The 4th Astana Economic Forum, which was conducted in early May under the aegis of the Eurasian Economic Scientists’ Club, gathered more than five thousand participants from more than 80 countries of the world at the discussion area. During the two days authoritative international experts, scientists, political and public figures, businessmen and financiers were discussing a wide range of economic issues from the solving of post-recession problems and stabilization of the international currency system to the ensuring of food, energy and ecological security.
It is clear that today without close cooperation with other states, without adaptation to their interests it is impossible to fully control our own economy and to effectively resist sharp market fluctuations. Thus, new rules of the post-recession world order will be able to meet general goals only if these rules are developed by the mutual efforts of all the countries.
The Head of Kazakhstan told how to do that in his program speech. First of all, he stopped at the comprehensive analysis of the lessons learnt from the current recession. The main lesson was inadmissibility of misbalances in the economic policy. Exactly they had led to the development of a huge and uncontrolled financial market, the sharp compression of which during the period of recession led to quite painful consequences. The other consequence of the misbalance, following the uncontrolled issues of the world’s money, was unbridled circulation of speculative capital in the commodity and other markets. “The open capital market coupled with the uncontrolled financial sector is a “ticking bomb”. It has already exploded all over the world, so this is likely to happen again”, – the President said.
A second lesson learnt from the economic recession, in his opinion, is the increased importance of the industrial and innovation policy, especially for the developing countries, which are already involved in global competition through innovations, new technologies and raising of their own “corporate champions”. Along with that, today the fundamental differences between the financial sector and real economy are evident. Recently, the Forbes magazine published the Global-2000 rankings, which is like the “X-ray picture” of the world’s capital, presenting two thousand largest transnational corporations in the world. In aggregate, their earnings are $30 trillion, profit almost $1.5 trillion, and assets $125 trillion. The given rankings conditionally can be divided into two groups, “industrial” and “financial”; the first one of them, and these are almost 1,700 representatives of the real sector of the economy, a few times exceeds the other group, at the same time playing a comparatively more modest role in the world’s development. In this connection, the President of Kazakhstan called upon them to think over how much this ratio is equitable and balanced, and what is the extent and level of organization and coordination of actions of each of these groups on the global economic scene? The world’s economic recession will end only when a rational balance between these two organic parts of the world’s capital is reached, – Nursultan Nazarbayev believes.
A third key lesson is the increased understanding of the necessity in reasonable social policy, the role of which has been unreasonably understated lately. “The latest events in the Arabic countries and even in some developed states showed the actuality of constant attention to social problems of the population. Unfortunately, the market forces were not able to solve the issues of provision with jobs and foodstuff every where, social protection and stability.”
As a result of the above misbalances, there are such phenomena today as a gap between the developed and developing economies, commercial disputes, currency conflicts, increased number of unemployed and those in poverty. For the first time in international practice the bankruptcy of entire states becomes likely. Thus, realizing today’s potential of the economic recession consequences and learning from the past lessons “in the second decade of the 21st century we ought to start considering current challenges and outlooks of the world’s economy”.
The President proposes to consider the current challenges from the three points of view: financial and economic, industrial and innovation, and from the point of food supply.
“The challenges of the financial sector are in the defect of the world’s financial system and its major constituent part – the world’s reserve currency. Exactly the available currency and financial system which does not meet the principles of lawfulness and democracy weakens growth and distorts macroeconomic principles, also impeding the solving of the current global problems. To eliminate this defect cardinal measures are required those which have had no precedent before.” The idea of radical transformation in this area more and more strikes a chord among the economists and politicians at the highest intergovernmental level, including the U.N.O. and G20. Moreover, some countries are already taking some practical steps to apply alternative currencies. “The states of the Bolivarian alliance are already speaking of operations with the conventional unit sucre.The BRICScountriesadopted a memorandum as to the application of the national currencies for mutual crediting.” Such examples are not single. Finally, all economies of the world will come to necessity to create and introduce a supranational payment unit, and then global currency of a principally new class.
