Oct. 22, 2008
Bush’s Schizophrenic Economic Summit Plan: With World Calling for Regulation of Global Finance to Counter Wild Volatility, Bush Calls for Session to ‘Enhance Commitments’ to Deregulation, Liberalization
Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch Division
That President George W. Bush’s idea of a global plan “to avoid a repetition” of the financial crisis spawned in large part by radical deregulation of financial services is to call a summit for nations “to strengthen the underpinnings of capitalism by discussing how they can enhance their commitment to open, competitive economies, as well as trade and investment liberalization” brings to mind Einstein’s definition of insanity: doing the same thing over and over and expecting a different result.
The White House today said that the Nov. 15 summit would advance a common understanding of the crisis’ causes and lead global leaders to agree “on a common set of principles for reform of regulatory and institutional regimes for the world’s financial sectors.” Yet unless the radical financial services deregulation agenda that has been aggressively promoted and entrenched by the World Trade Organization (WTO), World Bank and International Monetary Fund is understood as a source of the current crisis, reform proposals will not address the crisis’ root causes.
The content of the Bush administration summit announcement suggests that trying to resuscitate the radical deregulatory agenda and the laissez faire ideology thoroughly discredited by this crisis is the primary objective of the summit, rather than a serious discussion of what new global governance and regulation is required.
While an extreme deregulation agenda had been pursued in the United States by various administrations, it was the WTO’s 1995 General Agreement on Trade in Services (GATS) and 1999 WTO Financial Services Agreement (FSA) that exported the radical deregulation agenda worldwide and locked it into place. Deregulation of the financial services sector – including banking, insurance, asset management, pension funds, securities, financial information and financial advisory services – has been among the most important but least discussed aspects of the WTO’s agenda since its inception.
As part of its original WTO commitments, the United States agreed to conform a broad array of financial services including banking, insurance and other financial services to comply with GATS rules. In some cases, for instance regarding the “firewall” policies established in the 1933 Glass-Steagall Act that forbade bank holding companies from operating other financial services, U.S. WTO commitments that contradicted domestic policy were used to push for domestic revocation of existing laws. (The U.S. WTO GATS schedule explicitly includes a Clinton administration commitment to roll back Glass-Steagall, which had been keeping foreign financial service firms that offered both traditional consumer banking and investment banking services from operating here.) Other U.S. WTO commitments in financial services simply locked into place existing U.S. policies because the GATS includes a “standstill” rule – meaning countries may not roll back liberalization and deregulation once a sector is bound to GATS.
The United States then used ongoing WTO financial service negotiations to export the U.S. model of extreme financial service deregulation to the other 100-plus WTO signatory countries, including through a 1999 WTO Financial Service Agreement. Further financial service deregulation is currently on the agenda of the WTO Doha Round talks.
READ our backgrounder on the WTO’s role in the crisis.