room for more regulation

That the world is watching an important shift in the hierarchy of global economic power now seems beyond doubt. Marx does seem to have made a prescient observation when he said that capitalism contained the seeds of its own destruction. On the face of it those seeds seem to be germinating pretty effectively at the moment. But that does not mean that the crash of 2008 needs to be an event which destroys capitalism: it remains the most efficient way of mobilising money for research, development and investment. Without the dynamism of the leading western economies how many of the amazing advances of the last 100 years would have been possible?

Just because a few fast-talking, fast-moving bankers brought the system to the brink, that is no reason to throw the baby out with the last handful of fast-devaluing dollars. That said, there is certainly room for more regulation in a world which now features criss-crossing electronic highways which carry undreamed of quantities of money round the globe in milliseconds. But if the current system is to develop into something which is perhaps more even-handed with the economic power of India, China and the rest of the fast-developing world taken into account, it should not become too restrictive. It would be all too easy to have the authorities over-react and there are already signs of that and end up with some sort of Prohibition-like emotional reaction with financiers and bankers subjected to a massive tsunami of moralism. We should examine who, if anyone, might be better placed than the western world to play the lead role in global finance before we reject, lock, stock and barrel, what we have now.

The question is at what level should the controls now be exercised? Clearly the majority of regulations at the national level have not been sufficient. The scale of world financial flows can now be gauged from the fact that the United States alone requires $3 billion a day of foreign capital and that is increasing fast as Washington has taken on an additional $1,000 billion in obligations just from the latest range of bailouts. Those sorts of obligations mean that the United States is going to need even more help from its friends and one or two countries with influential economies which are not numbered among its nearest and dearest. India is one of the few countries worldwide that looks as though it will escape almost unscathed from the current financial hurricane blowing through the corridors of western banks. But it should make sure that its voice is heard in the formulation of a new dispensation: banking and finance is now too important to the world at large to be left to bankers and financiers alone. The dimensions of international assets and finance are almost too big for the mind to grasp: global assets in 1980 were put at $12,000 billion but by last year that figure had risen to $200,000 billion. Much of that wealth now lies outside western countries in the coffers of the oil producers of the Middle East or the newly-emerging industrial powers in Asia.

Markets and the ownership of companies are now so inter-connected across the world that it is no longer possible to categorically separate the interests of one state or company from another and that process is likely to accelerate as time goes by. Such a situation points to the need for some kind of global authority watching over the world's finance and banking and armed with a set of agreed rules for the conduct of world business. For those who have no great love of the United Nations the idea of a group of international rules being formulated for the conduct of world business may seem not only overly-ambitious but also not remotely achievable. Drawing up a creed that would govern jurisdictions as different as the City of London and Kremlin-controlled business in Russia might seem a monumental waste of time that was doomed to collapse in a super-charged round of international wrangling. But it is surely better to try than to see the current international economic balance being sucked into a gigantic black hole.

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