The industrial and innovation challenges involve the necessity of balanced industrial development of the economies and fair trade.Today’s developed states were always historically protecting their processing industries from the very beginning of their creation. “In the times when Adam Smith wrote its famous book The Wealth of Nations, the King of England banned the import to the country of textiles and goods which where manufactured in England itself. The USA had been protecting its processing industry during the last 150 years, following England’s example, not its advices”, – the President said. Even now, demanding from the developing economies liberalization, privatization and free trade, the industrial states are continuing subsidizing their own numerous sectors, from agriculture to high-tech production.
“At present, people more and more understand that this destroys industry in the developing countries and keeps poverty. Unfortunately, the ambitious United Nations Millennium Development Goals do not cardinally solve this problem. This means that the poor countries have to remain the raw material producing countries or “banana” countries, while the developed ones have to move forward at the expense of these raw material resources”. Meanwhile, only the processing industry gives the people high wages, more proceeds to the budget of the country and simultaneously develops agriculture. Regarding the free trade, such trade is beneficial between the economies of the same development level; while for the poor countries “trading with the wealthy states becomes destructive for the economy”.
A third challenge relates to the resources and foodstuff. It is connected with the first two, however, not only companies and states, but every man on the Earth feels it. The increased prices of raw material and energy resources, coupled with the increased world’s consumption and natural disasters, have led to increased food prices. According to data of the World Bank, the food prices have risen by 36% from the beginning of the year. “As a result, from June of the last year the number of people on the planet living below the poverty line has increased by 44 million. With the rise of inflation of food prices, the number of such people will be increasing heavily.” The result can be the worsening of the social and political situation all over the world. In these conditions, according to Nursultan Nazarbayev, it is necessary to ensure the food security at the regional and global levels due to inter-state coordination and taking “coordinated civilized actions”.
The issues of the provision with resources are closely connected with the ensuring of energy and ecological security. No one of the countries can live by formula: development now, ecology later. So, our President assured that for Kazakhstan the introduction of resource-saving technologies and instruments of the “green economy” are the main constituent parts of the industrial policy for the next decade. “To take part in solving of the global warming problems, we will facilitate technical modernization of the power engineering facilities and develop energy saving. As early as in 2007 at the 62nd session of the United Nations General Assembly I proposed an idea to develop a Global Energy and Ecological Strategy. I proposed to discuss it at the United Nations Conference on Sustainable Development RIO+20, which will be conducted in Brazil in 2012. I hope this idea will get support in the framework of today’s forum.”
The Head of Kazakhstan believes that the global policy of future development should be based on the coordinated macroeconomic management, global regulation of the raw material and financial markets, and creation of an efficient currency and financial system.
First of all, the Ministers of Finance of the G-20 have to set a list of universal indicators to access the condition of the national economies, enabling to become “litmus” instruments to reveal misbalances.
“Today many speak about the setting of a system of global market regulation, but still no coordinated solution has been developed. Reasonable management of prices of the commodity exchange goods, especially energy and raw material, also of prices in the food markets needs efforts of international coordination.”
To solve the issues of ensuring the food security it is necessary to stimulate the up rise of agriculture, especially the processing subsectors, in the developing countries, while the industrialized states, in their turn, should help them in access to the developed markets.
In part of the global management of financial flows, the accent should be made on the derivative securities market. “We all remember that prior to the current recession the derivative securities market turnover had exceeded eight times the aggregate GDP of all our planet.”
At last, the creation of a new world’s reserve currency will allow building up a transparent and understandable global currency & financial system. “The reserves of the countries will become more sustainable and that will in general allow strengthening the prospects of future economic development.”
Summarizing the above ideas, Nursultan Nazarbayev offered to develop a Global Regulation Pact. “In my opinion, all the above-said approaches on solving the challenges that are the agenda of today’s discussion have to find reflection in the given document. This Pact can become a real instrument for agreeing the key elements of the international economic policy.”
