Wall St protest

Greed is Good?

Eric Cantona & The Crisis

Bye Bye or Buy Buy?

Six months ago I proposed in the Guardian that if Britain was short of money it should cut defence. I did not mean reduce defence, or trim defence. I meant cut it altogether. We are desperately short of money and absolutely no one is threatening to attack us now or in the foreseeable, indeed conceivable, future. Besides, as we have seen this past week, other ways of ensuring security make more pressing claims on us. We just do not need an army, navy or air force. So why are we paying £45bn for them?

I am not a pacifist. I accept the need to fight to protect my home, hearth and nation and, in extremis, to uphold some concept of global civilisation against an all-consuming tyrant. I grew up accepting the danger of a nuclear war exchange as real; I was never a member of CND. Nonetheless, it stands to reason that all public expenditure must justify its claim on the taxpayer, especially one such as defence that is essentially precautionary. Defence is an insurance premium, a massive one. But it cannot merely be asserted as necessary, and left to professionals to fix the premium.

Thirteen years ago, I had my defence epiphany on the lay committee for Labour's first and only strategic defence review in 1997. This was under George Robertson. I vividly remember our first meeting when we were given our terms of reference. Such was the radical mood of those euphoric early Blair days that were told to think the unthinkable and discuss everything, no holds barred.

This lasted about five minutes. It turned out we could not discuss the nuclear deterrent; we could not question the Trident programme and its submarines; we could not discuss the Eurofighter contract; nor could we discuss the need for two or perhaps three new aircraft carriers. I remember the smug look on the faces of service chiefs in the room. Our excluded items had nothing really to do with Britain's defence. They were political. Robertson and his colleagues were under instructions not to give an inch to the Tories on defence procurement, lest they be seen as soft on defence. We could think the unthinkable – but not the thinkable.

Only later did I realise that review laid the groundwork for a decade of indiscipline and budgetary chaos. Nothing was related to strategy, let alone foreign policy. Each service ordered what its favourite supplier made, and then kept redesigning it. Some hapless future government would pay, even if it was no longer needed. I was intrigued this year to see the MoD ask that the cost of Trident be shifted from the defence budget to the Treasury on the grounds that the deterrent had nothing to do with defence. The outcome is what David Cameron has called a car crash of a defence budget.

Anyone who takes taxes from others should be obliged to say why. In the case of most public spending, the answer is easy. It is to buy a school, hospital, road, care home or welfare benefit. In the realm of overall security I am glad money is spent on the police and the intelligence services. I accept the need for some monitoring of borders and airspace and coastline. I also accept the need for some territorial reserve, for instance to assist in civil emergencies and in UN operations.

Some taxes are an insurance against future risk, such as being ill or having a sick relative. But they are usually subject to some actuarial assessment of the risk. Defence spending is insurance of a different order. We make no actuarial calculation of the risk of British citizens dying in a military attack or of British property being destroyed. Yet we are required to part with a premium of £45bn a year to prevent it. Why?

Two weeks ago the coalition government bravely tried to answer this question. It published a list of threats to Britain's security in what I must say is one of the most bizarre documents to emerge from the ectoplasm of the MoD. It was a paranoid's manifesto, a Matrix movie horror. Admittedly, the authors had a tough job. There is no Wehrmacht hovering across the Channel, no Napoleonic Grande Armée massing at Calais and no megaton missile with itchy communist fingers pointing at Britain. So how on earth were they to justify £45bn? They decided, in their tidy way, to group various so-called threats into three tiers of seriousness.

The first tier contains four threats, like a Russian doll. Number one, presumably the greatest, is "attacks on British cyberspace by states and cyber-criminals". The second is international terrorism. The third is a "military crisis" between other states, one that "draws in" Britain. The last is "a major accident or natural hazard that requires a national response," such as coastal flooding or flu.

