Tuesday, September 30, 2008

This Is Not Yet the End

On a day when the front page of the Financial Times reports the the worst stock plunge for the S&P 500 since 1987 and the worst ever for the Dow Jones Industrial Average, it is not surprising that many people are saying this is the end of the Anglo-American system. Not least among them are Nicolas Sarkozy, the French president, and Peer Steinbrück, the German finance minister. "Once again, Anglo-American capitalism is a bad word," Charles Wyplosz writes. "And globalisation is next in line. Speeches at this year’s United Nation General Assembly by leaders from every continent reveal the depth of contempt that has been lying low, buried underneath the apparent success of the globalisation process."

However, what do we find on the Comment page? Two articles saying just the opposite.

In the midst of all this woe, Michael Skapinker has decided to take a look back into history. "It is fascinating to look back at the Financial Times of 30 years ago, just before the US and the UK embarked on their years of liberalisation and deregulation. The similarities between 1978 and 2008 are striking, as if the two years are bookends to the fantastic stories in between." These were awful times for the Anglophonic cousins on either side of the Pond. "Britain was plunged into its icy winter of discontent, with half-empty supermarket shelves and rubbish piled in the streets, as road hauliers, hospital workers, school caretakers and many others went on strike." Jimmy Carter declared that the United States was undergoing a crisis "threatening to destroy the social and the political fabric of America".

It did not, of course, last. In a story that has taken on mythic proportions in certain circles, Margaret Thatcher and Ronald Reagan changed all that, ushering in a period of prosperity (and ending the Cold War while they were at it). So too, Mr. Skapinker writes, this crisis will pass. "One day, with new regulations in place, companies will return to raising funds, banks to lending and financiers to making money. New York and London will remain the best places to do this because they retain the advantages they had before." And what exactly are these advantages?

The first is language. Lehman Brothers may have gone overnight, but it takes centuries for a language to disappear. A global generation has invested years learning English, which has no ready challenger.

The two cities' second advantage is law. The US may be excessively litigious and lawyers may charge outrageous fees in both cities, but where else would you look to the law to defend your corporate rights? Shanghai? Moscow?

The third advantage is collective brain power. This may seem laughable, given where bankers' supposed intelligence has landed us now, but the solutions to this crisis will come in cities most open to raucous debate from whoever has anything to contribute. The next 30 years will be different, but New York and London will rise again.

Mr. Wyplosz concludes that Messrs. Sarkozy and Steinbrück are simply out of touch. "They have denounced excesses, such as bonuses, but that does not even begin to address the root cause of the crisis. They have described financial markets as unregulated. This is simply wrong. Financial markets are tightly regulated. The problem is not just that the regulation is inappropriate, but also that supervisors have not enforced it."

"So will Anglo-American capitalism fade away? Maybe, but that will be decided in Washington, not Paris and Berlin. One thing is sure, neither France nor Germany can mount a serious challenge, at least as long as their people and leaders mistrust and misunderstand finance."
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