The problems and challenges outlined by the President of Kazakhstan were then sounded like a refrain in further speeches of the Forum invitees – the high-ranking officials from overseas countries. Sometimes they made stress on the possibility of Kazakhstan to influence the process of solving these issues.
According to General Director of the Food and Agriculture Organization of the United Nations (UNFAO), Jacques Diouf, today 925 million people, or almost 14% of all the population of the planet suffer from hunger; 29 counties are experiencing an acute lack of food, while seven more states are on the threshold of starting experiencing the same problems. On this background, the food prices, although they have slowed down their sharp rise, are still going up. With this, the share of official agriculture aid programs in the world has reduced from 19% in 1918 to 5% in the current year. “This figure has to reach its previous historic level that ensured the combating of hunger. In general, production of food is seen to increase by 70% all over the world and by 100% in the developing countries.” According to the head of UNFAO, by increasing the financing of agriculture aid programs from 5% to 10% of the GDP, the developing countries can make a considerable contribution to solving the food security issue. He paid special attention to Kazakhstan, which owing to its resources not only plays a noticeable role in the global food supply system, but also has a sustainable potential to increase agricultural output. “It is quite important to support Kazakhstan in increasing of its agricultural potential. Together with other international organizations UNFAO will be striving to render further technical aid”, – Mr. Diouf said.
Secretary General of the World Tourism Organization Taleb Rifai announced that in the condition when traditional sectors are demonstrating “tiredness”, the focus should be given to the service sectors of the “new economy”. Today sports, tourism and culture not only bring obvious benefit, but actively generate new jobs, set infrastructure and raise the prestige of the country. In the last year alone, income from tourism at the global level was $1.3 trillion. Every twelfth job in the world today falls on the area of tourism. Every year 935 million people cross the international frontiers. “Today the world is open and there are practically no places where you cannot travel to. This is not simply the trade, flow of goods or capital; this is the flow of people which are also able to create a new world’s economy.”
In connection with this, Mr. Rifai emphasized that Kazakhstan always regarded travelling and tourism among the priority areas of the national agenda, while later on at a special session he gave certain recommendations to the republic concerning this field. “Kazakhstan should develop its own specific features in tourism, peculiar only to Kazakhstan that would distinguish it from other countries, because tourists seek exactly these distinctions. At the same time, it is necessary to simplify access to your country – these are visa execution formalities and many other things. If for a person some point of destination is hard to get to, this automatically reduces the number of those who wish to visit this place.”
The speech of Ex-President of Croatia Stipe Mesic sounded quite provocative. He announced that the current recession is not global in frames. The greater part of his speech was devoted to the old capitalist economy, which “has forgotten about the market’s role”, whiles the countries of “new capitalism”, such as BRICS have accepted its requirements and owing to that are proceeding with their growth.
The inverse process was taking place in the West: large corporations were gradually turned into cartels, creating monopolies; as a result of that they gained profit not due to the best proposal but only owing to elimination of competition. Mr. Mesic told that when there is no competition, there is no lever that would ensure development; with the absence of the market the criteria of rational behavior disappears. Also he told that this found its reflection in the structure of the economy of the developed countries, also the withdrawal of production which was replaced with financial speculations.
Today we are at that phase when the crisis of not only neoliberal economy appears, but that of liberal democracy as well, which also undergoes changes, influenced by the monopolized economy. Citizens have less and less a chance to influence the political structures and, consequently, the condition of their life and development of the society where they live. Large corporations and capital took this role for them. “In many respects the cause of that and why this has happened was that following the disappearance of threats, inevitable for the bipolar world, the trade union and labor movements underwent an almost full fiasco. The system became cynical and this is a conveyor that leads to self-destruction.”