The second tier of threats comprise "an attack from another state using chemical, biological, radiological or nuclear weapons". Next come "instability, insurgency or civil war overseas," that affect us by somehow "creating an environment that terrorists can exploit to threaten Britain". In other words terrorism again. Next is a big rise in organised crime. Next is "severe disruption to satellite-based information, possibly deliberate from another state". This is a repeat of the cyberspace threat.

Lastly we have the third tier of threats, the least serious. The first is "a large-scale conventional military attack on Britain" by an unspecified other state. The second, somewhat desperately, is terrorism again, the third is crime again. The authors clearly ran out of threats, but had to fill their threat quota. We are also threatened by immigrants and smugglers "trying to cross the UK border". We are "threatened" by an accident at a nuclear site; by a conventional attack on a Nato ally, and by an attack on a British colony. Finally, we face a curious bundle of threats: fuel shortages, price instability, and "a short- to medium-term disruption to international supplies or resources".

You may note that almost none of the above is a threat. They are crimes and catastrophes or, in the case of being "drawn in" to a foreign conflict, a matter of political choice. Many things on the list may make me feel a bit uncomfortable, but few are remotely to do with the security of the state. They are incoherent and repetitive and rather desperate, like a madman with a sandwich board crying, "They are coming to get you; the end is nigh!"

Yet this list was the basis for last month's strategic defence review with its £45bn price tag. A set of threats that are almost entirely non-military is to be met by submarines carrying nuclear missiles, two new aircraft carriers and dozens of jet fighters.

Let's start with the threat of a nuclear missile landing on Britain. I have seen no analysis of how this might emerge from the existing international order, and certainly no explanation of how nuclear deterrence might apply in any specific case. In the barely conceivable eventuality of Iran or some such hostile state building a bomb, buying a missile capable of reaching Britain and then firing it, the act would be so lunatic as to be beyond any plausible deterrence. You cannot deter a suicidal nation any more than you can a suicidal bomber. Small wonder defence chiefs wanted their nuclear missile reclassified as "political".

As for using this precious weapon to deter a conventional attack, that is surely no less fanciful. Britain's possession of nuclear missiles has had no deterrent value in any of the dozen wars it has fought in half a century. Did we threaten Argentina with it? No. Yet time and again military strategists refer to it as a useful "reserve capability". When a soldier resorts to abstract nouns you know he has lost the argument.

As for the threat of a conventional attack on the British Isles by another state, we can only ask, who? The threat is so negligible as to be insignificant. It is like insuring one's house for billions of pounds against an asteroid attack. Is the attack to come from Russia, or France, or Germany, or Ireland? Defence pundits to whom I put this crucial question look down their noses, as if it were impertinent or undergraduate. They murmur that one can never know. Yet the political preconditions for a conventional attack on Britain are so distant – the review relegates it to tier three – that Britain would have some notice and time to re-arm, as we did with remarkable speed when last so confronted in 1940.

By jumbling together accidents, diseases, natural disasters and crimes as "threats", the government undermines its own plausibility. The defence lobby is trying to hijack the jobs of the police, civil rescue and medical professions. In the case of "price instability", it even wants to hijack the Financial Services Authority. These are not "threats to national security" against which we expect the defence ministry to plan or assemble conventional forces.

The same applies to the threat which the MoD has struggled for decades to make its own, that of international terrorism. The threat review is so keen that it lists it no fewer than three times. It implies a requirement to deploy conventional forces against terrorists, who might be acting as "proxy" for a state. But there is a difference between a state that wants to overpower, conquer and rule us – a ludicrous threat of no serious concern – and one that merely wants to make a nuisance in the hope of achieving some lesser goal, such as getting Britain out of Northern Ireland or making Israel into a pariah.

The latter certainly has applied, but if we were to deploy conventional forces against such a state we might, over the last quarter century, have declared war on Libya, Syria, Iran, the Irish Republic and even the state of Massachusetts. We did not. We treated an act of terror rightly as a methodology, a criminal means, not a political end. As Joseph Conrad said in The Secret Agent, the terrorist was a pest walking the street alone. His is a local and specific form of violence, causing mayhem in the hope of spreading panic and changing a state's behaviour in response to it. Terrorism has no political content unless awarded one by the victim nation.

