The horrible truth is, of course, that no one is actually planning properly the management of our global economy and that is actually an even worse situation than the idea that an unelected elite is controlling us all. We remain remarkably vulnerable to chaotic market movements and even more vulnerable to commercial decision making based solely on immediate individual interest and short-term profit seeking. We also have no serious global planning despite having a global economy, a global ecology and an increasingly global society. That is a pretty major problem when the world is already starting to encounter some of the initial problems associated with climate change and all independent scientists are telling us there is a lot worse to come.
Nevertheless, what is always interesting about Davos is how much it teaches us about the hopes and fears of those who have the strongest influences over our economic system and the best chance of exerting some sort of control over how it evolves.
The first and most obvious thing to learn from the summit is how far the US has moved from its position of world leadership. Most of the delegates don’t seem to have been bothered about whether President Trump was going to be there or not and to have even less respect for his views. They were much more interested in what was being said in India and China than in Washington. So the delegates listened with respect and admiration as the Indian Premier, Narenda Modi pointed out the dangers of nations acting solely in their own interests and introducing protectionist measures. Just as Trump was putting import tariffs on solar panels. And the leading capitalists from across the world focused carefully on the words of a key member of the Political Bureau of the Chinese Communist Party. Because he was talking about opening up a new silk road and actively intervening in global markets if there was a repeat of the 2008 crisis whilst Trump was rambling on about America first.
China was responsible for 35.2% of economic growth last year. The US for 17.9% and falling. India was responsible for 8.6%, whilst the UK contributed 1.6%. These kinds of statistics tell us where the world is going and which parts of it are going to increasingly dominate the scene.
It was, however, not a speech from one of the new global powers that interested me most. It was the contribution from members of a panel that included the Chief Executive of Barclays Bank. Jes Staley told us in the polite language of bankers that we were heading for another crash and weren’t very well equipped to deal with it. Then Anne Richards, Chief Executive of M&G Investments echoed his concerns and said that if interest rates go up then there are companies that will not be able to pay their loans back. She also pointed to the risk associated with leveraged exchange traded fund products. I suspect you may never have heard of them. So be very afraid because no one had heard of credit default swops before we discovered that three times the entire global economy had been gambled on dodgy investment devices with obscure names and even more obscure contents. They then proceeded to go belly up and left ordinary people to cope with 10 years of austerity politics.
What these talks at Davos mean is that some of the smartest and most knowledgeable insiders are now fearful that stock markets are over confident and that we aren’t equipped to cope with the fall out from a fresh crash. What has happened over the last decade is that large quantities of easy money have been pumped into the economic system by central bankers to ensure that the world financial system recovered from the near total collapse of 2007-8. In the UK the headline sum was £400 billion of injected stimulus via what was called quantitative easing. In the US they printed $3 trillion. Added to this stimulus has been the impact of ten years of near zero interest rates. To which we must also add a decade of national governments running large budget deficits and nationalising the bad debts of private banks. The scale of the stimulus for business has been unprecedented. Even more unprecedented than the scale of the suppression of wages, benefits and government spending on providing genuine services for the public. And on top of all that stimulus for markets we now have the Trump tax cuts. An unfunded budget stimulus on an astonishing scale that is based on a pure gamble that the economy will grow fast enough to pay for a give away to the well-off voters who voted rock solidly for him.
Since all this easy new money has to go somewhere it is not surprising that stock markets are roaring ahead and banks are back to making profits. Nor is it surprising that financial traders are back to making huge bonuses from selling dodgy products with fancy new names like leverage exchange traded funds.
What is surprising is, perhaps, the extent to which world leaders are being warned by thoughtful Chief Executives of major financial institutions that it can’t last and that it could all end in tears. Western central bankers no longer have any stimulus tools left in their cupboard if Trumps rush for growth creates another bust after its inevitable boom. No wonder some of the more intelligent capitalists are worried stiff.
Incredibly, however, a possible source of salvation did emerge from the Davos summit. The Chinese delegate stated that his country was ready to inject a stimulus into the world economy to prevent a repeat of the damaging 2008 crash. That’s the ludicrous position we have now reached. The majority of capitalists around the world are simply enjoying the ride as markets shoot upwards and profits roll in. The thoughtful ones see all the signs that we’re stoking the fires of the next crash. And the only government that appears to be seriously planning for that contingency is the only one that isn’t scared of mixing state planning with market forces. The Chinese Communist Party may well prove to be the organisation that rescues capitalism from its next crisis.
How ironic would that be? And how far have we moved away from the conscious open human control over the economic forces that currently dominate us that we need? Economics doesn’t need to control people. People can control economics. Provided we free ourselves from the legacy of an ideology that everything must be left to the control of markets.