A second thing that induced the coming of the recession is the appearance of “capitalism without capitalists”, where managers substitute capitalists in managing their business. Large corporations and banks are owned by a big number of minor shareholders, which have no strategic influence on business. Instead these decisions are taken by managers, which with this bear no responsibility for the consequences. They are interested only in their wallets; moreover, they “exploit” not only employees, but capitalists as well. “I have firm assurance that without a market which rewards and punishes simultaneously both in the economy and politics the key motivation for development loses. I see solution in restoration of the balance between the interests of the capital and labor, which if together will be controlling management”, – Mr. Mesic summarized his speech.
In his turn, James A. Mirrlees who was awarded the Nobel Memorial Prize in Economic Sciences believes that the main moral challenge of the forthcoming century will be the inequality of income which became the “only reason of the recent events in the Middle East and North Africa”. Over the last century despite all recessions, wars and catastrophes, the GDP’s level per capita had risen 7 times in West Europe and USA, 18 times in Japan, 7 times in China, 5 times in Latin America, 3 times in India, and more than twice in Africa. Now the world’s GDP is increasing by more than 3% a year. Along with that, the given indicator can mislead and does not reflect the state of affairs with real re-distribution of income. That is why Mr. Mirrlees is sure that the income that the national economy generates should be distributed among the entire population through the areas of education, jobs creation, healthcare, taxation and social welfare.
Utopia and a higher goal
In conclusion of his speech at the forum Nursultan Nazarbayev proposed to develop a “road map” for introduction of a new world currency. The largest among the events at the Forum, the International Currency System: New Configuration of the Economic and Monetary Authority conference was devoted to reconstruction of the international currency system.
Today, the defectiveness of the monetary and credit policy of the USA raises no doubts. In particular, according to John Nash, whom the Nobel Memorial Prize in Economic Sciences was awarded in 1994, that day when we can regret the number of acquired notes or bonds, issued by the U.S. Department of the Treasury, or spare money that are being issued today by the FRS, is near.
It is worthy of note that in the United States themselves they started talking about the necessity of changing the current state of affairs, where the idea of hard currency becomes more and more popular. The public demands from the congress more fiscal discipline, balanced budget balance and reduction of public debt. In some states, at the level of law-makers, the proposals are made as to the transfer to the issue of treasury bonds nominated in gold and recognition of them as a money instrument. “It is impossible to pursue a firm monetary and credit policy without strong finance. I hope that in the future the reliability of dollar as the currency will restore and will be tied to the cost of gold, despite the fact that this measure is considered as an extreme one. Still, in the USA the situation is not idle, and I think there is a great interest to gold as a possible universal unit of account”, – Senior Research Officer at Atlas Economic Research Foundation, Judi Shelton, said.
On this background, the “Father of Euro”, Robert Mandel, who was referring quite skeptically to the idea of creation of a new reserve currency as early as two years ago, recognizes today that the world economic system will be more effective with the introduction of a single currency system, but the way to it should be evolutional. First of all, it is necessary to eliminate a major threat of the world monetary system – the excessive dollar exchange rate fluctuations.“Measures should be taken to stabilize the currencies of the large countries this will allow avoiding strong shakes in the world economy. At the second stage of reforming, the ICF has to define two currency zones and to take measures on stabilization of the currencies in these zones. Then the other countries will be able to take proportional participation in this system. This will be the way of further moving forward.”
In the scheme proposed by this Nobel Laureate, the European currency is given the role of just one of the components of this tandem. This is quite clear. Although the Euro today is really the only operating regional currency, which can become the prototype for a world supranational currency, to be independent of the policy of any state, the current debt problems of some states of the Eurozone show that it is too early to speak about a full transfer to the Euro.
In connection with above, Richard H. Cooper, Professor of International Economics at Harvard University and ex-Deputy Assistant Secretary of State for International Monetary Affairs in the United States Department of State, believes that the era of the dollar as the reserve currency will be lasting for at least a few decades more. Firstly, the American currency has a “large network potential – it’s like the English language for the world”. Secondly, the financial market of the USA remains largest and most liquid, and to operate on it one has to use the dollar.
