Ten Signs There's No Adult in This Economic Room: William Pesek
Kevin Rudd may be happy about at least one thing: he can avoid Toronto this weekend.
Nothing against Canada’s business capital, but by stepping down suddenly as Australia’s premier, Rudd got himself out of a much-hyped gathering with virtually no chance of putting the world economy on a more even keel.
Why is that? We are suffering from a chronic leadership vacuum, one starkly underlined by Rudd’s untimely departure. The Group of 20 will go through the motions and consider the burning issues of our day. Yet the list of pressing problems is a daunting one. Here are 10 you can bet the G-20 will punt forward rather than tackle.
No. 1: bold thinking. Rudd wasn’t done in by his ambitious plans for a carbon-trading system and a tax on excessive mining profits. His failure was not communicating his ideas to a skeptical population. Plunging approval ratings gave Julia Gillard the chance she needed to challenge Rudd and become Australia’s first female prime minister.
Gillard won’t make it to Toronto. So, the only head of the only developed nation to steer around the global financial crisis will be absent. The discussions will proceed without the prime minister of one of the very few nations displaying any vision about where it wants its economy to be in 10 or 20 years.
Too Much Debt
No. 2: runaway debt. Countries such as the U.S., Japan and much of the euro zone are fast approaching Red-Queen situations on refinancing debt. The Red Queen of author Lewis Carroll fame had to run faster and faster just to stay in place. When do markets next get default jitters?
No. 3: taming boom and bust cycles. Other than feeling less proud of what they do at cocktail parties, bankers have gotten away with it. Bonuses are back and lobbyists are chipping away at attempts to write laws to avert future meltdowns. You can giggle at Angela Merkel of Germany and Nicolas Sarkozy of France when they propose limits on speculation. It would be harder to dismiss a broader directive from leaders of 20 major economies. Don’t hold your breath.
No. 4: ending the bailout gravy train. The main reason 2008 will happen again is that incentives still encourage bankers to take risky bets. The folks at Goldman Sachs Group Inc. know fresh trouble on Wall Street will have lawmakers pulling out the checkbooks. Why wouldn’t they roll the dice on ever-bigger and more complicated trades?
No. 5: life without zero rates. Five years ago, no serious observer would have predicted the Federal Reserve, European Central Bank and Bank of England would push interest rates into Japanese territory. Just try counting the ways in which zero rates are distorting credit markets, the pricing of risk and executives’ faith in future profits.
No. 6: narrowing the wealth gap. This year may be remembered as much for Chinese workers demanding raises as for the number of Asian millionaires topping Europe’s. And yet the widening of the divide between Asia’s rich and poor is accelerating. It’s a crack in the developing world’s veneer of broadening prosperity.
No. 7: demographics. Japan and much of Europe will be geezer central in the not-too-distant future. Leaders need to plan today for a time when some countries run out of young workers and others have a dangerous surplus of young people searching in vain for jobs and wives. Investors who glaze over at such concerns do so at their own peril.
No. 8: oil addiction. If BP Plc’s oil slick in the Gulf of Mexico won’t make energy the G-20’s first course of business, what disaster will? The group can’t agree on regulating derivatives, the causes of moral hazard or the right mix of fiscal and monetary policies. It should at least work on kicking our primitive attachment to fossil fuels.
No. 9: China’s checkbook. Fewer world leaders are willing to sit through Washington’s free-market lectures. Now they can get twice the money and half the moralizing in Beijing. The appeal of a “Beijing consensus” of reasonably free markets and strong controls on free speech is growing. China pulled the yuan issue off the table with a recent move toward flexibility. The G-20 should make clear that just because China works for China doesn’t make it a role model.
Not Missing Much
No. 10: attack short-termism. Indonesia has had an impressive few years, South Korea is baffling the doomsayers and China and India are providing solid growth. Yet economic upgrades in recent years have been Band-Aids. There’s been little real structural change. As stocks stabilize, governments may think their work is done. Far from it.
And so, Rudd won’t miss much after all. Leaders will issue communiques in Toronto, pose for photos and sip pricy wine before heading home. Going into the weekend, there’s a sense that the world’s problems are too formidable to fix. Many leaders just want to get out of office before the next financial blowup so they can try to escape blame.
Long-term thinking is badly needed. What we need is an adult or two in the room to make sure leaders tackle the big challenges of our day. Good luck finding any out there.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)