Global business leaders told Western governments yesterday that a populist crackdown on the financial industry could crimp a fragile recovery from the worst recession since the 1930s.
The worried response to US President Barack Obama’s plans to tax and curb big banks, came on the opening day of the World Economic Forum, an annual gathering of some 2,500 business leaders and policymakers in the Swiss ski resort of Davos.
Surveys produced for the annual conference showed global economic confidence on the rise after deep gloom last year and a cautious return to hiring, especially in emerging markets.
But the specter of heavy-handed regulation and government intervention in the economy was the biggest cloud on many business leaders’ horizon. Uncertainties over whether China will rein in its feverish pace of growth and concerns about how Greece will tackle its debt crisis also weighed.
“It would be unfortunate if regulatory reforms that will be forthcoming were based on a populist message,” said Dennis Nally, global chairman of accountants PricewaterhouseCoopers (PwC).
Barclays President Bob Diamond challenged Obama’s effort to limit the size of big banks and restrain risk-taking, telling the opening forum session: “I’ve seen no evidence that suggests that shrinking banks and making all banks smaller or more narrow is the answer.”
“If you step back and say large is bad, and we move to narrow banking, the impact of that on banks and on global trade, the global economy, would be very negative,” he said.
“Without risk we do not have a banking industry … Having banks that are well-managed and willing to take risk, and especially willing to take cross-border risk, is essential if we want to have jobs and economic growth,” Diamond added.
A PwC study showed business confidence bouncing back after the sharpest drop in economic activity since World War II, prompting more industry leaders to start hiring again.
The survey of 1,200 chief executives in 52 countries found 39 percent of industry bosses aimed to hire extra staff this year, while 25 percent planned more job cuts, down from nearly half who slashed jobs last year.
But recruitment will be on a modest scale and mostly in booming emerging economies such as China and India, rather than in the developed world, the report showed.
Meanwhile, US economist Nouriel Roubini, who warned that the 2008 financial crisis was coming, said loose US monetary policy was now fuelling asset price bubbles that would cause the next bust.
“It’s become too much, too fast, too soon and US monetary policy is being exported to the rest of the world,” Roubini told a forum session.
In contrast to many business speakers, he said he was not concerned about over-regulation, but about a return to business as usual.
Jonathan Nelson, CEO of US private equity firm Providence Equity Partners, urged governments and the financial sector to stop finger-pointing and focus on improving management.
“We need to get away from the blame game. We all share responsibility for what happened here … There was reckless lending, there was reckless borrowing too, all against a background of public policy that [made it] desirable,” he said.
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