With the IRA and the PLO in the 1970s, the authorities played down the political significance of any outrage. Prisoners were treated as criminals and denied political status. The most limited coverage was given to their demands. Now we do the opposite. We play up the politics. I remember the admirable response to 9/11 by New York mayor Rudy Giuliani. He told New Yorkers on the day of the attack to go about their business as usual, use the park, go to a show, buy a pizza, keep working and, above all, keep spending. The trouble was, 9/11 was so awful an incident as to apparently transform a terrorist outrage into an apparent state of war, and thus admit it within the ambit of conventional defence. Nobody took any notice of what Giuliani said. They did what al-Qaida wanted, which was indulge in mass hysteria. Blair said the rules of the international game had changed – an astonishing accolade to Osama bin Laden. This cannot be unconnected with the fact that a politician's poll rating soars in the aftermath of a terrorist incident. Nothing helped George Bush more than 9/11.

Politicians rush to the cameras, dive into bunkers and warn of threats to civilisation as we know it. Conventional military forces are put on alert. Blair once rushed tanks to Heathrow in a madcap gesture of self-importance. We invaded Afghanistan for harbouring terrorists. We invaded Iraq on the thesis that it might do so. Do we now invade Pakistan and Yemen on the same basis?

Far from being deterred, terrorists and their sponsors clearly derive prestige and political clout when conventional forces are ranged against them. We thereby put them on the pedestal of state threat. By infringing our liberties and curbing our freedoms in their honour we let them win battles. By being publicly scared, as of this week's parcel bombs, we invite them to scare us some more.

Such an approach to defence is not just wasteful but counter-productive. Politicians from Blair to Cameron declare the aim of war in Iraq and Afghanistan is to make the streets of Britain safer. There is not an iota of evidence for this extraordinary claim. Most analysts, including former security chiefs in the House of Lords, say the precise opposite. These wars have made us less safe, by making Britain a prime target for terrorists and breeding homegrown terrorists in schools, colleges and mosques. Watching Gordon Brown in Helmand mouthing nonsense about boys dying for safer streets was painful. He clearly did not believe it.

So what of the other most common cause of Britain going to war, the threat of being "drawn into" someone else's squabble? First, this is not a threat but a political choice. These wars are nowadays called wars of choice. They are always beguiling. What you have, you are induced to deploy, often for the vaguest of purposes, such as "making the world a better place". The navy cites the need to stop pirates in the Indian Ocean and drug-runners in the Caribbean. Blair contributed British forces to six separate conflicts in his time in office, in Afghanistan, Sierra Leone and two each in Iraq and the former Yugoslavia. None was in response to a threat to the security of the British state. They were adjuncts to his foreign policy goal of "hugging close" to Washington.

Armies with nothing to do tend to distort the purpose for which they were formed. They become institutionalised. They coalesce into a wide constituency of veterans, territorial and political supporters, above all, equipment suppliers. As with terrorism, so with the government's other listed threats, we should ponder those who leap forward to publicise them. Whenever the BBC calls in a "security expert" to comment on the awfulness of some new threat, we should be told for whom he works. Remember Deep Throat's maxim, follow the money?

Being "drawn in" is the phraseology of the security review. But note the intransitive. Drawn in by whom? In whose interests, or on whose behalf, are we spending billions of pounds killing thousands of people in the Muslim world just now? Shouldn't we also have been "drawn in" to Rwanda, Darfur, Somalia, Sri Lanka, Burma? In each case, man's inhumanity to man has been more gross than in Iraq and Afghanistan. We did nothing.

