Performance Management Solutions

It must have been totally irresistible for both the Premier of China, Wen Jiabao, and the Prime Minister of Russia, Vladimir Putin: both were speaking at the opening of the World Economic Forum in Davos and both had the opportunity to slam US policies and the system of laissez-faire capitalism and they took the opportunity and worked it for all it was worth. But, of course, being politicians they both targetted the wrong thing.

The current economic problems are not caused by laissez-faire capitalism nor poor US regulatory policies but, rather, the underlying problem is human behaviour and, in particular, greed and neither Russia nor China is free of human behaviour nor of greed.

Only recently Russia’s oligarchs flexed their muscles in pursuit of greater financial control over gas supplies to Europe so that they could make even great financial gain for themselves – and if that analysis is wrong, then the alternative is that the Russian government orchestrated the disruption of the gas supplies to put economic pressure on Europe. Of course, Russia is currently suffering its come-uppance for its behaviour as an unreliable trading partner: with gas prices falling and, according to Reuters ‘the slump in the oil price, Russia’s key export, has taken a heavy toll on the rouble, prompting the central bank to spend a quarter of its reserves to cushion the currency’s fall and to embark on a process of controlled devaluation’. In addition, Mr Putin’s government has had to rework its budget since it was only viable when oil was at the unsustainably high figure of $95 per barrel and they are now madly recalculating it at $41 per barrel. Had Mr Putin and his oligarch friends and compatriots not been so greedy, then things would not have been so bad in Russia.

And what about China? The current development of China and the huge rise in living standards that have been achieved there have come about because of and not in spite of capitalism. The corresponding rise in personal wealth enjoyed by the Party elite has enabled them to send their children to universities in the US and Europe and to make purchases at home that would have been impossible without the benefit of wealth, but no one sees the Party elite handing their personal wealth to the people as called for under the political philosophy they claim to espouse.

The pursuit of personal wealth on an individualistic basis rather than a collaborative basis is the root cause of the problem and the Chinese and Russians are just as guilty of this as are the Americans and Europeans – we’re all human.

Disregarding the obviously politically motivated phrases, it is evident that both Wen Jiabao and Vladimir Putin had an inkling over the real causes: according to Steven Schifferes of the BBC, Mr Wen identified ‘… “inappropriate macro-economic policies of some economies and their unsustainable model of development” – a clear swipe at the low savings and high consumption rate of the US economy – and “the failure of financial supervision and regulation”…’ as being major factors and Mr Putin mentioned ‘poor quality regulation’ leading to ‘the collapses of the existing financial system’. And once again, neither China nor Russia can claim the moral high-ground on this: Russia’s complete lack of any form of effective banking or market regulation (except the fear that the government and its oligarch allies will take over offending companies) led to the collapse of Russian banks and the Russian economy well before the correction to oil prices destroyed the government’s economic credibility. Likewise, China has an opaque regulatory system that also failed to control what it was meant to control.

Both men were right, however, in their underlying (and generally unspoken) plea that we need to construct an open, transparent, effective regulatory system to ensure that human greed is not again allowed to destroy businesses, economies, and livelihoods in the pursuit of personal wealth. This is not just a US or European issue – it is a worldwide one since it is about applying control to a human behaviour.