America Plays Ostrich in Davos

A battle is forming over reform of the world economy, and the United States may wind up on the wrong side of the fight.

The debate involves whether the financial crisis in Asia and South America raises an urgent need for major reforms of the international capital-flow system. Here in this tiny, snowbound Swiss skiing village, which once a year becomes the teeming site of the annual meeting of the World Economic Forum, the position of the United States comes across as fundamentally uncritical about what has been done in response to the Asia crisis, even by the widely criticized International Monetary Fund. This is especially so of U.S. Treasury Secretary Robert Rubin, who said here--astonishingly--”I believe that, on balance, the international community, including the IMF, has made sensible judgments in confronting these complexities.” While Rubin did not rule out reform, the tenor of his address was less of mounting concern than of caution, to an extreme fault. Washington’s lack of enthusiasm for financial innovations generally spells death, as with the celebrated case of Japan’s ill-fated 1997 proposal for a new Asian fund for the region. And, in front of a glittering assemblage of CEOs, world leaders and assorted intellectuals and academics, Rubin pretty much dumped all over proposals to impose controls on short-term foreign cash investments, in foreign stock and national currencies, that can be heart-stoppingly removed from a country overnight. This phenomenon has been widely identified as a precipitant of the world’s roiling currency crises.

Not surprisingly, much of the rest of the world regards major financial reforms as matters of global urgency. Guillermo Ortiz Martinez, governor of the Bank of Mexico, flatly predicted that the people of the world will be increasingly turned off by the ill side effects of a globe ever more economically intertwined: “It is difficult to explain to a Mexican housewife why she has to pay higher interest rates on her housing loan because Russia has defaulted.” An anti-globalization timebomb is building up and may explode unless President Clinton personally gets involved and convinces his Treasury secretary that America has to do more than shoot down every reform idea that comes across the global radar screen. The magnificent performance of the U.S. economy simply cannot erase anxieties around the globe that something is fundamentally flawed with the current world system. In fact, hardly anyone here believes that the U.S. economy itself can continue on forever without at least a few major blips or bumps, if not a deep dive.

America’s lack of urgency was on especially evident display when, in a potentially riveting but ultimately disappointing panel on corporate responsibility, the chief executive officers of McDonald’s Corp. and Coca-Cola Co. left many in the audience frustrated--and some openly angry--with their many bromidic expressions of minimal social responsibility. These CEOs had little to offer that was new, in front of an audience that knows full well that the multimillionaire Rubin, a former big-time Wall Street trader, is unlikely to get cracking on world reforms unless the U.S. corporate world lights a fire under him. Things certainly won’t go better for Coke in foreign markets if the average person doesn’t have the money to pop for a drink because the world system has broken down and fewer and fewer people have pocket change. Even with their limited ethical vistas, corporations will find it in their financial interest to take a more active role in helping America do better than rely on what George Soros, the founder of the World Economic Forum, knocks as “free market fundamentalism.” The longer they support the status quo on reform, the more they will put at risk the functioning of the world economy--not to mention their own “shareholder values”--as foreign markets vaporize.

The day, if not the conference, was saved by a moving address from Nelson Mandela. The South African president, who is stepping down later this year, had unmistakable words of rebuke for those who are prospering from the current turmoil: “Is globalization only to benefit the powerful and the financiers, speculators, investors and traders?” he said. “Does it offer nothing to men, women and children who are ravaged by the violence of poverty?” To a resounding chorus of applause, he added: “Today we have seen how global financial turmoil can stall industrialization and even deindustrialize in some cases. Profitable as this activity may be for individual market actors, it is a grand and destructive irrationality for those countries and their peoples whom it sets back on the development path.”

Clinton needs the passion of Mandela if U.S. antipathy to reform is not to block progress. Everyone at this conference understands that the United States remains the only country capable of providing the leadership needed to tackle what even Rubin admitted in his remarks was “the most serious financial crisis of the last 50 years.” But towering problems require large and innovative actions by determined and committed minds. The Clinton administration needs to understand that a do-nothing attitude about worldwide currency flows and pat, sit-tight pure-market policy proposals for almost every global financial problem will put it in history’s dust. America must regain momentum on this issue--or the moment for worldwide reform will be lost.

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Times contributing editor Tom Plate’s column runs Tuesdays. He teaches at UCLA and participated in the World Economic Forum in Davos. E-mail: tplate@ucla.edu.