From the earliest enunciation of liberal interventionism, it has been wanting in rigour. In 1999, Blair spoke in Chicago in favour of humanitarian "just" wars, as if they carried with them their own validation. All they carried was a clutter of moral superiority. I do not regard Germans or Japanese or Indians or Brazilians as lacking in moral fibre for not fighting alongside us in Blair's wars. I find nothing peculiarly moral, first in helping the break up of former Yugoslavia, then the break up of Serbia and now the devastation of Iraq and Afghanistan.

We are left with what I call the ontological argument for defences spending. It exists and therefore it is. It is the ultimate security, to which no concept of proportion can apply. We protect ourselves out of instinct. Like spending on health, you just cannot get enough of it.

It is a response not to known threats (such as Russia), nor even to known unknowns (such as a resurgent Russia), but to those famous unknown unknowns. The great ontologist, Donald Rumsfeld, remains the patron saint of defence expenditure.

The argument can take amazing forms. Come now, say the high priests. Just suppose another Hitler rose again, built a new Luftwaffe and U-boats, and bombed London and sank all our coastal trade. We would need a carrier. Suppose Russia falls under the sway of an oligarch with a grudge against Harrods and a business rival in Kensington Palace Gardens. Suppose he decides to nuke them. Supposed 100 suicide bombers block-booked themselves on Eurostar and went to every Premier League match. You would look pretty silly, Jenkins, wouldn't you?

I would look pretty silly, and probably I wouldn't be the only one. But for the time being, I regard such unrealities used to justify massive spending as no less silly. We can only meet realistic threats. We do not build 1,000 NHS hospitals and leave them to await the return of bubonic plague.

Britain as a sovereign state is less "under threat" today than ever in my life, indeed less than ever in its existence. That is to the credit of recent generations of British governments. But this means we do not need a defence that has been successfully rendered obsolete.

The chief threat to me today, if at all, is from crime. Yet we are appalling at combating it. Obsessed with punishment, we neglect crime prevention. To guard me from unreal foreign attack the government spends £45bn, but to guard my home and hearth from crime it spends just £6.4bn, and badly. I am defended against crime, including terrorist attack, not by an army, navy or air force, but by vigilant acquaintances of the criminals, by an alert school and mosque, by the police and by the apparatus of intelligence, espionage and diplomacy.

The truth of the matter is that our defence spending is misdirected and extravagantly out of date. We are re-equipping for Agincourt on the brink of Waterloo. We are laying down long boats for the battle of the Atlantic. We are deploying cold-war weapons against occasional outrages by fanatics with no capacity to cause the state harm.

I sometimes wonder why I see things this way, when so few others do. I am a pragmatist, not a pacifist. But I respect language, and am suspicious of the vapid cliches about national interest, punching our weight, sitting at top tables and being respected. I hate to see terrorism, a miserable perversion, accorded the accolade of grand enemy of the state. I hate to see statesmen whose job is to keep threats out of sight and mind exploiting the politics of fear.

The fault lies partly in the sloppy language used to discuss defence, which loses all ability to convey risk and proportion and slides into sloppy nouns and sloppy thinking. At that point, leaders lose touch with democracy, a serious threat to the security of any state. The only defence against that danger lies not in armies, bombs and guns, but solely in the deployment of meticulous reason.

by Simon Jenkins

Cartoon Of The Day

Planet Crisis

Picture Of The Day

Global Capitalism (To Goya)

A Greek Dra(ch)ma

Why is Greece still in crisis, wasn't there a bailout?

After months of uncertainty, the EU and IMF had finally offered a €45bn rescue package (€30bn from Europe and €15bn from the IMF), which might have seen Greece through its short-term borrowing needs. But political opposition in Germany led investors to lose confidence and drove up Greek borrowing costs to the point where a far bigger rescue package now looks necessary.

What happens if a bigger bailout can't be agreed?

With short-term borrowing rates hitting 38% on Wednesday, investors fear Greece will have no choice but to default on some of its existing debt obligations, or at the very least negotiate a partial debt restructuring. In short, refuse to pay. The latest crisis was sparked on Tuesday when credit rating agency Standard & Poors downgraded Greek sovereign bonds to junk status.

