This week’s editorials admonish the various culprits, i.e., President Sarkozy, IPCC, justly. I chose the quickest summary of the East Anglia emails scandal conclusions because brevity accentuates how ridiculously tedious the slander campaign really was. But, The Economist missed a chance to admonish another culprit in every case: US. I mean, how long can readers of The Economist, for one, persist in such blithering naivete? I can forgive non-subscribers. But, most educated readers with at least two years of elementary school on their resume should know the difference between the bluster of public life and the earnestness of the private. That scandal-mongers continue to stir up, well, scandal, for OUR entertainment is a waste of public resources. I guess there really is no progress from one generation to the next. Hve fun, though, if you haven’t read about the latest fun!
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The Intergovernmental Panel on Climate Change needs reform. The case for climate action does not
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Many still dislike the idea of governments encouraging citizens to gamble. Yet regulating something is not the same as encouraging it. Better to treat gambling in the same way as smoking: legalise it but make the casinos display the often-dismal odds of success (one in 176m, if you hope to win America’s richest lottery) in the same way that cigarette packets warn you about cancer. That would favour games of skill over the mindlessness of slot machines. People always will bet. Better that they do so in a legal market—and know the form.
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For decades France worked on a simple formula. The governing elite ensured that France thrived and that the mass of people enjoyed a decent, reasonably sheltered way of life. In exchange, the elite could dip into a Versailles-worth of perks—apartments, drivers, staff and generous expenses. In recent years that formula has gradually turned sour, as economic growth has slowed and tight budgets have limited the money available for social protection. Mr Sarkozy came to power promising to change the rules. He has. But only for the masses.
Muddle avoids problems, it does not solve them. Instead of miring itself in internal mechanics, the EU should embrace the lesson from the other, more radical, half of Mr Delors’s programme—the bit that focused on freeing its economy and setting up the single market. By boosting economic growth the EU could ease its political difficulties and help its citizens. At the moment EU leaders are putting their effort into cutting spending: if only they were to add a dose of 1992-style reform.
The single market remains half-built. Mario Monti, an Italian economist and a former commissioner, has recently set out just how much more is left to do*. The EU is 30% less productive than America in services. Because European services companies operate behind national barriers they innovate less and they tend not to gain the full economies of scale. Whole areas, such as health care, are exempted from EU-wide competition. Likewise some high-tech industries, such as telecoms, have been protected and others, such as e-commerce, barely existed in 1992. A single digital market could be worth 4% of EU GDP by 2020. The EU has a costly, fragmented patent system, so products (like far too many workers) cannot cross borders easily; energy supply has not been properly liberalised; debts are hard to collect across borders. And so it goes on. National to-do lists are just as long. In Spain and Italy privileged workers are protected, discouraging new permanent jobs. German entrepreneurs are immediately taxed on equity they put into a start-up. Europeans retire too early everywhere.
The barrier to reform has always been political, not economic. Jean-Claude Juncker, prime minister of Luxembourg, put it best in 2007: “We all know what to do, but we don’t know how to get re-elected once we have done it.”
But does that excuse still hold? The crisis has shifted the political landscape in Europe. The euro was supposed to spur reform by preventing governments from restoring competitiveness by devaluing their currencies. And it did. Not at first, when Greece, Spain and the others used the euro’s low interest rates as an excuse to party. But now they have woken up hung-over, to find that reform can be put off no longer (see article).
There are signs that Europeans understand this better than their timid leaders. Asked if they were better off in a free-market economy, 73% of Germans and 67% of French said yes, according to a survey released in June by Pew Research Centre. That compares with 65% and 56% respectively at the height of the boom in 2007 and it rivals America, with 68%, and eclipses Britain, with 64%, where support for free markets has fallen.
The moral case for reform has never been clearer. The European “solidarity” that protects jobs for life in Spain for the lucky few is hard to defend when it means that young people, who could only ever get work on temporary contracts, have been thrown onto the dole. In France it is irksome to see your taxes paying healthy people to retire at 60 when schools and hospitals need the money more. Cash-strapped households in Belgium might rather like the idea that competition can lower their bills. Were he speaking in 2010, a European leader seeking re-election as well as reform might just fancy his chances.
One reason why traffic is so appalling in Mexico City is that drivers routinely block others from crossing road junctions rather than miss the chance to edge forward before the lights change. And so it is with the country’s politicians. Ever since 2000, when Vicente Fox and the conservative National Action Party (PAN) ended seven decades of rule by the Institutional Revolutionary Party (PRI), there has been a broad consensus that Mexico needs thoroughgoing reform of its corporatist institutions and its oligopolistic economy if it is to create a vigorous, prosperous democracy. But the opposition has been reluctant to forfeit short-term advantage or anger privileged insiders—from teachers to television companies—by helping the government pass legislation. The current president, Felipe Calderón, who is also from the PAN, has tried harder than Mr Fox to push through reforms—of the state energy monopolies, of the tax system and education, for example. But he has obtained only the most inconsequential of changes.
Indeed, there is only one thing that will guarantee the demise of China’s present model of banking: success. If China manages to digest its recent lending boom without a slump and then rebalance its economy away from investment and towards consumption, banks will need to free up space on their balance-sheets for lending to individuals and small firms. The heavy lifting of financing infrastructure and state companies will shift to bond markets. As customers have more sources of finance, banks’ lending profits will be squeezed, forcing them to diversify into capital-market activities like underwriting. Banks’ buffers of deposits should also shrink, relative to loans, as the savings rate falls and as people move cash into higher-return shares and bonds (earning banks fees in the process).
China’s banks could then end up looking a lot like banks elsewhere, although the state will still have control. Yet even that could change gradually. At current growth rates China’s banks will need capital injections every few years. The government may tire of these shakedowns—its participation in this year’s equity raisings has been a little grudging—and allow its stake to be diluted instead. And, as China’s banks claim their rightful place among the global leaders, they will find doing big foreign deals is hard when the government has a hand on the steering wheel. The rise of China’s banks is stunning and a little frightening. Yet they are not the pallbearers of market-based finance, just a work in progress.
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