In Gordon Brown's speech to the US Congress last week, he said: "so when people here and in other countries ask what more can we do now to bring an end to this downturn, let me say this: we can achieve more working together...and just think of what we can do if we combine not just in a partnership for security but in a new partnership for prosperity too." He was right but Brown cannot possibly stimulate the global economy single-handedly. It must be fully-endorsed by the world's leaders at the G20 summit in April.
But two issues in his speech just didn't seem to sit right. The first was his over-emphasised warnings on the dire economic consequences of 1930s-type protectionism;
The British government is now poised to take majority control of Lloyds Bank, with the taxpayer owning around 60%; and the government's stake in HBOS could reach 75%. In fact, Britain has already spent almost a fifth of its GDP on bailing out its banking system – more than any other major economy, according to the IMF. But even when accompanied with bailouts to the auto industry and with historically low interest rates, there is still no signs of recovery.
Before he left, he was advised to apologise for the failings of the banking regulatory framework that Gordon Brown had failed to put in place. He didn't. Remarkably, Britain has spent more than twice as much on bailing out its banking system as the United States.
The US administration is also mired in a similar conundrum, and both countries are literally dithering on the precipice when it comes to dealing with their failed banks. Surely, the multi-billion dollar global bailouts were meant to provide finance to get the markets moving again, but so far all we read about are further bankruptcies and growing unemployment. And yet, with all this finance being pumped into the banking system, there is still insufficient lending by the banks to businesses and individuals.
By using taxpayers' funds to subsidise the prices of "toxic assets", which are said to be "too complex to value" in the hope of shoring up the balance sheets of key financial institutions — now, almost in perpetuity — one can't help but conclude that they haven't gone far enough to be effective.
Brown's slogan, "with faith in the future, we can build tomorrow today" sounds like just empty rhetoric if not coupled with a commitment to rescue insolvent financial institutions by temporarily nationalising them. Failure to do so is a philosophical and political hurdle, not an economic one.
Remember, British banks lent a staggering £252.8bn in the first eleven months of 2008 to financial corporations, including hedge funds, pensions funds and brokers. The real problem is that they are still not lending to businesses and households, so cash velocity has stalled, resulting in liquidity problems for all an accelerating global economic meltdown.
This brings us to the second issue: protectionism. Brown conveniently claims that the world trading system collapsed in the 1930s because the US introduced the Smoot-Hawley tariffs, whereas it only raised average industrial tariffs from 37%-48%. This is an economic myth in the making.
In his speech, he also alluded to the pressing need for the world to tackle nationalist issues and climate change head on: "Our task is to rebuild prosperity and security in a wholly different economic world, where competition is no longer local but global and banks are no longer just national but international."
True, it was Henry Kissinger who last year spoke out on the need for economies that are globalised and politics that are regulated nationally to be harmonised. The idea that Brown, as a self-confessed saviour of the world's economy, will be put to the test by the response he receives from global political actors at the G20 summit to be held in London. He is secretly hoping it will revive his political fortunes at home.
But while politicians espouse the virtues of free trade, they otherwise practice protectionism by a different name. As the secretary of state for business euphemistically stated at the time of the £2.5bn bailout of the auto industry: "This is not a bailout, it's a greening initiative".
And if one takes the time to consider, the real economy takes time to adjust: new technologies need to be first be developed; new factories and machinery need to be built and tested; and workers must acquire news skills. This takes time and during this period of transition, mild forms of protectionism are necessary.
All in all, the general consensus was that Brown's speech was relatively well received, given the general perception that Brown as a dour character, but it seems as if, without wholesale support from the summit, Brown's initiatives will come to nothing.
Britain itself, it seems, has run out of road. Even with the massive cash injections of the bailouts, with the Bank of England now embarking on a radical plan, known as "quantitative easing", to inject £75bn into the economy over the next three months, while cutting interest rates to an historic low of 0.5%, the British economy is still spiralling downwards in freefall.
But maybe the lifeline is that the G20 leaders will agree to his proposals and that "protectionism"