Why is this so bad? Don't the bankers deserve it?

It is bad for Greece because it will make it almost impossible to borrow its way out of trouble in future, making it difficult to pay all its public sector employees and deepening its recession. It is bad for everyone because most fund managers invest in these bonds on behalf of international pensioners and savers. Though Goldman Sachs has been criticised for helping Greece hide its problems and hedge funds are blamed for exacerbating the market reaction, the banking industry is far less culpable in this crisis than it was last year.

Will Greece leave the euro?

If its domestic economic crisis gets bad enough, Athens may decide a currency devaluation is the only way to restore international competitiveness. It is hard to imagine it would restore the drachma with so many corporate and household debts still denominated in euros.

How might the contagion spread?

Rating agencies have downgraded government debt issued by Spain and Portugal, suggesting greater fears of default and higher borrowing costs across much of southern Europe. The cost of insuring against default in Poland and Ireland has also jumped as the so-called "sovereign" credit market suffers a widespread loss of confidence. Confidence could quickly return if European governments agree a more convincing rescue plan when they meet on 10 May.

Could the UK be next?

A wider collapse in investor confidence could make it more expensive for the UK to continue its heavy borrowing programme too. Lying outside the single currency means this would probably express itself first in a sharp fall in sterling rather than an outright "gilts strike" (when investors refuse to buy UK government bonds). Interest rates would also have to rise, potentially pushing the economy back into recession.

The Celtic Tiger

The lessons of Ireland

This riches-to-rags story is an example for Obama - and the world - of how not to run an economy

'What," asked my interlocutor, "is the worst-case outlook for the world economy?" It wasn't until the next day that I came up with the right answer: America could turn Irish.

What's so bad about that? Well, the Irish government now predicts that this year GDP will fall more than 10% from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression. But there's more to it: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump, policies that will further deepen the slump.

And it's that closing off of policy options that I'm afraid might happen to the rest of us. The slogan Erin go bragh, usually translated as "Ireland forever", is traditionally used as a declaration of Irish identity. But it could also, I fear, be read as a prediction for the world economy.

How did Ireland get into its current bind? By being just like the US, only more so. Like Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the world's third-freest economy, behind only Hong Kong and Singapore.

One part of the Irish economy that became especially free was the banking sector, which used its freedom to finance a monstrous housing bubble. Ireland became in effect a cool, snake-free version of coastal Florida.

Then the bubble burst. The collapse of construction sent the economy into a tailspin, while plunging home prices left many owing more than their houses were worth. The result has been a rising tide of defaults and heavy losses for the banks. And the troubles of the banks are largely responsible for putting the Irish government in a policy straitjacket.

On the eve of the crisis Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt. But the government's revenue which had become strongly dependent on the housing boom collapsed along with the bubble.

Even more important, the Irish government found itself having to take responsibility for the mistakes of private bankers. Last September Ireland moved to shore up confidence in its banks by offering a government guarantee on their liabilities thereby putting taxpayers on the hook for potential losses of more than twice the country's GDP.

The combination of deficits and exposure to bank losses raised doubts about Ireland's long-run solvency, reflected in a rising risk premium on Irish debt and warnings about possible downgrades from ratings agencies. Hence the harsh new policies. Earlier this month the Irish government simultaneously announced a plan to purchase many of the banks' bad assets putting taxpayers even further on the hook while raising taxes and cutting spending, to reassure lenders.

As I read the debate among Irish experts, there's widespread criticism of the bank plan, with many leading economists calling for temporary nationalisation instead. (Ireland has already nationalised one major bank.) The arguments of these Irish economists are very similar to those of a number of American economists, myself included, about how to deal with our own banking mess.

But there isn't much disagreement about the need for fiscal austerity. As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back.

