On March 10, GMF Brussels hosted an event entitled, "Post-Crisis Global Challenges Event Series - Part III - After the Meltdown: The Rise of State Capitalism." It featured Marc De Vos, Professor at the Ghent University Law School and general director of the Brussels based think-tank Itinera Institute, and Clay Lowery, Former Assistant Secretary for International Affairs at the U.S. Department of the Treasury (2005-2009) and currently managing director at Glover Park Group. The event was moderated by Ron Asmus, Executive Director of the Transatlantic Center and Strategic Planning at GMF.
Prof. De Vos began with a brief presentation of his recently released book - "After the Meltdown: the future of capitalism and globalization in the Age of the Twin Crises" - in which he points out how the current economic crisis provokes mindset change. According to the scholar, laissez-faire economy is being seriously challenged these days and a general economic movement to the left can be observed. Paraphrasing Ronald Reagan's famous quotation, De Vos stated that today government is the solution and the free market is a problem. He argued that entrepreneurial capitalism is slowly being replaced by state capitalism with the most obvious example being huge fiscal stimuli that many governments decided to launch in order to address current economic challenges.
De Vos offered another example of states being involved in economy through the so-called green economy and how its development is actively stimulated by non-market forces. He also emphasized that although this trend has been reinforced by the current crisis, it was present well before with the most obvious examples being China, Russia and Petrodollar states and their significant influence on the economy. All these symptoms, De Vos noted, will bring back the Keynesian way of thinking about the economy and also will have huge consequences for the world order that used to be known. In his opinion "New Globality" era is now establishing itself with the West slowly declining and the East gaining importance. De Vos noted that this process is not new and that the current crisis has only accelerated this development. The scholar pointed out that, if one looks at areas of demography, democracy or human rights they all started declining a long time ago. He concluded with a final remark predicting further Western decline because its economic and social model - that has always been so attractive to other countries - is now being challenged.
In his response, Clay Lowery broadly commented on Marc De Vos' presentation. He challenged the scholar's opinion on economic movement to the left and supported his argument with few interesting observations. He pointed out that Obama's popularity after the first year in office is slowly declining with the most obvious example being the recent Republican victory in Massachusetts, a state where Democrats have previously won for 47 years. Lowery also emphasized that 53 percent of the Americans disapprove of Obama's economic policy and less than 50 percent approve of the huge stimulus package that its administration decided to implement.
According to Lowery, in America there is a strong belief that there is too much government involvement in the economy and a question needs to be raised how to exit this situation. Lowery's opinion is that the U.S. approach should be twofold: First, the United States needs to improve its fiscal policy in a way that does not automatically involve creating new regulation. Lowery stated that, the five currently existing regulatory bodies in the United States should be enough to control public spending. Second, Washington should try to make Beijing more responsible for shaping global economic recovery and global economic order in general. Lower underlined that, to this date China has refused to accept that it may become the largest global economy in 10-20 years time. The last comment by Lowery was on a role that Europe should play under the current economic circumstances. Lowery pointed out that Europe needs to improve its active contribution to global economic growth in order to balance China's emergence. However, in order to do this, Europe needs to re-think and possibly reshape its economic foundations. Lowery asked a question to what extent European economic integration is threatened because of Greece's problems. He then noted that it is up to Europeans to answer it by solving the difficult situation in the Eurozone. Stabilizing the Euro, Lowery concluded, will be a major test for European credibility in the future financial world order.
The presentations were followed by a discussion and comments focusing primarily on global economic governance after the crisis and the future world financial system. All participants agreed that, although, it was too early to speculate on the future shape of the world economy, global leaders should beware of over-regulating the system. It was also agreed, that a new financial governance system is needed where emerging countries like China will be adequately represented.
To listen to the presentation, please click here.