By Michael Baxter 15 Mar 2010 [0 Comments | 323 views]
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A new swear word has been invented, and it seems the world’s leaders can barely utter a sentence without enunciating its harsh tone.
Chinese Premier Wen Jiabao uses it. In the US, Treasury Secretary Tim Geithner has taken to scribing the likeness of this word in official letters. In France, nearly headless Nick Sarkozy uses the French equivalent. And if you accept this word is indeed a swear word, then back in Blighty our Gordon swears like a trooper.
The new swear word is…protectionist. Or sometimes it is used as a noun, as in protectionism. In political circles it seems that to call someone a “p*****ist” is about as big an insult as you can make. And they are all at it.
Tiny Tim got the ball rolling. He is fed up with EU efforts to regulate hedge funds. You may remember, around this time last year at the G20 summit the French and German leaders, Sarkozy and Merkel, threatened to walk out on the high-powered conflab unless it agreed to put more emphasis on blaming hedge funds for the banking crisis.
It did smack somewhat of anti-Anglo-Saxon rhetoric. Few economists think that hedge funds were in any way to blame for the banking crisis, and yet the French and the Germans wanted to enact rules to penalise them. Considering these funds are an important part of the City, but of far less importance in the rest of Europe, it had a whiff of “let’s get at the Brits” about it.
The EU is pushing for what’s called an Alternative Investment Fund Managers directive. You may agree or disagree with the idea of creating far stricter rules for hedge funds, but there is little doubt that such directives would hit the UK based funds hard, and would make it all but impossible for non-European funds to sell into Europe. For example, Simon Walker, Chief Executive of the British Private Equity and Venture Capital Association, said: “It is the same as an attack on manufacturing in Germany or farming in France, financial services are just as core to Britain’s future.”
For his part, Tim Geithner penned a letter to Michel Barnier, EU commissioner for the internal market and services, saying: “We are concerned with various proposals that would discriminate against US firms and deny them access to the EU market that they currently have.
“We strongly hope that the rules that you will put in place will ensure that non-EU fund managers and global custodian banks have the same access as their EU counterparts. You will see that our approach in the US maintains full access for EU fund managers and custodians to our market.”
What a nice fellow that Tim is. He made his feelings clear, but was able to hold himself back from using the ‘P’ word.
Wen Jiabao was not so hesitant. He has been busy defending China’s policy with regards to the yuan. As you know, politicians in the US and Europe seem to think that the weak yuan is just about the biggest cause of all the world’s ills. There is of course an element of the blame game in all this. It’s your fault, says the US to China; it’s your fault, says France to Germany; it’s your fault, says China to the West. See…
But, on the topic of the ‘P’ word Mr Jiabao said: ”I am a staunch supporter of free trade, since it will not only promote world economic growth, but also improve people’s livelihoods. We will launch new measures to increase imports. We sent purchasing groups to the European Union and the United States when the world was stranded in the most difficult period of time,” said a conciliatory Chinese premier. But then he used the 13-letter word, saying: “Some countries’ moves to shore up exports are understandable. But what I can not understand is they devaluate their own currencies while on the contrary pushing for the appreciation of others’ currencies. I think it is protectionism.”
So, on the one hand, US politicians call the policy of keeping the yuan weak protectionist, but on the other hand China says all this monetary stimulus, also called quantitative easing, which is weakening certain currencies, is a form of protectionism.
Meanwhile, our Gordon and Nick have joined forces to have at go at Uncle Sam. Their ire has been roused because the Pentagon has been favouring Boeing over a European consortium for a giant defence contract.
Mr Sarkozy said: “If [the US] want to be spearheading the fight against protectionism, they shouldn’t be setting the wrong example of protectionism.”
And then he let the accusation dig deep. “In life there is what you say and then there is what you do,” he said.
Poor old Gordon. By contrast, his comments were so dull. “We believe in free trade, we believe in open markets, we believe in open competition,” he said in that list making way of his.
The truth is, protectionism quite possibly represents the single biggest threat to the global economy. Famously, the US Smoot-Hawley Act of 1930 imposed tariffs on 20,000 goods. The idea behind the Act was to protect US business. But Europe responded, and economists generally agree that this Act was one of the main reasons why the Great Depression lasted as long as it did.
Some go further and say it was protectionism that led to the Second World War. Others disagree and say the war had nothing to do with that, but rather had its origins in the Treaty of Versailles, and the Second World War was the ultimate result of the First World War. It is just that the build up to the First World War also saw the creeping menace of protectionism. In the late Victorian era, and in the first few years of the twentieth century, the global economy experienced a phase often referred to as the First Era of Globalisation. This period of wealth creation was ended when countries started to impose tariffs, leading to retaliatory action. Keynes said back in 1919: “The inhabitant of London could order by telephone, sipping his morning tea, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep. Militarism and imperialism of racial and cultural rivalries were little more than the amusements of his daily newspaper. What an extraordinary episode in the economic progress of man was that age which came to an end in August 1914.”
Protectionism does indeed pose a serious threat to the global economy, quite possibly the single biggest threat. But take some comfort.
Since the ‘P’ word has become a derogatory term, it does seem to be generally agreed that we must not repeat the protectionist mistakes of the past.
And at least politicians are talking free trade, even if what they do and what they say are two quite different things.
