M. Papa Kwesi Nduom, The Global Financial Crisis and New Economic Nationalism

I wish to thank the Kingdom of Morocco for the foresight in organizing this Forum and bringing together people with a variety of expertise and experiences in the TriContinental geographic area to discuss opportunities for an Atlantic partnership. I appreciate the invitation extended to me to share some perspectives 1have on the global financial crisis.

We all know that leaders throughout the world particularly the ones from the developed countries seem to be of one mind about the current global financial crisis. They all agree that this is not the time to sit and do nothing.I1agree that getting out of the global crisis stronger is not a spectator sport. It requires action. But action must be preceded by thought and research. Policy and action must be guided by the considered views and suggestions of those who have pooled together experiences from different economies and situations and subjected them to disciplined analysis to determine lessons that can be passed on to others. I see this Forum in that perspective - pooling together experiences from Africa, the Americas and Europe, subjecting them to disciplined analysis and picking from them what we can pass on to those with the authority and ability to implement solutions that affect the lives of many in the Tri-Continental area.

The Tri-Continental area includes countries in Africa that though have not been hit hard directly by the global financial crisis, are indeed feeling the negative impact through lost trade and investment opportunities. In the recent past, rice producing nations in Asia and elsewhere restricted the export of the product which severely affected West African countries. In some countries, the people rioted and nearly caused governance problems.

It is my view that the global financial crisis has unleashed a certain behavior that if not well considered will put developing countries at a further disadvantage in the global economy.

Economies that were not competitive in world trade may become even less competitive because of the inability to strengthen domestic production capacity and improve pricing competitiveness. This is partly because the stronger economies are adopting and implementing a new nationalistic approach to trade and investment contrary to the free trade policies they preach. Leaders from the United Kingdom, the USA and other economies have been telling the world, " ... do not rush to adopt protectionist policies".

yet they are protecting their insurance companies, farmers, automobile manufacturers, banks and markets. They are saying "... do not pick winners". Yet they are deciding which companies to save and to fund. In America they decided that Lehman Brothers a well known investment banking firm can go bankrupt but AIG a giant insurance company that lost over 60 billion dollars in 4th quarter 2008 alone should be saved. While on the one hand they are quick to ask others not to interfere with the private sector, they are deciding who should run automobile companies in the United States of America, banks in the United Kingdom and insurance companies in Europe.

The Global Financial Crisis

Without a doubt, the current global financial crisis is a failure, short or long term of the hands-off free market system. This crisis was not just manufactured in 2008/2009. The crisis can be traced partly to the OPEC-induced oil crisis of 1973-74. The oil crisis introduced a global financial shock that affected economies the world over. Inflation shot up and in its wake brought about high unemployment. This together with other factors led to an unprecedented loss of confidence in government participation and intervention in the global economy. Governments started withdrawing from the marketplace in a big
way. Privatisation became the order of the day. Wage and price controls were banished along with the removal of barriers to competition.

Insurance provided by the state against uncertainties in the marketplace - what socialist oriented states promoted in the past were discredited. International financial institutions raced to developing countries with 'conditions that required the adoption of free market policies and shrinking the influence of the state in the economy.

To some, capitalism triumphed at the expense of everything else. Socialism and state participation in the economy were declared dead.

If privatization was the code word of free marketers, deregulation since the 1970s has been the burning "must-have" of market operators. So governments in the developing world went on a deregulation binge. It affected the telecommunications and the financial industries the most. Anything that seemed like the state "meddling" in the affairs of the market was swept aside. It affected the role of Central Banks and government treasuries worldwide. The IMFs and the World Banks of this world jumped in and passed on the deregulation mantra to the developing countries, they required that government and their regulatory agencies must not "meddle" with the market. Banks, insurance companies, investment bankers and their agents we reassured by law of all manner of rights while
Central Banks were insulated more and more from "government interference".

