Lecture by Dr. Mohammad Sabah AlSalem AlSabah at the First World conference organized by the Kuwait Foundation for the Advancement of Science (KFAS) in collaboration with the London School for Economics (LSE)
Wednesday, March 26, 2009
Sheraton Hotel – Kuwait
Ladies and Gentlemen, good evening.
This conference reminds me of a lecture I gave in Brussels a year ago during my participation in a conference with the foreign ministers of the Gulf States and the European Union, whereby I outlined Kuwait's diplomacy following its liberation. With regards to this topic, I can not but mention the importance of Dr. Hassan al-Ibrahim's work in this field.
During the 1990's up till Saddam Hussein's fall from power, Kuwait's diplomacy took up the form of preventative diplomacy due to the threats on Kuwait security from the regime of Saddam Hussein. Following the fall of Saddam Hussein's regime in 2003 and the cessation of the nature of these threats, Kuwait's diplomacy shifted to that of a geo-economic one, or economic diplomacy.
For a while, Kuwait had been planning to undertake this form of economic diplomacy on a number of levels. There is the idea of reviving the old Silk Road that involves Kuwait through the creation of Silk City that will be a connecting point bridging Central Asia with Europe and the linking of the Gulf States with Iraq. This idea is aligned with transforming Kuwait into a trade and commerce hub, and it gives me great pleasure to have with us the man behind this idea, Dr. Yousef al-Ibrahim.
Some might say the global financial crisis that has struck the world in 2008 is nothing but a financial bubble just like many other financial bubbles throughout history. Isaac Newton himself, was not safe from these financial bubbles, losing a portion of his wealth via his stocks in the South Sea company.
Our problem is the following: Who is going to convince economists that Adam Smith's "invisible hand" is no longer valid for our time?
Next week, the G20 leaders will meet in your capital, London, and various issues will be discussed and the three most important issues that will be addressed are the following:
The first issue is stimulating the world economy by means of answering "How much will it cost?" and "For how long?" What matters to us is knowing the duration of these stimulus plans and the percentage of GDP it will cost countries. If we take for instance the huge disagreements amongst economists, we will find that there are those who think 2% is sufficient while there are others who believe it should be as much as 12%, like Paul Krugman. While these disagreements exist, they all share the fear that there will be an unprecedented explosion of the world debt whose aftermath will be felt for generations to come.
The second issue is that of the role of government. We are speaking about the government having a role in the economy after what economists saw as limiting its role due to the evolution of the world economy. The "role of government" has become part of the lingo amongst economists these days! It seems that the world will no longer allow for the domination of economic markets on the world markets. It might be necessary to remind us of what the former US Chairman of the Federal Reserve, Alan Greenspan, said, and I quote, "I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such that they were best capable of protecting their own shareholders."
In addition, the direction of the world economy has shifted from administrating the dangers to overcoming them. A number of factors played a role in aggravating these dangers; perhaps the most important one is that of derivatives which Warren Buffet describes as financial weapons of mass destruction.
The third issue is that of reforming the structural institutions of Bretton Woods, and we see Jack Stiglitz, professor of economics, advocating for the establishment of financial institutions paralleling those institutions of Bretton Woods whereby its work is specialized towards developing nations. There is also the idea by the British economist John Maynard Keynes who called for the creation of a common world reserve currency, the "Bancor". This is presently a proposed idea to deal with the chronic deficit of the US dollar. Additionally, there is the idea proposed by Yale professor James Tobin, called the "Tobin Tax" which calls for the implementation of taxes on international transactions in order to provide additional money for the institutions of Bretton Woods.
There are those who call for the OPEC nations to face further burdens than the ones they already are burdened with, and at this point I'm willing to present to you what Kuwait has done in the fields of development and economics.
We are currently studying in Kuwait the stimulus plan, while at the same time being a world player with regards to development. While one of the Millennium Development Goals is having developed countries allocating 0.7% of its GDP for development, Kuwait has allocated 2% of its GDP, almost three times more than required. Furthermore, the activity of the Kuwait Fund for Arab Economic Development is a testament to that, providing since its inception $15 billion to developing countries in the forms of loans and technical assistance. Also, the Government of the State of Kuwait allocated $300 million to fight poverty in Africa, and $100 million to fight hunger in developing countries.
I conclude my speech by quoting the famous John Maynard Keynes, "The difficulty lies, not in new ideas, but escaping from the old ones."
Thank you.