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Friday, January 30, 2009

PUTIN SAYS BAIL OUTS & A BIGGER STATE ARE THE PROBLEM NOT THE SOLUTION TO THE RECESSION - SOMEBODY TELL BROWN & OBAMA

Here are excerpts from Vladimir Putin's speech to Davos (via Jerry Pournelle & the WSJ) my comments in italics

I would like to thank the forum's organisers for this opportunity to share my thoughts on global economic developments and to share our plans and proposals.

The world is now facing the first truly global economic crisis, which is continuing to develop at an unprecedented pace.

The current situation is often compared to the Great Depression of the late 1920s and the early 1930s. True, there are some similarities.

However, there are also some basic differences. The crisis has affected everyone at this time of globalisation....

Although the crisis was simply hanging in the air, the majority strove to get their share of the pie, be it one dollar or a billion, and did not want to notice the rising wave.

....Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.

The time for enlightenment has come. We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future.

In our opinion, .... Substandard regulation has contributed to the crisis, failing to duly heed tremendous risks.

Add to this colossal disproportions ... between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral.

The entire economic growth system, where one regional centre prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback.(the inevitability of that being understated)

I would like to add that this system has left entire regions, including Europe, on the outskirts of global economic processes and has prevented them from adopting key economic and financial decisions.

Moreover, generated prosperity was distributed extremely unevenly among various population strata. This applies to differences between social strata in certain countries, including highly developed ones. And it equally applies to gaps between countries and regions.

A considerable share of the world's population still cannot afford comfortable housing, education and quality health care. Even a global recovery posted in the last few years has failed to radically change this situation.

And, finally, this crisis was brought about by excessive expectations. Corporate appetites with regard to constantly growing demand swelled unjustifiably. The race between stock market indices and capitalisation began to overshadow rising labour productivity and real-life corporate effectiveness.

Unfortunately, excessive expectations were not only typical of the business community. They set the pace for rapidly growing personal consumption standards, primarily in the industrial world. We must openly admit that such growth was not backed by a real potential. This amounted to unearned wealth, a loan that will have to be repaid by future generations.

I would first like to mention specific measures which should be avoided and which will not be implemented by Russia.

We must not revert to isolationism and unrestrained economic egotism. The leaders of the world's largest economies agreed during the November 2008 G20 summit not to create barriers hindering global trade and capital flows. Russia shares these principles.

Although additional protectionism will prove inevitable during the crisis, all of us must display a sense of proportion (indeed & he is here accepting Obama is going to be forced into some protectionism by political rather than economic realities & saying he will not make things worse by retaliation as long as it is not outrageous - that is an undeservedly good offer).

Excessive intervention in economic activity and blind faith in the state's omnipotence is another possible mistake.

True, the state's increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent.

The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation.

In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.(an amazing & correct denunciation of the USSR's socialism & of the policy now being pursued by Gordon Brown among others & an explicit call instead for free marketism & the rolling back of the state)

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state. (no British party leader nor US Democratic politician express such classic liberal sentiments)

And one more point: anti-crisis measures should not escalate into financial populism and a refusal to implement responsible macroeconomic policies. The unjustified swelling of the budgetary deficit and the accumulation of public debts are just as destructive as adventurous stock-jobbing.(suck on that Gordon)

....This means we must assess the real situation and write off all hopeless debts and "bad" assets.

True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalisation, bonuses or reputation. However, we would "conserve" and prolong the crisis, unless we clean up our balance sheets. I believe financial authorities must work out the required mechanism for writing off debts that corresponds to today's needs.(I suggest this means the bankruptcy of some banks - if so I agree)

Second. Apart from cleaning up our balance sheets, it is high time we got rid of virtual money, exaggerated reports and dubious ratings. We must not harbour any illusions while assessing the state of the global economy and the real corporate standing, even if such assessments are made by major auditors and analysts.

In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.

...it would be sensible to encourage the objective process of creating several strong reserve currencies in the future.(a dig at the $)

...I am convinced that we can build a more equitable and efficient global economic system. But it is impossible to create a detailed plan at this event today.

...Three years ago, at a summit of the Group of Eight, we raised the issue of global energy security. We called for the shared responsibility of suppliers, consumers and transit countries. I think it is time to launch truly effective mechanisms ensuring such responsibility.(Hardly running a monopolistic gas policy as the Russians are accused of)

...I propose we start laying down a new international legal framework for energy security. Implementation of our initiative could play a political role comparable to the treaty establishing the European Coal and Steel Community. That is to say, consumers and producers would finally be bound into a real single energy partnership based on clear-cut legal foundations.(this would prevent Ukraine stealing gas, but it would also stop Russia playing politics with gas & the Coal & Steel Community was how the EU was formed so it is offering a very co-operative relationship)

... the strategy itself, which is to effect a qualitative renewal of Russia in the next 10 to 12 years.

...We are also going to actively develop the innovation sectors of the economy. Above all, those in which Russia has a competitive edge – space, nuclear energy, aviation(2 of my hobbyhorses & clearly more sustainable than banking). In these areas, we are already actively establishing cooperative ties with other countries.

...I believe that the 21st century economy is an economy of people not of factories....We are already a highly educated nation. But we need for Russian citizens to obtain the highest quality and most up-to-date education, and such professional skills that will be widely in demand in today's world. Therefore, we will be pro-active in promoting educational programmes in leading specialities.

...Unfortunately, we are increasingly hearing the argument that the build-up of military spending could solve today's social and economic problems. The logic is simple enough. Additional military allocations create new jobs.

At a glance, this sounds like a good way of fighting the crisis and unemployment. This policy might even be quite effective in the short term. But in the longer run, militarisation won't solve the problem but will rather quell it temporarily. What it will do is squeeze huge financial and other resources from the economy instead of finding better and wiser uses for them.

My conviction is that reasonable restraint in military spending, especially coupled with efforts to enhance global stability and security, will certainly bring significant economic dividends.(he knows that lack of restraint in military spending was a major cause of the USSR's economic decline)

The world has lately come to face an unheard-of surge of violence and other aggressive actions, such as Georgia's adventurous sortie in the Caucasus, recent terrorist attacks in India, and escalation of violence in Gaza Strip. Although not apparently linked directly, these developments still have common features.

...Frankly speaking, we all know that provoking military and political instability, regional and other conflicts is a helpful means of distracting the public from growing social and economic problems. Such attempts cannot be ruled out, unfortunately.(Frankly speaking we know that the US particularly provoked Georgia into it's adventure)

To prevent this scenario, we need to improve the system of international relations, making it more effective, safe and stable.

We must seek foothold relying on the moral values that have ensured the progress of our civilisation. Integrity and hard work, responsibility and self-confidence will eventually lead us to success.


I can see why 70% of the Russian people voted for him. I am assuming that the speech was composed collectively by the best in the Russian government, but, like his previous security speech he shows more understanding of the real issues & more commitment to progress than the entire front benches of all 3 parties put together. I would vote for him too.

// posted by neil craig @ 3:27 pm
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