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People who make their money in the capitalist system should know that those with the capital are the ones with the power. Barclays Bank has a need for capital, and sovereign wealth funds in the Middle East have capital in abundance at a time of desperate shortage. So in any negotiation you would expect the Middle East investors to drive a hard bargain.
This is doubly so because it is the second time in a year that Barclays has been round the circuit, the last being when it was looking for ways to finance its offer for ABN Amro in a bid battle it subsequently won by losing.
But those early investors and sovereign wealth funds that invested in Barclays and in many other banks and financial institutions now know they came in to too early and have suffered the pain that goes with catching a falling knife. Given the losses they experienced on their first-round investments, persuading them to come in again was never going to be a cheap option.
One can understand why many in the City are upset by the deal, but they need to get used to it. They are outgunned now and will be again before too long. Indeed, if the Prudential succeeds in its tilt for a large slice of American insurance giant AIG, the odds are surely that it too will pick up a very similar raft of new Asian investors, and probably on quite similar terms. There is no mystery about why this is. The sovereign wealth funds have the capital, and they are learning fast how much it is worth.
No doubt, when the price is right, other deals will be struck in other parts of the City. As has been said here before, the probability is that at least 10% of the Western financial system will be in their hands within the next few years, but that could well be too low an estimate. The fact is that this is just another symptom of the shift in global economic power away from the West which will require some uncomfortable adjustment to our thinking.
It is interesting that most people in the City have been so busy wringing their hands over the terms of deals like the Barclays one that they have not even begun to focus on the wider implications. This is much more than a transfer of power to new shareholders. It brings with it the possibility of a transfer of power throughout the world's financial architecture.
The current generation of international financial institutions, the International Monetary Fund and the World Bank, were created by the Western powers at the end of the Second World War and reflect the mix of economic and political power at that time. How long will it be before they too have to reflect the new reality of where economic power now lies?
Owning up to the geopolitical implications of what is going on will be as painful for the rich nations as paying the price for the profligacy of their financial institutions is for shareholders. The West has clearly been aware of the rise of India, China, Brazil and the others, but the rich nations have yet to face up properly to the implications.
They can visualise sharing power but they imagine the bargain will be struck on their terms; that the emerging nations will be absorbed, at a pace of the West's choosing, into familiar international institutions and forums. When American and European diplomats talk about the rising powers becoming responsible stakeholders in the global system, what they really mean is that China, India and the rest must not be allowed to challenge existing standards and norms.
This is the frame of mind that sees the Benelux countries still holding a bigger share than China of the votes in the IMF, and the Group of Seven leading industrialised nations remaining the right forum to redesign the global financial system. But the West has suffered such a decline in its moral authority as a result of this financial debacle that the other nations are no longer in any mood to listen to the lectures.
Someone I know who has attended years of G8 summits says it has become increasingly obvious in recent years that the wrong people are round the table but the others are not invited because they might not play the game according to the West's rules. So the big question we should be asking, which goes way beyond whingeing about the terms Barclays has offered its new shareholders, is whether the new economic powers will join in or whether they will find a table of their own.
The lesson of the current turmoil is that the West can no longer assume that the global economic order will be remade in its own image. It is unrealistic to believe the IMF and World Bank can continue to have a role to play in the world without a fundamental broadening of their governance. Ultimately, it is the same for Barclays. If it is to be a world business offering global financial services, it is surely an advantage for its shareholders also to be global.
For two centuries, Europe and America may have exercised an effortless economic and political hegemony. But that era is ending. Get used to it.
Reader views (1)
It almost certainly will be ending for Britain with its huge debt, irresponsible deficits, contracting ecomony, plunging currency and reliance on foreign investors for its daily existence. But, Mr. Hilton, you must separate out the UK's dubious future from the rest of the west. The UK is uniquely positioned, due to its inability to live within its means and create wealth by supplying products and services the world will purchase from you. to decline significantly during the next few years. Don't attempt to associate other Western countries with yourself in this respect.
- Kr, Cap Ferrat FRANCE, 04/11/2008 14:13
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