Global answers are the only solutions
François Hollande, First Secretary of the French Socialist Party, outlines the way for global action by social democrats
Issue 4, Volume 47, 1998
The financial crisis is with us, and we need to find answers to it. In view of the fact that upheavals have affected all continents and in particular the most vulnerable continents, it would be totally inconceivable if our International did not speak clearly and determinedly on this issue. We have a moral obligation to do so but we also have the right to do so.
Firstly because what we are witnessing here, with this crisis coming as it does after many others, is the theoretical and practical failure of liberalism. We were told a short while ago that the State was not the answer but the problem, that all we needed to do was get rid of the State so that the market could work alone to ensure prosperity for all and the happiness of a few. Today's crises have shown the dangers of deregulation and also the risks of the failure of regulatory bodies to act when faced with financial threats.
That is why the peoples of Europe for many months now, one after another, have put their fate into the hands of what is called the European Left, in particular European socialists. This failure of liberalism combined with the expectations that our citizens have of socialists, notably in Europe but not only, lead us to establish our demands and requirements more strongly than ever.
And the second reason is that socialists and social democrats today throughout the world represent the only political movement that has sufficient force and means to make proposals and, above all, to implement those ideas. Liberals do not have the strength, nor the means, nor even the need to do this. That is why it is up to us to carry out this fundamental task of putting proposals forward.
And the last reason is that, although we cannot deny the efforts made by governments and international institutions to curb the changes we have witnessed, there is still some concern. Russia is going through a deep crisis that is endangering democracy itself. There are immediate, significant threats to Brazil and China, an economic upturn in Japan will take a lot of time, and many restart programmes will be required. As for the United States, economists do not know whether the cycle will be a lasting one, but, considering the trade deficits there, it would seem worrying.
It seems that only Europe today, for some time at any rate, has been forewarned of these upheavals. But at the same time we very well know that if nothing is done this crisis will diminish growth in countries of the European Union. That is why we believe in Europe we should coordinate our economic measures and that there should be a lowering of interest rates which would hopefully help avoid recession. Living in these times, if we do not act then we will have to bear some of the responsibility. But of course we have to be able to diagnose the situation in order to be able to adopt the measures which we believe to be necessary. We have to look at the nature of the crisis affecting us.
This crisis is intimately linked to the new profitability needs and, for example, pension schemes and the various institutions which require greater profitability than can be tolerated and absorbed by productivity. This leads to excessive risks and even if today there is a degree of moderation in the choices made by investors to not demand overly high levels of profitability, we know full well that there will always be this dichotomy between the real economy and the financial economy.
This crisis is also due to the uncontrolled influx on a huge scale of capital in the short-term, which causes a spectacular rise in debts and sometimes over-investment in projects that are not necessarily that useful. Over the last months all that was needed were some doubts on the exchange rates of a given currency, the announcement of a state of crisis, real or imagined, or perhaps some doubts on the banking system of Japan: all these factors were enough for investors to lose confidence and take away their investments, leading these countries into a deep crisis. The banks are therefore at the very root of this crisis. But we have to recognise that this crisis has become a truly global one and this presupposes that the solutions should also be global.
Besides the crisis is not only economic. It can have political consequences, especially for the future social democratic and socialist governments that are faced with these changes. The crisis might also have an impact on democracy itself, if suddenly people started to doubt their leaders and their ability to solve the problems before them.
So if the diagnosis is quite clear, that is the irrational behaviour of various agents, the mad pursuit after profit, the lack of rules and the absence of checks and balances, we need to reflect upon what we want and what we can do together.
Socialists in these times have to be aware, and I think we have already done this, of the need for regulation on a worldwide scale. The problem is global, and the answer must be global too. National, and even continental, isolation has been superseded.
Consequently various ideas have come to the fore. First of all, an international code of behaviour with regards to borrowers and lenders and their relationship; the fight against financial corruption; the organisation of more stable monetary relations - all this is quite right, but deserves perhaps to be re-oriented in three or four directions.
