AND SO IT GOES, as Kurt Vonnegut used to write. Little progress at Davos 2010 or anywhere else discussing global banking reform, or the policing of financial mandarins in any way. No surprise, of course. Little sweeping regulatory change by anyone on Planet Moolah since the fall of 2008, when the frightening scope of the financial crisis first emerged, and the Federal Reserve, the Treasury Department, and the U.S. Congress struggled frantically with the beast. Three clear points stuck in my mind back then, as the business media cast its eyes on the monster and said, Oh shit:
(1) NO CHANGE. Little, if anything, will change on the global regulatory front in oversight, transparency and enforcement. That's human nature and the unstoppable tide of business and the economy. Money shall rule, and always will rule. (2) NOBODY KNOWS. No one really knows or is telling the whole story, given the self-serving versions spouted by key players in the drama. There are financial records, memos and emails, legal depositions, and other juicy documents hiding in safes and locked offices that no one -- save a few attorneys, trust fund trustees, private clients, and their gods -- will ever see. (3) FUNNY, THAT DODD GUY. Hey, U.S. Sen. Christopher Dodd was right. As lawmakers slapped together bailout legislation in September 2008, as e-mail drafts of the proposal flew back and forth, a droll Dodd chuckled in a late-night phone interview and said, "I imagine we'll be talking a lot about this."
THEY'RE STILL TALKING today, with no sure roadmap to ensure that the system won't melt down again. Well ain't that a bitch. At Davos, writes SkyNews blogger Mark Kleinman: "One person present at today's meeting said he believed that this week had represented a significant step forward for banking reform 'because there is now a consensus that consensus is necessary.' " Encouraging. It's like kids playing in the sandbox, agreeing not to argue. Except that the economic well-being of several billion people is at stake. The monster lives. Makes you want to jump on the next space shuttle, don't it?
WHEN BRITISH COLONIAL rule of Hong Kong ceased in 1997, Western corporations faced a critical question: Stay or leave Hong Kong, a free-trading citadel of commerce for much of the century? Soldiers and tanks of the People's Liberation Army loomed over Hong Kong's borders, and many of Hong Kong's politicians and populace feared the worst. Western companies weighed all potential scenarios, from a disastrous civil war, to a global stock market crash, to international business as usual. Luckily, no mass violence broke out, Hong Kong's economy didn't die, and nearly all of the Western companies stayed.
LEAP TO TODAY, and Google's stand on Internet censorship. The Silicon Valley giant surely agonized over the business and political risks of possibly leaving the fast-growing China market. One potential scenario: Google's move could open a wedge to barter with Chinese authorities, who are proud of their home-grown companies but know they still trail the best of the Western multinationals. Google's action might even create leverage for other Western companies to chisel away at economic barriers. And if Google teams with U.S. negotiators, the private talks might elevate to trade and policy issues, including China's role in the World Trade Organization.
THIS SCENARIO LOOKS even likelier today, with U.S. Secretary of State Hillary Clinton telling censorship-minded countries that more U.S. companies are making Internet freedom a factor in their business decisions: "Countries that censor news and information must recognize that, from an economic standpoint, there is no distinction between censoring political speech and commercial speech. If businesses in your nations are denied access to either type of information, it will inevitably have an impact on growth." (See Associated Press video clip on YouTube.com, and my CoolGlobalBiz.com post on corporate social responsibility in China.)
MEANWHILE, CHINA WATCHERS continue to weigh in with a range of views -- ideally the way that Internet info should flow openly, with readers sorting out fact, opinion and political spin. Rebecca MacKinnon, a University of Hong Kong professor and a former CNN bureau chief in Asia, wonders in the Guardian if Google will stand up to European nations and others that censor the Internet . . . Shaun Rein (photo, left),founder of China Market Research Group in Shanghai, writes in Forbes.com that "Google's actions in China not only imperil its own bottom line; they also threaten to start a slowing of Internet and media reform." . . . Zachary Karabell, president of River Twice Research and author of Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It, opines in Time magazine that China's Web censorship challenges the dominance of Western business: "That story — of China's emergence and a burgeoning world of hungry entrepreneurs not willing to play second fiddle to America — is the backstory for the Google imbroglio and one that is about to assume center stage."
NEW YORK TIMES columnist Thomas Friedman, author of The World is Flat and a master of the metaphor, believes that "Command China" (the Communist Party and state-run companies) clearly is at odds with "Network China" (the more global and entrepreneurial culture of Shanghai and Beijing). In "Is China an Enron? Part 2," he writes: "That is what the war over Google is really all about: It is a proxy and a symbol for whether the Chinese will be able to freely search and connect wherever their imaginations and creative impulses take them, which is critical for the future of Network China."