So what does all this say about those of us who aren't Irish? For now, the US isn't confined by an Irish-type fiscal straitjacket: The financial markets still consider government debt safer than anything else. But we can't assume that this will always be true. Unfortunately, we didn't save for a rainy day: thanks to tax cuts and the war in Iraq, America came out of the "Bush boom" with a higher ratio of government debt to GDP than it had going in. And if we push that ratio another 30 or 40 points higher - not out of the question if economic policy is mishandled over the next few years - we might start facing our own problems with the bond market.

That's one reason I'm so concerned about the Obama administration's bank plan. If, as some of us fear, taxpayer funds end up providing windfalls to financial operators instead of fixing what needs to be fixed, we might not have the money to go back and do it right.

And the lesson of Ireland is that you really, really don't want to put yourself in a position where you have to punish your economy in order to save your banks.

• Paul Krugman, winner of the 2008 Nobel Memorial Prize in Economics, is a columnist for the New York Times, where this article first appeared

Crisis Explainer

Global Crisis and Cuban Values

There was one region that saw the bankruptcy of neoliberalism - and now the rest of the world is having to catch up

by Seumas Milne

On 9 October 1967, Che Guevara faced a shaking sergeant Mario Teran, ordered to murder him by the Bolivian president and CIA, and declared: "Shoot, coward, you're only going to kill a man." The climax of Stephen Soderbergh's two-part epic, Che, in real life this final act of heroic defiance marked the defeat of multiple attempts to spread the Cuban revolution to the rest of Latin America.

But 40 years later, the long-retired executioner, now a reviled old man, had his sight restored by Cuban doctors, an operation paid for by revolutionary Venezuela in the radicalised (?) Bolivia of Evo Morales. Teran was treated as part of a programme which has seen 1.4 million free eye operations carried out by Cuban doctors in 33 countries across Latin America, the Caribbean and Africa. It is an emblem both of the humanity of Fidel Castro and Guevara's legacy, but also of the transformation of Latin America which has made such extraordinary co-operation possible.

The 50th anniversary of the Cuban revolution this month has already been the occasion for a regurgitation of western media tropes about pickled totalitarian misery, while next week's 10th anniversary of Hugo Chávez's presidency in Venezuela will undoubtedly trigger a parallel outburst of hostility, ridicule and unfounded accusations of dictatorship. The fact that Chávez, still commanding close to 60% popular support, is again trying to convince the Venezuelan people to overturn the US-style two-term limit on his job will only intensify such charges, even though the change would merely bring the country into line with the rules in France and Britain.

But it is a response which also utterly fails to grasp the significance of the wave of progressive change that has swept away the old elites and brought a string of radical socialist and social-democratic governments to power across the continent, from Ecuador to Brazil, Paraguay to Argentina: challenging US domination and neoliberal orthodoxy, breaking down social and racial inequality, building regional integration and taking back strategic resources from corporate control.

That is the process which this week saw Bolivians vote, in the land where Guevara was hunted down, to adopt a sweeping new constitution empowering the country's long-suppressed indigenous majority and entrenching land reform and public control of natural resources - after months of violent resistance sponsored by the traditional white ruling class. It's also seen Cuba finally brought into the heart of regional structures from which Washington has strained every nerve to exclude it.

The seeds of this Latin American rebirth were sown half a century ago in Cuba. But it is also more directly rooted in the region's disastrous experience of neoliberalism, first implemented by the bloody Pinochet regime in the 1970s - before being adopted with enthusiasm by Margaret Thatcher and Ronald Reagan and duly enforced across the world.

The wave of privatisation, deregulation and mass pauperisation it unleashed in Latin America first led to mass unrest in Venezuela in 1989, savagely repressed in the Caracazo massacre of more than 1,000 barrio dwellers and protesters. The impact of the 1998 financial crisis unleashed a far wider rejection of the new market order, the politics of which are still being played out across the continent. And the international significance of this first revolt against neoliberalism on the periphery of the US empire now could not be clearer, as the global meltdown has rapidly discredited the free-market model first rejected in South America.

