A STIR ABOUT THE MODEL

The wave of economic crisis, which covered almost the entire world, raised a series of global issues over which the powers that be, scientists, all kinds of experts and analysts are racking their brains now. For example, there isn't a single more or less well-known economist who has not criticised the existing economic model in the world and has not spoken out for changing it. Things have reached such a point that the capitalist foundations in general and market principles of economic governance in particular were openly blamed for all the economic ills. One such statement was made by the leader of one of the most "advanced" European countries. However, the snag here is that the world now understands very well that the theory of destroying the "old world" and then building a new one has failed in practice. No matter how much you "like" capitalism, it is no longer possible to do with it what was done about a century ago, and therefore, we must come up with a better model of economic governance and adopt it gradually, or, at worst, improve what we already have.

"Central" redistribution

Meanwhile, despite all speculation and accusations, today there is no clear idea of what the world economy should be like after the crisis. There are separate proposals and keynote addresses by prominent experts and analysts, but discussions on this subject have not yet gone beyond the media or individual forums. There have been attempts to draw some conclusions at the recent economic forum in Davos, but they only ended with mutual accusations and discontent on the part of bankers and officials. Criticizing US President Barack Obama's proposal to curb the speculative activities of credit colossi and his idea of taxing banking transactions and banning commercial banks from owning hedge funds and direct investment funds, bankers agreed that the financial-banking system should be reformed in the end, but categorically said that the restrictive measures with regard to the banking sector should not be crude. So, no real "reconstruction" measures should be expected in this segment in the coming years.

At the same time, independent experts are saying that in any case, neither the Obama plan, nor any other local systemic reforms will solve the fundamental problems of the current model, and the only alternative is real "rethinking" and "reconstruction" of the capitalist system. "It is clear that capitalism is a model in which initiative develops and people get a chance to discover the best in themselves, but in general, this model has been unable to give society what it needs at the level of decisions," the head of the Alcatel-Lucent corporation, Ben Verwaayen, said in Davos. "So we need to rethink the system. The current crisis is not about when we will restore order. Rather, it is about transition from one reality to another. We will have different values, different criteria for success and other problems. And for this, we need new leadership." 

Based on this, analysts point to two global changes that will befall the world after the current crisis. First, it is the transfer of economic supremacy in the world from the West and Europe to Asia and, second, it is the possibility of some changes in the currency basket of trade operations where the dollar and the euro will lose their dominant role.

As far the first change is concerned, according to Russian Minister of Finance Aleksey Kudrin, a "model crisis" has set in: the United States, Britain and other developed countries previously consumed, but did not save, while Asia, by contrast, saved and stockpiled. "This is the major imbalance," he believes. "If the model changes, the USA's role as a leading player and issuer of currency in the global economy will change, too." For this reason, according to some analysts, currently the main sources of global growth are China and India, which show an increase of 8 per cent against the background of a general recession. According to the Singaporean analyst and dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, Kishore Mahbubani, the developed countries, primarily the US and the EU, are losing confidence in the free economy, while Asian "dragons", on the contrary, are reinforcing their confidence in the principles of free trade. Now, according to Mahbubani, Asian leaders seem to know better how to respond to current challenges. The professor of economics at New York University, Nouriel Roubini, also agrees that the role of the United States is weakening. He believes that America will face a "sluggish and anaemic growth" in the near future. But he doubts that the future leaders of world economic development (the Asian region led by China) will be able to demonstrate an equally impressive growth like today.

In other words, the success of China's economic model, which combines market-based motives and elements of planning, could be a role model, especially as there have been frequent calls in the post-Soviet area to return to the past experience of economic management. But according to Ukraine's ex-Finance Minister Viktor Pynzenyk, "all the positive things of the planned development of the state have already been seen in the Soviet era with all their shortages."

But in this perspective, we should not forget that, despite steady growth, according to a professor at the Stern School of Business, Nouriel Roubini, Asia will not be able to assume the role of a locomotive for international growth. The volume of China's economy is still not comparable with Western economies, and even the phenomenal rate of GDP growth in the Middle Kingdom will not be able to override European and American pessimism. The maximum that Beijing can do is to help exporters of basic commodities. According to the director of the Centre on Capitalism and Society and 2006 Nobel Prize winner in economics, Edmund Phelps, China's growth is catching up. In any case, China is also aware that in the external sphere, it will no longer get the freedom that it had before, and therefore, it openly acknowledges that the country will re-orient its economy to domestic demand. It is hard to predict how the fight of "models" will end then.

Currency redistribution

On the other hand, as we said above, many experts believe that the reason for the current crisis lies in the inefficiency of the current world monetary system based on the use of the US dollar as world reserve currency. Therefore, some of them see one of the main ways of overcoming the current crisis in the adoption of concrete decisions and steps to abandon this old system and create a new monetary system.

At the same time, the creation of a new financial system is associated with supranational financial institutions that are capable of monitoring and securing emission and the necessary operation of several regional emission centres, as well as with new global reserve currency. It is known that countries of ASEAN, Latin America, North America, Africa, the Middle East and the Eurasian Economic Community have expressed their desire to introduce their own regional currencies, while Russia wants its currency (the rouble) to turn into a regional reserve currency. On 16 October 2009, the world media reported that the regional currency of the member countries of the Bolivarian Alliance - the sucre - would be put into circulation from 2010.

As for the idea of introducing a new world reserve currency, the question of its implementation is under discussion, although there have been no specific initiatives or real steps yet.

At the same time, according to a renowned economist and academician Rustamzhon Abdullayev, the introduction of regional reserve currencies, although it may yield some short-term positive effects in a region, will ultimately prevent countries from overcoming not only the current financial crisis, but also future crises, not to mention preventing them. He believes that "such a wrong approach to solving problems connected with the current global financial crisis, localizing them by regions, will aggravate not only the already difficult economic situation in the world, but also the political situation. Moreover, and this is the most important thing, these regional currencies will again require some other common world reserve currency to ensure full operation at the global level."

According to the president of the expert-consultancy company Neokon, Mikhail Khazin, the economic model based on the dollar as a single measure of value and, consequently, the main reserve and trade currency, the source of whose development was the emission of the dollar, has ceased to exist. "The crisis is a crisis of this system. It will continue for a long time. And it will no longer be a source of development and a general mechanism that secures a more or less high standard of living for part of the world's population. Another thing is that this is a long process - all this will happen not tomorrow or the day after tomorrow, but it will still happen," the expert said. 

Thus, the global economy still has too many problems that have not gone away over the past eighteen months, but it is not clear how to address them. The world is disappointed in the American model of economic development based on the thesis "the market is always right, and it will eliminate all imbalances itself", but it has not developed a new and effective alternative yet - although some hope is inspired by information on the approval by the leaders of the European Union of the outlines of a pan-European strategy for sustainable economic growth and employment in Europe until 2020. According to European Commission President Jose Manuel Barroso, the European Commission will prepare concrete proposals for a new economic strategy of the EU by 3 March and submit it to the spring EU summit for consideration. Speaking about his vision of the strategy, the head of the EU executive authorities said that the most important thing is to lead Europe out of the crisis with the construction of a new economic model - "a sustainable, inclusive (with ample opportunities for everyone's participation), competitive and socially-oriented market economy."

One can only hope that this time a more specific document will be put on the table...