Slump looks likely
New Zealand economist Robert Wade, a professor at the London School of Economics, predicts a further slump into global recession in 2010 or 2011. Wade, who made his name analysing East Asia’s economic “tigers”, advocates re-regulating finance by strengthening financial consumer protections, raising capital requirements for financial institutions, separating commercial and investment banks, international co-operation on exchange rates, and temporary taxes such as a 2 per cent tax imposed by Brazil recently on foreign portfolio investment. He said that the past year’s crisis was partly because of relaxation of controls on international financial flows and domestic banking capital ratios, fuelling huge imbalances between overspending economies, such as the US, and under-spenders, such as China. But he believes tackling the other side of the problem, inequality, will be “very problematic”. “The people at the top have now got enormous political power and would be extremely resistant to any serious increase in the progressivity of income tax which is one obvious way to do it,” he said. Professor Wade was in Auckland to deliver the annual Bruce Jesson Lecture at Auckland University.