Hopes are naturally high that Barack Obama will recognise the powerful national, social and ethnic roots of Latin America's reawakening - the election of an Aymara president was as unthinkable in Bolivia as an African American president - and start to build a new relationship of mutual respect. The signs so far are mixed. The new US president has made some positive noises about Cuba, promising to lift the Bush administration's travel and remittances ban for US citizens - though not to end the stifling 47-year-old trade embargo.

But on Venezuela it seemed to be business as usual earlier this month, when Obama insisted that the Venezuelan president had been a "force that has interrupted progress" and claimed Venezuela was "supporting terrorist activities" in Colombia, apparently based on spurious computer disc evidence produced by the Colombian military.

If this is intended as political cover for an opening to Cuba then perhaps it shouldn't be taken too seriously. But if it is an attempt to isolate Venezuela and divide and rule in America's backyard, it's unlikely to work. Venezuela is a powerful regional player and while Chávez may have lost five out of 22 states in November's regional elections on the back of discontent over crime and corruption, his supporters still won 54% of the popular vote to the opposition's 42%.

That is based on a decade of unprecedented mobilisation of oil revenues to achieve impressive social gains, including the near halving of poverty rates, the elimination of illiteracy and a massive expansion of free health and education. The same and more is true of Cuba, famous for first world health and education standards - with better infant mortality rates than the US - in an economically blockaded developing country.

Less well known is the country's success in diversifying its economy since the collapse of the Soviet Union, not just into tourism and biotechnology, but the export of medical services and affordable vaccines to the poorest parts of the world. Anyone who seriously cares about social justice cannot but recognise the scale of these achievements - just as the greatest contribution those genuinely concerned about lack of freedom and democracy in Cuba can make is to help get the US off the Cubans' backs.

None of that means the global crisis now engulfing Latin America isn't potentially a threat to all its radical governments, with falling commodity prices cutting revenues and credit markets drying up. Revolutions can't stand still, and the deflation of the oil cushion that allowed Chávez to leave the interests of the traditional Venezuelan ruling elite untouched means pressure for more radical solutions is likely to grow. Meanwhile, the common sense about the bankruptcy of neoliberalism first recognised in Latin America has now gone global. Whether it generates the same kind of radicalism elsewhere remains to be seen.

The Elite in the Mountain

The knives are out for Davos Man. But the alternative is much more alarming

by Timothy Garton Ash

The biggest danger is not a surfeit of the globalism embodied by this forum, but the strengthening of economic nationalism

Davos Man, "the most highly evolved mammal on the planet", should say sorry for the economic mess he's got us into, according to a trenchant little piece in the Times by the Conservative MP and journalist, Michael Gove. Scanning the list of participants in this year's annual meeting of the World Economic Forum, I notice the name of the Conservative party leader, David Cameron. If memory serves, Cameron was a Davos Man last year too. So clearly Gove is calling on his party leader to say sorry.

There is something both predictable and ridiculous about the blame game being played, with politicians blaming bankers, bankers blaming regulators, regulators blaming politicians, and so on. If, as Barack Obama famously remarked to Joe the Plumber, we need to spread the wealth around a bit more, we also need to spread the blame around a bit more - and more discriminatingly.

Those of us who are not financial experts are only beginning to understand what went wrong in what George Soros has described as a super-boom followed by a super-bust. (If you want a crash course - the term is doubly apt - I recommend a special report on finance in the latest Economist and a recent lecture by the head of Britain's Financial Services Authority, Adair Turner, available on the FSA website.) On the evidence we have so far, the following could plausibly be asked to interrogate themselves on their share of the responsibility. With the exception of the first and last categories, the words "some of the" should be inserted before each heading. My list is, of course, merely indicative.

Crooks. Bernie Madoff was (it appears, subject to the finding of the courts) a crook, a fraudster and a confidence trickster. His like will always be with us. The relevant question is how he was able to get away with it for so long and on such a scale.

Bankers. Some highly respected and law-abiding bankers took huge gambles and made horrible miscalculations at our expense, themselves walking off with multimillion bonuses while leaving shareholders and taxpayers to pick up the tab. Others did not.

