Today's date:
Spring 2008

This Is Not America's Final Crisis

Jacques Attali chairs the President Nicolas Sarkozy-appointed committee on "freeing the economy" in France. He was a top aide to President François Mitterrand and the first president of the European Bank for Reconstruction and Development. He spoke with NPQ editor Nathan Gardels in Davos, Switzerland, in January.

NPQ | George Soros, the financier, argues that the current financial crisis, which has led foreign pools of cash -- sovereign wealth funds, particularly from China and Singapore -- to buy stakes in key United States banking institutions, signals a power shift from the US toward Asia. As an economic historian, do you see this?

Jacques Attali | I first talked about this shift back in the 1970s. There are long historical cycles in which the center of gravity moves from one core to another. A core, or nucleus, of the mercantile order forms wherever a creative class masters a key innovation from navigation to accounting or, in our time, where services are most efficiently mass produced, thus generating enormous wealth.

The world order organized around the wealth and armies of the nucleus ultimately falls into crisis due to overextension in debt or war, or both, leaving open a vacuum filled by the formation of a new nucleus and its own order.

In my most recent book, A Brief History of the Future, I trace historically successive cores, or nuclei, from Bruges to Venice, Antwerp, Genoa and Amsterdam. In our age, the nucleus has moved from London (the steam engine) to Boston and New York (the automobile, oil and electricity) and on now to the seat of the information revolution on the US West Coast, from Los Angeles to Seattle. Here, the cultural demand for individual freedom and mobility has been satisfied by mass production of services that enhance the power and pleasure of that free individual in the form of "nomadic objects" -- everything from personal computers to cell phones to iPods to YouTube and MySpace.

Yet even as America has become the sole reigning superpower, it has at the same time fallen into massive debt and trade deficits and a weak currency; it is addicted to Middle Eastern oil and is locked in combat with radical Islamists, dragging it into war and distraction.

But the shift toward Asia is a long-term trend. It is not going to happen overnight. American power is hardly dead. It has tremendous capacity to rebound. It has youth, creativity, technology and flexibility. If it can find another FDR (Franklin Delano Roosevelt) to fix the financial system, the US could stay the core of the global economy and world leader for the next 20 years. Even though growth rates are high in the emerging economies, it will take years to catch up to the US. Certainly, this will not be the final crisis for America.

NPQ | How significant is the emergence of sovereign wealth funds, which are injecting cash they earned by selling to America back into its flailing financial system?

Attali | First, the irony is that when an American or European government wants to buy a stake in a company within its boundaries, everyone criticizes it as "nationalization." When funds from another want to buy a stake across borders, they are considered white knights. We are our own enemy, and our competitors are our saviors! At least we should put our own governments -- our own sovereign funds -- on the same footing as those from other countries.

Second, the sovereign governments behind these sovereign funds are not going to be dispensing cash for a long time. Ultimately, remember, these funds are political. In China, for example, there will be great pressure to turn its investments inward to satisfy its own people. Clearly, it will become apparent soon enough that it is better to invest in new airports in China than to see the money lost in the collapsing stock markets of the West.

The next step beyond this, logically, is the so-called "decoupling" phenomenon.Then the problem in the West will not be too much investment from sovereign funds in our economies, but not enough.