Can Hu rescue Patten and China?
He looked sleeker, slightly jowlier than before and his hair has turned snowy white, like an old man. But his voice is as mellifluous as ever and his wit just as eloquent and rapier-quick in puncturing balloons of self-importance and pomposity. It was a real delight to watch him in a BBC Hardtalk discussion on the economic crisis as he pricked pretentious statements of Gordon Brown and Nicolas Sarkozy and Alan Greenspan with a few well chosen but eminently fair words.
But I am worried about the Right Honourable Lord Patten of Barnes. His talents and his considerable experience are being frittered away just when the world needs a politician with his global knowledge and the battle scars to demonstrate that he understands the difference between high vision and grubby practical political possibilities.
It is time for someone to rescue Chris Patten from the worthy tedium of processing through the streets of Oxford as the chancellor of its ancient university, from sitting in the secondary house of the UK parliament, from boring corporate boards and conferences, and from fretting about deadlines for his newspaper articles. He might end up with a deadly heart attack worrying whether the page boys have properly grasped his gold trimmed gown. Lord Patten and the world deserve better than that.
There is a job that would test him and that he would do better than anyone else. But it needs an act of statesmanship, vision and courage on the part of China's President Hu Jintao for Lord Patten to be given the opportunity. Does Mr Hu have the wit and wisdom to suggest that Lord Patten should be the person to preside over a reform of the broken global financial system?
Why should China be involved? Because China is the great outsider with the biggest stake in the financial system, but only a tiny voice. This is not a mere academic question any more. The view that China and Asia would continue growing unaffected by any slowdown or economic or financial crisis in the US or the west has been shattered in the last few weeks, which have shown how the world is interlocked. China's stock markets have tumbled. China's growth has started to fall.
China also has a huge stake in the future of the west, not only because of its reliance on exports for jobs and economic growth but also because it has US$1.9 trillion in reserves mostly invested in US-dollar instruments. Attempts to diversify have proved disastrous.
China set up the China Investment Corporation with US$200 billion to get better returns from its reserves. With great fanfare CIC invested US$3 billion in the Blackstone private equity concern and US$5 billion in Morgan Stanley, and has seen the value of the shares drop by 70 per cent. CIC also has US$5.4 billion frozen in a money market fund that 'broke the buck' - saw its net asset value fall below US$1 - because of a large investment in Lehman Brothers debentures.
Some economists claim that CIC's performance has been stellar in comparison with the money that China is losing through Bretton Woods II, under which the US has been allowed to run huge current account deficits and fund them through foreign purchases of US debt (rather than take the same nasty economic medicine the IMF prescribed for errant developing countries). By one calculation, China is bleeding US270 billion a year - more than 7 per cent of its gross domestic product - through this system. (The calculation counts the 1 per cent return on the US assets transferred back into yuan and adjusted for inflation to give a real return of minus 15 per cent.)
China has an immense stake without a proper voice in any of the world financial councils, from the G7 to the International Monetary Fund (IMF) and World Bank.
The IMF and World Bank were set up 64 years ago after a conference at Bretton Woods in New Hampshire of 44 Allied countries to put together a global system for a better postwar world. The system has been patched up many times to squeeze in new members (today 185 countries whose governments are the shareholders), and to catch up with a rapidly changing world. Government ownership of course complicates reform, especially because the US has massive 16.77 per cent voting power in the IMF, in practice a veto. Even after much heralded recent reforms, China has only 3.66 per cent, and India 1.89 per cent, far below Japan (6.02 per cent), Germany (5.88) or France and Britain (4.86 each).
The US has been the main culprit in manipulating the system, from Richard Nixon's unilateral decision to stop the direct convertibility of the US dollar to gold to today when Washington has taken a free ride on the generosity of China and others. It is an act of risible vainglory for the lame-duck George W. Bush to call a global conference next month to fix a system the US has broken.
Why Lord Patten? Because he is one of the few politicians with a global understanding who dares to speak truth to power. Beijing knows that. He is British and European and a lover of America who is prepared to challenge all and any of them. He also insists that it is essential for China and India to be key players in a reformed system. He has a keen sense of the difference between blah and substance, and the scars from battles in the Conservative Party, in Hong Kong and China, and in Europe.
When it comes down to it, many politicians are all mouth and no trousers (or all fur coat and no knickers, as one of my Yorkshire friends put it) - as Lord Patten recognised when he pointed out that Gordon Brown spoke eloquently about reforming the system, but had done little when he was chairman of the key IMF committee.
If Lord Patten were given the job, he would have to decide whether the existing system should be supported by a crutch and a huge bandage, to replace a series of small band-aids, or whether he could get international consensus for a complete redesign and overhaul to create a global financial architecture that can support the needs of the 21st century with China as a main partner. Mr Hu should challenge Lord Patten and the world.
Kevin Rafferty was managing editor at the World Bank