Regulators. There's a lot of failure to go around in this category. "Is that a typo?" one official at the US Securities and Exchange Commission was said to have asked, when faced with the $50bn estimate for Madoff's losses. "Isn't that number meant to be $50m?"

Politicians. It's all very well for politicians to rail against "Wall Street" and the "banksters", but this happened on George Bush's and Gordon Brown's watch. "The cheerleaders of finance," writes the Economist's Edward Carr in his report, "were unwilling to admit that houses were too expensive and risk too cheap." Yes, but so were the cheerleaders of British and American politics.

Economists. Here's a guild from which we might usefully hear a little more self-criticism - especially from the quantitative economists whose mathematical models helped to lead investment bankers astray. In what sense can economics still claim to be a science if its predictive capacity is so low? Imagine Newtonian physics when apples start going upwards.

Journalists. Yes, a few warned, as did a few exceptional economists like Nouriel Roubini; but it's only now that your average reader of the business pages is in a position to understand how risky his or her investments were. Did business journalism fail us?

We, the people. Some of us, anyway: piling up household debt, especially in Britain and America, on the back of inflated house prices that gave the illusion of security; not asking sufficiently probing questions about where our pension funds were invested.

The system. Blanket charges against some denatured, depersonalised "system" usually betray incoherence wrapped in indignation. But there is a sense here of a global financial system that had become so large, complex and untransparent that it was beyond the capacity of even the largest actor in the markets to understand, let alone control. And one in which apparently rational decisions by most individual participants produced a result collectively damaging for all.

The first conclusion that I draw is about knowledge and transparency. What many of these categories have in common is that those involved, whether bankers, regulators, politicians, journalists or ordinary pension fund-holders, did not see and understand enough about what was really going on. There were too many black boxes and unopened Russian dolls - such as those repeatedly repackaged "collateralised debt obligations". Even Soros, the legendary master investor, is said to have been wary of derivatives because he didn't "really understand how they work". Now you may say: "Well, if Soros couldn't understand, how on earth do you expect me to?" But you can also turn that round the other way and say: "Follow the Soros rule - don't invest in anything you don't understand." If enough individual and institutional investors made that paradigm shift, this would have the beauty of using market mechanisms to discipline markets. Offer more transparency or you don't get my money. This is not a substitute for better regulation by national governments and international institutions, but would be a formidable complement to it.

My second conclusion brings us back to Davos Man, a term of art coined by the late Samuel Huntington to describe a member of a new global elite, liberated from national loyalties and contemptuous of national boundaries - a kind of ruthless cosmopolitan. Davos Man was always what social scientists call an "ideal type". In practice, Davos is a meeting place of diverse business, political and media elites. Many of the multinational companies, banks and media concerns represented here do have global business plans and strategies, yet even they often remain rooted in a national business or media culture. CNN is global but also very American; BBC World is global but also quite British, Nestlé is global and thoroughly Swiss.

As for the political leaders who come to Davos, most of them are still firmly based in national politics. Up here, on the magic mountain, they present their national views and interests to an international audience in the most cosmopolitan terms - as the Chinese premier Wen Jiabao and the Russian premier Vladimir Putin did yesterday. But they always remain acutely conscious of how their words will play through national media to national publics back home.

The biggest danger to the world's economic system is not a surfeit of Davos-type internationalism; it's the strengthening of economic nationalism. Davos has always been a small part of a larger effort not to supplant international competition but to place it within a stronger framework of international co-operation.

Now we are at a crossroads. One road leads back to economic nationalism, protectionism and beggar-thy-neighbour policies. Another leads forward to more international co-operation, including more regulation and transparency. Without a conscious effort, the dynamics of both democratic and undemocratic politics, which remain national, will lead us down the former road. Inside Davos Man, there is his predecessor and possible successor always struggling to get out. If you don't like what you've seen of Davos Man, wait till you see Nationalist Man get to work.