In the USA, there developed in the late 1960s and early 1970sthe view on regulation that participants in the market were "rational actors, pursuing particular interests and treated the political and regulatory systems as variants on markets in which outcomes werebought and sold". Regulation, many experts reasoned had "outlived its time because technology made it obsolete or because of rigidity". The airline, telephone, railroads, trucking, electricity, everybody gained "a considerable measure of freedom" from government regulators. In my opinion, leaving the market to operate on its own deregulation, privatization etc, etc, led the global economy to its current situation of ruin.

The inadequacy of controls in banks, investment banks and insurance companies led to bad debts, and debt instruments that were overvalued and became too risky leading to a credit crunch and in turn led to bank failures and a slowdown in economic activity. If banks cannot lend, businesses cannot produce and jobs are lost. This is how the American economy lost about four million jobs. This is what has caused many Americans to lose their homes because they can no longer afford the mort gage payments on them.

It is this that has caused the United States of America government to actively use public funds to support the ability of its banks, insurance companies, automobile manufacturers and others to restructure and compete in the marketplace.

The New Economic Nationalism

The new economic nationalism is symbolized by the American President Mr. Barack Obama declaring to the Americans that he would not allow the automobile industry to die in the country that invented this means of transport. Those who believe in free trade, capitalism and the wisdom of market forces cannot consider the actions of the American government in recent months to be consistent with their principles. l am not suggesting that President Obama has done anything wrong. l am making the point that with the global financial crisis threatening the jobs and prosperity of Americans, President Obama
is doing what any caring government will do - support its people to stand and compete to protect their way of life.

When governments have acted to strengthen domestic markets or provide "stimulus" funds, they have justified their actions by saying that by strengthening domestic markets, they help to stabilize the global economy. Thus, China's Ministry of Finance and the State Administration of Taxation have given successive increases in export tax rebate rates on labour intensive goods. The Central Bank of Taiwan has cut its required reserve rations and added $3.59 billion into the foreign currency interbank market. The Bank of Japan pumped $29.3 billion into the financial system the same day as the Reserve Bank
of Australia added $3.45 billion.

Those who have the ability to protect strengthen and support their own domestic financial system, companies and general trading competitiveness are doing so. What about the rest of the world? Specifically, what about Africa where the governments do not have the financial wherewithal to support industry and financial markets to improve trade competitiveness and greater investment in productive capacity? This is what is giving rise to what l call the new economic nationalism. It is not only fashion.
The actions of the American, British and other governments will have long-term effects on the rest of the world. As we consider a Tri-Continental Initiative, we must confront this trend of affairs and find answers that will allow the West African nations and other weaker economies on the Atlantic to participate meaningfully in global trade and investment.


The global financial crisis has given rise to a new form of economic nationalism led by countries such as the USA and the United Kingdom who can afford to provide "stimulus" money to stabilize their economies and strengthen domestic industries and markets. In the process these countries are giving further competitive advantage to their domestic enterprises outside of the dictates of "market forces". The weaker economies of the world face the real prospect of becoming weaker and poorer if they do not take steps to strengthen their internal competitiveness. The Tri-Continental Initiative can support the
needs of the weaker partners by identifying trade and investment opportunities that strengthen domestic productive capacities and competitiveness. A partnership cannot work and produce benefits for all if some parts cannot contribute to the welfare of the whole and are just there to be beneficiaries of handouts from time to time.

The history of development shows that over the centuries, in times of difficulties, nations tend to look after their own national interests, strengthen domestic abilities to cope and prepare to compete. This is the time for those who wish to promote genuine partnership to recognize the need of weaker economies to gain strength and compete. It is also time for African countries in particular to understand that they can only be considered real partners if they sacrifice and take full responsibility for making trade and investment decisions that build domestic ability to compete in the global market. We must all recognize the new economic nationalism and act appropriately.

Dr. Papa Kwesi Nduom - May 29, 2009

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