LASTLY, REBECCA FANNIN, author of Silicon Dragon: How China is Winning the Tech Race and a longtime observer of the China tech scene, anticipated a month ago that Google might leave China when Google's China head, Kai-Fu Lee, resigned in September. In Forbes.com ( "Google's China Blues" and "Why Google is Quitting China"), she writes: "My venture investing sources in Beijing and Shanghai suspected then that there was more to Lee's departure than was being told. Maybe Larry Page and Sergey Brin want to exit China and Lee knew this, my sources speculated. Certainly, the rush to the exit door by Google staff in Beijing since September suggests that."
New York Times, "China Paints Google Issue as Not Political" by Edward Wong, Jonathan Ansfield and Sharon LaFraniere.
Rebecca MacKinnon in the Wall Street Journal,"Google Gets on the Right Side of History."
GlobalVoices.org, "China: More on Google cn" (translations of China blogs).
Newsweek,"Clash of the Titans: How the Democratic Republic of Google is Testing China's Appetite for Democracy Itself" by Fareed Zakaria.
Council on Foreign Relations, "Google, China and Dueling Internets?" podcast with Adam Segal.
Ted Fishman in USA Today,"How Google Mirrors China"
HIGH PRAISE TO Google for taking a strong stand on human rights and freedom of expression in China. (San Jose Mercury News,"Citing cyber attacks, Google threatens to pull out of China.") China, a good bet to become the world's No. 1 economic superpower by mid-century, is a mighty nation with a proud people and a revered cultural history. It's also the hottest story in the business realm. But the country, of course, has a long history of censorship, and Chinese citizens who disagree loudly and publicly with its policies tend to disappear. This human-rights flashpoint likely will worsen over the years, as the West and East jockey for business and political power.
HOPEFULLY, GOOGLE -- a tech and stock-market powerhouse long criticized for kow-towing to China on the freedom-of-Internet browsing issue -- can forge a pragmatic compromise with Chinese leaders. A generation ago, Western universities, large investors, the U.S. government and companies such as General Motors persuaded South Africa to abandon apartheid. The battle cry then was divestment, the threat to pull assets and investments out of South Africa under a code of corporate conduct called the Sullivan Principles,by the late Rev. Leon Sullivan. Unlike much smaller South Africa, though, superpower China won't heed Western threats of divestment. But perhaps the most influential Western companies can find a middle ground with the Middle Kingdom, allowing more free expression in China in precisely-defined arenas. China legal officials and experts say privately that there are reform-minded jurists on China's high courts who want to gradually liberalize China's legal regime. Let's hope so.
LET'S ALSO HOPE that more Western corporations follow Google's lead and go public with the human-rights issue. Corporations dodge the explosive topic, claiming they're business creatures, not forces for ethical good. That's weak -- as weak as free-market advocates on Wall Street and in Detroit taking government handouts. Several admirable business groups such as BSR (Business for Social Responsibility) have worked for years on CSR-related issues, making human rights a key part of their platforms, and more companies should aggressively do the same. Michael Posner, former executive director of the non-profit Human Rights First, has called CSR "the new rules of the road for the global economy." I call it a corporate morality play for the new century. Economic growth is grand, but not at the cost of our souls. It's time for more companies and executives to make like Google and BSR, and do the right thing. Stand up, Corporate America.
As I sit at my grungy desk, waiting for my tax refund, I'm hoping the G-20's pledge today of U.S. $1.1 trillion to save the world's 6.8 billion people from financial holocaust will trickle down to me. How much is that on Planet Moolah? About U.S. $160 for each of us? That's a nice dinner and a show for middle-class wage slaves, or hundreds of meals for a poor Third World family. (Leaders of the World Pose for Group Photo at London Summit - Creative Commons license on flickr.com.)
God, Allah and Buddha bless the big dogs who jetted to London this week. They proclaimed that "a global crisis leads to a global solution," and they signed off on "a global plan for recovery on an unprecedented scale." By the end of 2009 A.D., the G-20 says total fiscal growth will hit $5 trillion and 4% output. President Obama and others think it's a turning point for the global economy. Let's hope so. May all that money spur investments, create jobs and make everyone happy. Check out: The London Summit website . . . A first-class slide show by the London organizers, plus the G-20's communiques . . . A Bloomberg News story ("G-20 Backs Regulation Crackdown, $1.1 Trillion in Aid") . . . And a funny blog post on LiveMint called "Visualizing One Trillion Dollars."
Not to discourage the feel-good fest. But the glitzy limos, armed security and street protesters remind me how distant the G-20 royalty are from the travails of everyday people. Can't imagine them slumming, riding in the subway and standing in line for the London Eye, like the rest of us proletarian mutts. (London Eye photo by Shashwat Nagpal - Creative Commons license on flickr.com.) Their pronouncements and communiques resemble a kid's Christmas wish list. I wanted an air gun and some Lakers basketball tickets one holiday, but my parents gave me socks and shirts. The G-20 policy goals sound real pretty. Unfortunately, most won't come to pass any more than political campaign promises. To wit:
"Emerging and developing economies, including the poorest, should have greater voice and representation." Right.
