Financial expert says Western govts erred in handling financial crisis

Financial expert Alex Malley says the free market in the United States is now confused by political intervention. [Provided to China Daily]

A leading financial expert says the United States is in urgent need of a bipartisan five-year plan in order to avoid its economy going into freefall.

Alex Malley, chief executive officer of CPA Australia, says unless the US takes politics out of the nation's economic needs, its future is grim.

"There are so many structural issues that are wrong in the US," he says. "Its protection of its own industries will not serve it well in the long run. Its own place in the world having never changed, culturally it's a big shift they have got to make.

"Their level of debt is huge. Their incapacity to have managed their level of success is evident. There are elements of the Roman Empire being revisited in the US."

Malley spoke on Oct 14 during the CPA Congress in Hong Kong. The meeting is the largest annual global gathering of finance, accounting and business professionals. It is being held in nine locations, including Hong Kong, London, Singapore and Malaysia, and will have been attended by some 10,500 people between September and November.

In Hong Kong, the event attracted a powerful lineup of leading finance, accounting and business leaders, technical experts, economic analysts, media personalities and other high-profile speakers to address topical and relevant issues affecting all strategic business leaders.

"It's my view that most of the governments in the Western economies erred in attempting to resolve what were fundamentally economic issues three or four years ago by trying to fund a solution. To suggest that funding an outcome would bring a reasonably quick result is naive. I think if Europe and the US perhaps had more pain earlier and forced the markets to improve and correct themselves, and then looked at a funding model - I think that may have been a better option."

Malley says there was too much interference in the market. "Three or four years ago when things looked more ugly than normal we forgot that we were managing a free market and politicians decided they would enter the fray and seek to maintain and prop it up.

"I think what you have to do is let a free market succeed and fail to an extent. I think had that happened for a year or two first then, there would have been probably the necessary bloodshed that was always going to have to happen. And then perhaps when the governments decided to fund some level of solution, they could have been more selective and had more time to consider where the relevant country needed the best boost. I don't think politicians were ready or capable or experienced enough to enter the fray when they did. I think they panicked."

Malley says a medium- to long-term solution was needed. "The people who are driving the solution are on short-term electoral cycles. The US desperately needs a five-year bipartisan plan. Without that, its future looks particularly grim because it is losing its identity; it is losing its confidence. It's the consummate free market that is now confused by political intervention. With a year to run before the election, I recognize the huge challenge I am calling here."

Malley went on to praise China's approach to its economy. "When one looks at China's last 10 years in comparison with any other economy, it has a plan. It has now got a revised plan for five years. It's enjoyed enormous growth. It has enormous foreign currency reserves. It has very broad export markets. Of course some of those are now facing difficulties, but it still has good market export growth. It's got a domestic economy that is moving quite well. It does have some inflation issues, but in many ways inflation is a reflection of the pulse of the society.

"Fundamentally, China has something that most other economies do not. It's paused, it's reflected, it set a plan, it's got a vision. I think that's just gone missing in the Western economies. When people see all around them that things are improving regarding conditions and opportunities, that's a natural motivator. In markets like the US and the UK and parts of Europe, these are mature, very bureaucratic, gridlocked, cost-heavy societies and that's not easy to attend to. Western economies have a complexity that emerging markets don't have and that gives the latter a great advantage.

"China has taken enormous leaps on the global stage. It is very well represented in the international politics of accounting. It is moving increasingly close to international accounting standards. They recognize they are on a journey."

Asked what role Asia could play in the global economy, Malley was sanguine.

"It isn't Asia's job to bail out the West. It's the West's job to do that. But I certainly think Asia will continue to contribute by virtue of its export capacity and its ingenuity. I think China will see opportunities in Western economies, investment opportunities, and I think they will probably look to those and do quite well with them.

"Asia's great contribution is as an example of how to reconstruct your economy and rebuild it. It's done in 20 years what most economies can never dream of. The issue for Western economies is to decomplicate their regulations, decomplicate their taxation systems and open their economies back (up) to free enterprise. It's a natural progression over time that free enterprise economies become more regulated."

Malley expects to see more international deals conducted with the yuan. "I think the yuan will become freely tradable in less than 20 years. One of the reasons China has been so successful is that it has moved cautiously. If they continue with that approach I don't think it will be in the next year or two but I do think it will be within the next decade."

He says the revaluation of the yuan would not be the "panacea" or "silver bullet" some US politicians appear to believe.

"Their issues are far more substantive. Their issues are in their own backyard. I think it's an extraordinary challenge to look yourself in the mirror and see what you really do look like. When I compare the US now with the US in the 60s, when you had the government, the administration, the people seeking to go to the moon, light years away from any other mindset in the world, and what they achieved, and what you have today, it's a rather tragic story.

"The patriotic American is their biggest problem at the moment. I respect many of the things the US has done over the years but patriotism that talks about being the best in the world and 'That's our place' and 'That's always where we will be' and 'We know best' is not a patriotism that is going to serve them into the next century. If I walk around Washington and I see this extraordinary architecture that reflects the people 150 years ago and then I get on a jet and fly to New York and I am watching news that is mostly bad, I don't see progress, I see regress.

"When I look at an economy, I look at the fundamentals, the level of debt, the level of growth, the different sectors and how balanced they are. When I look at the US I don't think they are doing very well. I don't think currency values reflect necessarily what is going on in the economy. We are in interesting times and if we are waiting for politicians to resolve their problems then we've got some really significant things to worry about. The only people who will navigate their economies back into the black will be in business and not politicians trying to do business."