Firstly we urgently need more transparency of the markets themselves, both exchange markets and financial markets. Private institutions should also be more transparent and should work more closely with the International Monetary Fund, IMF. Facts concerning debts and risk exposure, particularly with regard to the pension schemes, should be known outside of these institutions. There should also be codes of conduct imposed on private speculators. We need to have more transparency of these international financial institutions, the IMF and its decision-making process. It is quite true that we French wish for more political control at the head of these institutions to ensure that the choices that are made reflect the will of governments, and not only the opinion of some respectable experts who should not necessarily have to decide about the future of the world. That is why we have suggested that a political committee should head the IMF and also why we hope that there are mergers between some departments of the World Bank and the International Monetary Fund. The IMF should be a catalyst, it is not there to finance capital flights. It should on the contrary force the private sector and speculators to assume their responsibility and to bear the cost of financial crises. So that is the first demand: transparency.
The second demand is linked to the regulation of the movement of capital itself. Adopting the so-called Tobin tax has been talked about, and why not? That is a possible solution. It is difficult to implement, we do not deny that. All measures that can slow down international financial transactions need consideration, and these could be forced deposits or some form of exchange controls in certain emerging countries. In any case we cannot allow capital to flow as easily and to cause such damage to the real economy.
The third demand is to create together a new architecture of exchange on a global level. Lionel Jospin has talked about a new Bretton Woods. We are not talking about going back to fixed parity and rigid systems which have hurt us all in the past. But we do have to ally the virtues of a stable currency and the flexibility of currencies with the new economic realities, and this is why we suggest the organisation of a monetary organisation based on significant, important currencies, such as the `euro zone' of course, which is coming into being and while it is not necessarily a model, it is a precedent. But equally a `yen zone' or a `dollar zone' - in short, poles of stability which can exist while remaining nevertheless sufficiently flexible. Thereby avoiding anchoring the international monetary system to a single currency. Of course the dollar cannot be challenged because it is the US currency, and if we question the hegemony of the dollar it is because we know it is an unstable currency and, in the international financial system, the bad currencies tend to take the upper hand over the good ones.
The last proposal would be to establish an Economic Security Council. Jacques Delors launched this idea many years ago. The idea was quite simple: after the Second World War we were able to set up institutions to prevent conflicts and war, without always being successful. But why today faced with comparable upheavals for our peoples, why could we not also organise ourselves to prevent economic conflicts? After all we know full well that economic conflicts lead to conflicts. And there could be a worldwide body, in which each would have a place, faced with this globalisation of markets, which could perhaps lead us to globalising the decision-making process. Such a body could work to ensure political coordination and greater caution with regard to the financial system, and could perhaps also fight tax havens more efficiently than today.
Being in a market economy does not mean renouncing our collective fate. Capitalism remains unfair. Its very logic is to create inequalities between countries and also within countries, within societies. And we are able to learn the lessons of the crisis that occurred in the 1930s, but only after much suffering, pain and damage. Today, we should not forget the political need to build the institutions which correspond exactly to this new stage of capitalism as an answer to globalisation. And I think these proposals, together with others, we wish to submit to the Socialist International for the purpose of discussion.
All our parties on all continents have reviewed their doctrines significantly over the last decade based on our respective narratives, our political approaches. Necessary economic efficiency does not mean that we should let the market regulate everything. On the contrary, the market needs rules and political control, not only to repair the damage caused by this free market, not only to accompany mutations, but the market itself needs order and regulation. And this is what has led us, or rather Lionel Jospin, to mention the principle: ``Yes' to the market economy, `No' to the market society'. That is the true path of socialism today and tomorrow. And I know of no other path.
The crisis we are undergoing, which we will have to overcome if we have the will, should be an opportunity to reinforce the political ties in favour of social democracy. It is up to us to make the fashion of liberalism obsolete. It is up to us to convince people that Europe, because it is here that European socialists hold the reins of power, is capable of providing solutions, and that is why we are fighting to coordinate policies at a European level, because that would be not only the best way to serve Europe but also to help the rest of the world.
Our reflections and our propositions must take the lead for the coming century while supporting our values and paving the way. However it depends on us, on our will to act as socialists. I think that this will to act has, and must have, its roots in our proposals, but also in the Socialist International which remains one of the main levers of change, and one that will enable us to answer the challenges of the global economy.
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