"We will build a fair and family-friendly labour market for both women and men." Okay.
"We agree to take action against non-cooperative jurisdictions, including tax havens . . . The era of banking secrecy is over." Sure.
In the wake of the money meltdown, I hope the steps to strengthen regulatory oversight take a fingerhold, at least. The U.S. can't be gun-shy. Firing up investments may be critical, but oversight and enforcement is still the key -- if only to restore America's rep as the baddest financial cop on the streets. The G-20 vowed to toughen the Financial Stability Board (formerly called the Financial Stability Forum, formed after the Asian financial crisis of the late 1990s) as a global watchdog to ward off another economic cataclysm. They promised to monitor cross-border firms (including "shadow banks") . . . to "reduce the complexity of accounting standards for financial instruments (like derivatives) . . . to strengthen accounting for loan-loss provisions and off-balance sheet numbers (disclose more of the hidden stuff) . . . and to move towards a single set of global accounting rules (no more financial Tower of Babel). Nothing wrong with wish lists -- except they dash our hopes and make us more cynical of our leaders than we should be. Maybe Michelle Obama and Queen Elizabeth can hug some more, and Barack can play mahjong and chug a few with China's Hu Jintao and Russia's Dmitry Medvedev. That human touch would do more to thaw foreign relations than a dozen signed agreements. (Team America World Police by William van der Veen - Creative Commons license on flickr.com.)
For a deep dive on the subject, here's a recent World Economic Forum report on the global financial system . . . An interesting clients' note (made public) by the law firm Davis Polk & Wardwell on the Treasury Department's G-20 proposals . . . And a video clip of a press conferencewith Treasury Secretary Timothy Geithner that all of 4,000 folks in the whole wide free world have viewed. Put down the iPod and expand your mind.
COMMENTARY: And then Obama smote the bankers. The White House smackdown of outrageous pay to Wall Street fat catsclick here hit faster than you can say golden parachutes. Some skeptics, such as former Hewlett-Packard CEO Carly Fiorina, see here think Obama and Treasury are overreacting to public outrage and will chill business risk-taking. Others, like the NewYork Times' Tim Egan, opine that pay ceilings for barons of the boardroom have been a long time coming. here Either way, it's clear that compensation to some undeserving financial moguls is messed up. click hereStudies by the Harvard Law School's Lucian Bebchuk and others show the strong link between executives' pay and performance, with some CEOs shamelessly cashing big paychecks even if their companies tank.read hereandhereFair? You or I steal some paper clips, and we get our butts canned. Some (not all, of course) investment and mortgage bankers bring down the whole economy, and most will emerge unscathed and unpunished, scamming for the next gig. Oh no they didn't. Oh yes they did. Click here for "Wall Street" illustration by Dave Makes
Could the pay debacle lead to another crackdown on corporate crime? In 1999, President Obama's new attorney general, Eric Holder,click here mapped out Justice Department guidelines on the prosecution ofcompanies. And that Holder memoled tostronger -- some say draconian -- guidelines used to bring down scandalous corporations in the Age ofEnron, not too long ago. The guidelines ignited a legal battle royale, with companies accusing prosecutors of going too far and forcing companies to waive their rights if they wanted to dodge criminal indictments and prison. here The Justice Department has since backpedaled from some of the harsher guidelines. There surely will be a greater push in the White House and Congress for more corporate governance rules tooversee companies -- what skeptics call political correctness in the boardroom, and what backers call greater democratization for shareholders.
In the larger picture, what if the urge to cap pay and bust heads in the boardroom spreads to other industries and countries -- especially those that mimic U.S.and European-style financial, regulatory and corporate-governance policies? As the free-market mantra oooommms its way abroad,so do the legal regimes and corporate-governance rules favored by U.S. regulators, shareholders and business people. See World Bank report Sooner or later, the full-scale export of Western-style corporate-governance culture will be a necessity. Global companies want change -- they won't charge into markets far more corrupt and failed than our greed-driven system. And multibillion-dollar pension funds -- from Calpers in the U.S. here to Hermes here in Great Britain -- thatinfluence corporate-governance practices worldwide only will invest in nations with decent "transparency" (biz jargon for open accounting and financial disclosure). The International Corporate Governance Network (ICGN), see here the International Accounting Standards Board (IASB) hereand others are paving the way on this issue.
Beyond the gloom and doom, global money and Western-style rule of law will flow even more across borders, no doubt. The long march of the markets and regulations won't halt for a few million layoffs here and there, a few trillion ultimately lost in stock-market value. When the bust goes boom again, there will be money to be made, rules to lay down. Smoting a few rich bankers will do little in the long run -- unless Obama's tough cop routine and the corporate-governance police go global.