Meanwhile, the center of economic activity is more and more shifting to the east; thus, the reforming of the currency system cannot take part without active participation of China. The area of international trade in yuans expands rapidly. The Central Bank of China executed contracts for mutual exchange of currencies with South Korea, Indonesia, Malaysia, Thailand, Argentina and even Belarus. Since December 15, 2010 for the first time in the currency exchange markets of Russia the yuan can be exchanged freely without conversion first to dollars. This is the first case in history when the Chinese currency is traded outside of continental China and Hong-Kong. Recently, Kazakhstan followed the example of its northern neighbor, coming to the level of SWAP in its trade with China. So, a serious counterbalance to the Euro and dollar appears in the Asian part of the Eurasian continent.
Still, it’s true that for the yuan to become a regional reserve currency, first it is necessary to ensure its full conversion. For example, it is necessary to abolish the limit for the currency exchange for the PRC national which is now set at $50 thousand a year, and also to transform Shanghai into an open international financial and stock exchange center. According to Deputy Director of the Center for Monetary Research of the People’s University of China, Songzuo Xiang, full conversion of the yuan will be reached within the next three-five years, while the fully-fledged regional currency zone on the basis of it is likely to appear in about twenty years. The experts called the issue of preservation of the capital flow management and necessity to abandon the current model of credit control among the factors constraining the Chinese authorities from internationalization of the Chinese currency.
We ought to state the fact that with the different approaches by various states to the currency and macroeconomic policies, the outlook of the emerging of a single world currency is seen as quite vague by now. In view of the above, in the opinion of some conference delegates, the time has come to set up a steadily operating committee to engage in the issues of supranational currency introduction. To increase the sustainability of the world currency control, it was proposed to set up a special body – the Central Banks Council of the G20.
At the end of the Forum, a briefing was conducted with participation of the Nobel Laureates, international experts and mass media, who got into discussion with 7 representatives of the Kazakhstan’s government. Our Ministers told about the aspects of socio-economic development of the country, honestly and frankly outlined all weak points, as well as measures the government takes to overcome them. In their turn, experts presented their vision of the situation and gave recommendations how to provide a more sustainable growth of the Kazakhstan’s economy. Mr. Mirrlees told that high oil prices is rather a depressive factor than stimulating one for the oil producing countries, since some of them are not capable of coping with rational spending of the gained income. Robert Aumann warned the Kazakhstani government officials of excessive regulation of the private sector, which can “suppress the market economy”. In his opinion, regulation should be present only in that extent so that to ensure fair competition. Still, it is important that the managers who make decisions in the business will be personally liable for the consequences of such decisions. Ex-President of Bolivia Jorge Quiroga quite emotionally told about the necessity to develop human capital assets: “If I were from Kazakhstan, I would sell all gas and oil, all uranium from the subsurface, and would send every young man to study.” The Head of Operations, European Union Delegation in Kazakhstan Rene Mally paid attention to the fact that for prosperity of any country it is necessary to develop not only the center but regions as well.
We ought to say that the new format of the debates was to the liking of the foreign guests, who did not conceal their admiration with the openness of Kazakhstan’s government, while Under-Secretary-General of the United Nations Noeleen Heyzer even called all this “the beginning of democracy”…
We just want to add that by tradition the Astana Economic Forum ended up with adoption of recommendations for the heads of the countries-members of the G20. In aggregate, 34 recommendations in six key areas were given. How useful they are and how much they are applicable for the G20 we will learn later. Now we can only state that for Kazakhstan the current forum turned out quite successful. Apart from the political dividends, 11 investment memorandums in the total amount of $2.5 billion were executed. Besides, in the course of the forum a decision was taken to set up the Astana Club of the Nobel Laureates. This means that at the next forum the cleverest men of the planet will be again giving their recommendations.