Mahathir Mohamad, prime minister of Malaysia from 1981 to 2003
The Malays have a saying which inter alia means that when you lose your way, go back to the beginning and start again. I believe that everyone has lost their way in handling the current financial crisis. The west in particular needs to rethink some essentials.
The world is still Eurocentric: how Europe handles the financial crisis is of universal importance. But I have serious doubts about Europeans’ “infallibility”. I particularly dislike their double standards. Centuries of hegemony have convinced them they know best what is good for the world: their values are to be accepted as universal; Asian values are deemed irrelevant.
This explains the simplistic solutions offered to east Asian countries when currency traders impoverished them. Malaysia was told to raise interest rates, have a surplus budget, allow distressed banks and businesses to go bankrupt, etc. This was the formula for all. Yet when America and Europe faced their financial crisis, they did everything they told Malaysia and east Asia not to do. While these measures worked for Asia, they are not going to work for the west.
For Europe for much of the past two centuries, capitalism has had a clear and straightforward narrative. For a long while Europe’s manufactured products lined the shelves of the world’s markets. They monopolised and dominated world trade and business. Their people enjoyed the highest standards of living. This increase in European growth and wealth would have gone on indefinitely. But after the second world war Japan industrialised and produced cheaper yet good quality goods. Then Taiwan, South Korea and China got in on the act. Rapidly the Europeans lost their markets.
Unable to compete, the Europeans and particularly the Americans opted for the financial markets. Inventing new financial products such as short selling of shares and currencies, subprime lending, securitisation, leveraged investments through hedge funds and a multitude of others, they apparently continued to grow and prosper. But the finance market spins off no real businesses, created hardly any jobs and gave rise to no trade. Getting greedy, they abused the system, manipulating the market for greater profits.
In Hong Kong in 1997 I spoke at the meeting of the International Monetary Fund and the World Bank and I blamed the financial crisis in east Asia on currency trading. I told them currencies were not commodities and should not be traded. But the World Bank and IMF did not care. They even accorded currency traders such rights as not having to be transparent and not paying taxes. They gave these exemptions in the name of free trade, and yet others had to be transparent and to be subjected to regulations. We concluded that their recommendation would bankrupt us and make us dependent on their loans.
I was condemned for my criticism of currency trading. But the exploitation and abuses of the financial market could not last forever. In 2008 the bubble burst. Banks, insurance companies, investment funds and even countries went bankrupt. But for its position as the currency for trade settlements, the dollar would be worth almost nothing.
Just as in the east Asian countries earlier, America and Europe became poor. The refusal to accept their impoverishment has resulted in their refusal to accept austerity measures. Their people demonstrate and go on strike against the measures. This simply aggravates matters.
Asian countries behaved differently. When they became poor because of the devaluation of their currencies they lived within their means. Some countries went to the World Bank and the IMF but Malaysia fixed the exchange rate and prevented the currency traders from accessing the ringgit. We were told our economy could collapse, that no one would lend us money, and we were warned of dire consequences. But nothing like that happened. Malaysia recovered faster than the rest.
The others also recovered because people actually gave money and jewellery to their governments to help pay debts. The workers worked harder and accepted living with lower standards. The only way for the European economies to recover is to admit that they are now poor and live within their means. Then they must go back to doing real business, ie to produce goods and sell services. Wages, bonuses and other perks have to be lowered to become competitive. In addition the financial market should be overseen and controlled by the government. Many financial products should be strictly regulated if not banned.
A new “Bretton Woods” should be convened with adequate representation from the poor countries. It should consider a trading currency based on gold, against which all other currencies should be valued. The fluctuation of the price of gold would be minimal. Business would be exposed to less uncertainty. Governments should fix the exchange rate based on gold or economic performances. There should be no trading in currencies.
Banks should be better regulated and new rules made to prevent excessive leveraging, limit loans and stop subprime lending. The financial system should be standardised and should support real business. These measures will take time, but will ensure that the kind of crisis the world is going through is less likely to recur.
There can be no return to the status quo ante. Europeans have to accept the days of Eurocentricism are practically over. Europe must look to the east as well for solutions.