Wen’s well-judged intervention

Boris Johnson may well have sung for his supper, but not as beautifully as Bryn Terfel, who also told more modern jokes.

Wen Jiabao did not have them rolling in the aisles, exactly, but it was an assured performance. It’s the year of the Ox, as we know, and associated with persistence, sacrifice and plenty. The second seems to be well in hand all over the globe. We might say that governments are persistent in their attempts to stimulate their flagging economies. But “plenty” is associated with deficits more than anything else these days, which was not quite what he had in mind, I think.
He said all the right things for the Davos crowd, however, emphasising the importance of co-operation and continued liberalisation. He also signalled the Chinese intention of developing a new social security system, and an enhanced health service. Important, because a common diagnosis of the reasons for excess savings in the PRC is the absence of a social security safety net, which encourages workers who move from the country to the coastal cities, leaving their family support networks, to save extravagantly. I suspect the impact may be delayed, and modest at first, but the change goes in a promising direction.

Whether he is right that the Chinese economy will continue to grow this year only time will tell. The latest growth figures are ambiguous, hinting at such a marked slowdown that the last quarter of 08 could even have been negative.

It was interesting, though, to hear his diagnosis of the causes of the crisis. The main lines of the Chinese analysis, that the roots lie in inappropriate macroeconomic policies,  slow adaptation by regulators, blind greed and a lack of self-discipline by ratings agencies are not exceptionable in themselves, though they leave out the global imbalances point. That is not exactly a surprise. And the main reaction amongst the crowd was that it was a well-judged intervention.

Sir Howard Davies is director of The London School of Economics and Political Science

Davos blog 2009

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