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Saturday 22 November 2008

The schmoozer of Davos prepares to bare his teeth

In the week of the World Economic Forum Rani Singh talks to Angel Gurría, head of the OECD, who has sharp words on capitalist ‘schizophrenia’ and a coded warning for Gordon

What does Angel Gurría think the future holds for Britain? He carefully sets his answer in an international context. ‘The sub-prime [crisis] has not played out completely, in May and June [ . . . it’s] going to be a big test. The problem is, you have a crisis of confidence and credit is about confidence . . . it will affect the rate of growth of the economy. You were finding ways in which you were using market creativity, market innovation to stretch the capital of financial institutions but we all found out, too late probably, that they were stretching it too far and also because it was not really arm’s length.’

The secretary-general says financial infrastructures require scrutiny. ‘So by having a construct that was not quite transparent and by the whole regulatory architecture allowing for that to happen and not having seen . . . not having pierced intensely enough through the architecture and by not having enough people ask, what if things go wrong? What happens with these assets, are they really off your books or not?’

He points to the independence and autonomy of the British regulatory authority, the FSA. ‘What you see is the excesses of a hyper competitive market. And yes I think that the regulators, although there were some warning signals, were not focusing on the issue.’

He says ‘the pricing of the risk is what went very wrong’. He acknowledges that Britain faces challenges. One of them, he says, is co-ordination between different authorities. He says that the regulators in the UK, the US and Japan were not moving as fast as the markets.

‘It’s a paradox because . . . in the end, what do you aspire to? What do you want? You demand low inflation, long periods of stability and low interest rates, which is exactly what they got! And now people are saying its because of low interest rates, and the long period of stability that we are getting this bubble. So we are a little bit schizophrenic because we are condemning the same thing we demanded and wanted!’

And that’s not all. The OECD says that ‘corruption has become an issue of major political and economic significance in recent years and the necessity to take measures against it has become evident’.

More articles from: Rani Singh | this section

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