Global Compact International Yearbook 2009

Viewpoint: Do we need a
new economic system?
By Dr. Elmer Lnzen
In 1933, representatives from 66 countries met in London to
find a common solution to that era's global economic crisis. The
idea: to have London send a signal for a new global financial
system. The conference was a flop. On BBC Radio, economist
John Maynard Keynes called it a complete yawn, and went on
to say that conferences of this type usually ended in empty
platitudes and ambiguous phras es.
Seventy-six years later, the world is once again peering into
the abyss of a global economic crisis, and they're meeting
in London again to discuss the cornerstones of a new global
financial system. Even if history never repeats itself, there are
certainly parallels: The global economic crisis of the 1930s led
once already to liberalism being criticized and to the expectation
that state intervention would lead the way out of the
crisis. This Keynesianism shaped the European social market
economy and only came to a standstill in the wave of inflation
that followed in its wake. Today, too, most politicians have
decided on the collapse of neoclassical/neoliberal economic
policy by acclamation. John Maynard Keynes is experiencing
a magnificent comeback.
So what kind of economists do we want? Sensitive psychologists?
Analytical scientists, or observant historians? There are
two common types in the West: the economist-as-doctor and the
economist-as-prophet. The doctor is the type who has problemsolving
prescriptions or drafts “surgical cuts” to bring about a
cure. The aim of the pragmatic doctor is not to illuminate the
economy, but rather to treat the symptoms. The doctor comes
when the national economy is suffering. Any Keynes or Jeffrey
Sachs would certainly be a well-known example here.
When it comes to forecasting, however, we have all those
economists that we could almost call astrologers: They can
predict the future numbers on gross national product, exports
or unemployment with seemingly exact precision. They work
as augurs of the national economy in economic research
institutes or as chief economists for the major banks. Since
the economy has to be rational and therefore predictable, the
need for their services never flags. But just as it is for most
astrologers, however, the world is always full of surprises,
and the forecasts are usually wrong. Economists speak of the
phenomenon of "fat tails".
Could the crisis lead us to remember the economists as philosophers
again? After all, many of the founding fathers of
the market economy were of this type: Smith, Ricardo, Hayek
and others. They questioned the fundamentals: which rules
should be valid for the economy, and how much of the state
do we need? What is the meaning of market and competition?
And how are we to understand what is fair? Such a regulatory
debate appears in an era when the world is falling apart, both
in real terms and in principle.
The current crisis is also a crisis of economic theory. Indeed,
we are learning to say goodbye to many of our fondest habits,
including the fact that fundamental company disclosures
alone are not sufficient. No one is “too big to fail” anymore.
What are the cornerstones of a new theory, then? The future
global economy will be a less American one. Nowhere can the
erosion of power be deduced more clearly than in the financial
world. For years, the United States has pontificated on how
business should work; potential objections from European
politicians in favor of a more social and consensus-based
economy were waved away as "nonsense" from old Europe.
What mattered were bankers’ bonuses, quarterly shareholder
value and limitless creativity when inventing newer and more
bizarre capital market products. None of that has any value
today -- literal or figurative. This opens up opportunities for
other points of view: globalization can be rediscovered as a
global contest of ideas. It will be exciting to discuss globalization
with people from China, Kenya, India and Peru, without
establishing a hegemonic explanation beforehand; just think
of a Mohammad Yunus model of social entrepreneurship.
These are new paths, important ones. The Global Compact
and initiatives like the Principles for Responsible Investment
(PRI) and Principles for Responsible
Management Education (PRME) can
be important platforms for discussion
in this regard.
Dr. Elmer Lenzen
Chairman
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Global Compact International Yearbook 2009