Taming Capitalism

Nicolas Sarkozy is the president of France. He wrote this reflection exclusively for NPQ's weekly Global Viewpoint column.

Paris—Since this crisis first began, I have advocated the idea that, when faced by a challenge of this magnitude, cooperation is a necessity, not an option. Already in September 2008, speaking to the United Nations General Assembly, I called upon the world to rally together to meet the crisis with a response based on coordination and cooperation. Brought forward in concert by the European nations, that initiative led to last November's G-20 meeting of heads of state and government in Washington, which laid the foundations for far-reaching reform of the international financial system. The London summit has enabled us to go further, and to put into practice the principles which we established in Washington.

The world expects that we speed up the reform of the international financial system. The world expects that we rebuild, together, a new form of capitalism, better regulated, with a greater sense of morality and solidarity. This is a precondition for mobilizing the economy and achieving sustainable growth.

This crisis is not the crisis of capitalism. On the contrary, it is the crisis of a system which has drifted away from the most fundamental values of capitalism. It is the crisis of a system which drove financial operators to be increasingly reckless in the risks they took, which allowed banks to speculate instead of doing their proper business of funding growth in the economy; a system, lastly, which tolerated a complete lack of control over the activities of so many financial players and markets.

At the Washington summit last November we agreed on the four principles which would guide our response to the crisis: the need for enhanced coordination and cooperation, the rejection of protectionist measures, the strengthening of regulatory systems in financial markets, and a new global governance.

What has been achieved to date? On the first two points, we have made a good deal of progress. We have managed to hold off the spectre of protectionism, which, as history has taught us, inevitably compounds existing difficulties. Likewise, all nations have injected massive support for their economies, engaging in ambitious stimulus programs, while those countries which, like France, offer their citizens a high level of social protection have also significantly increased their levels of crisis-related welfare spending. Overall, taking into account all of these measures of support, the world's leading economies have made comparably gigantic efforts in response to the crisis. These measures are only now beginning to take effect and produce tangible benefits, but we must be ready to do even more if circumstances require it.

This is the principle I defended at the G-20 Summit in London: to do everything necessary for world growth.

However, we must also attach the same level of priority and sense of urgency to making progress on the issue of regulation of financial markets. World growth will be all the stronger for being sustained by a stable, efficient financial system and by the kind of renewed confidence in the markets which will enable resources to be better allocated, encourage lending to pick up again and allow the return of the flow of private investment capital towards developing countries.

The Washington summit enabled the establishment of several basic principles regarding regulation which must now be put into practical effect. We decided that in future not one financial player, not one institution, not one product would be beyond the control of a regulatory authority. This rule must be applied to credit rating agencies, but it should also apply to speculative investment funds and of course to tax havens.

On the latter point I want us to go very far indeed, adopting a regime which clearly identifies these tax havens and sets out in detail both the changes we expect them to introduce and the consequences which will ensue, should they fail to respond accordingly. The debate on tax havens initiated by the Washington summit has already begun to bear fruit, in particular in Europe, where several countries have recently announced their intention to introduce legislative changes in response to the expectations of the international community.

We must also make the necessary reforms of the required disclosure standards and levels of prudential oversight for financial firms. The current regulations failed to prevent abuses. They even made the crisis worse. This issue should be brought to the fore, since sadly in many countries it has not been getting the attention it deserves.

With regard to the reform of global economic governance, it is my long-standing belief that we must offer much more space to emerging nations, in keeping with their real weight and with the responsibilities I would like to see them taking on. This holds true for all international bodies, but especially so for international financial institutions. I am particularly pleased by the expanded membership of the Financial Stability Forum. We must go even further in the future. In my view there will remain the task of pursuing a process of renewal throughout the entire multi-lateral system. I shall be making some proposals in this regard over the coming months.

Lastly, we must provide answers to the problems of those who have been hit hardest by the impact of the crisis. This is why we must raise the level of funding we make available to the International Monetary Fund so that it can aid those countries facing the most serious difficulties. I have taken up at EU level the question of our contribution to the IMF: the member states were ready and willing. I have also taken up at EU level the question of our contribution to the risks that certain countries in Central and Eastern Europe are exposed to: again, the member states were ready and willing.

I would also like to emphasize the need, the absolute necessity, for us to offer our support to the poorer nations. They are the victims of this crisis. Some now face the real risk of seeing their considerable efforts in recent years towards achieving the millennium development goals be completely nullified, if we do not show solidarity. A few days ago I was in Africa. While there, I stated my belief that the destinies of Europe and the African continent are inextricably linked. We will be ready and willing to stand by Africa and by all developing nations in difficulty, on every continent.

I remain convinced that the world can emerge from these troubled times stronger, more united and with a greater sense of solidarity than before, provided we have the will to do so. I am fully aware that we cannot achieve radical change overnight, that there is still a long way to go and that there may well be a need for other meetings, after London, in order to implement the reforms undertaken. I am certain, however, of the need to achieve practical results. Failure is not an option, the world would not understand it and History would not forgive us for it.