Why one country's rescue package could be another's ruin
Updated on 28 January 2009
As the world's economic and political leaders prepare to meet in Davos for the World Economic Forum, Faisal Islam looks at the downside of bailouts.
It's Pascal Lamy's responsibility to prevent the severe recession now affecting two-thirds of the world economy turning to a depression.
His organisation, the World Trade Organisation, is an "insurance policy against the 1930s" he says.
I have wondered for some time what the world's high priests of globalisation have thought about the bailouts of banks, insurers, car companies, and in France, even the newspapers.
Beggar thy neighbour?
It's the world's biggest rescue act - right across the globe, governments are bailing out businesses.
Supposedly free market politicians are pumping their taxpayers' cash in to the private sector. But when does industrial rescue become unfair protectionism and is this leading to a 1930s-style trade war?
"If you look at that from the side of developing countries who, by definition, cannot afford big bailout packages simply because they don't have the money - let's not make a system [that] we have been trying, in recent years, to make more development friendly, let's not make it development adverse," Lamy says.
The fear is that developing countries may resort to straightforward tariff barriers if they can not protect their industries with actual bailouts.
So far Lamy says he only sees "small waves" of protectionism. It's important to remember that WTO rules allow a bit of wiggle room for countries in a downturn.
The problem is that as bailouts fail to boost economies, or those bailouts begin to have a protectionist tinge, small waves can start to turn in to a rather large swell.
One country's rescue package can be another's ruin.
