May I of course begin by thanking Professor Schwab and all the Davos Forum organizers for inviting me to give the opening address of this 40th session.


Let me make things clear: I have not come here as a political leader to lecture anyone, but to tell you that we must all together learn the lessons of the crisis. Why must we, all together, learn the lessons? Because we are all responsible for it. And because, above all, we are responsible for the world we are going to leave to our children.

Ladies and gentlemen, without the intervention of the States, everything would have collapsed. It isn’t a matter of liberalism, statism, socialism, of left or right, it’s a reality. Failing to draw from the events we experienced a year ago, the conclusion that we must radically change our ways – if we didn’t change them, we would be irresponsible.

This crisis is not just a global crisis.
This crisis is not a crisis in globalization.
This crisis is a crisis of globalization.
It is our vision of the world which, at a given moment, proved defective.

So it’s our vision of the world we must correct.

There can be no prosperity without an efficient financial system, without the free movement of people and goods, without competition, which challenges unjustifiable privileged positions.

But finance, free trade and competition are means, not ends in themselves. Let’s not confuse the way we do things with the goal we have to set ourselves.

Globalization / Crisis / Capitalism / Accounting Practices

Globalization took a wrong turning the moment we accepted unconditionally, unreservedly and without any limit the idea that the market was always right and that there could be no argument against it.

Let us go back to the root of the problem: it was the imbalances in the world economy which fed the growth of global finance. Financial deregulation was introduced in order to be able to service more easily the deficits of those who were consuming too much with the surplus of those who were not consuming enough. The perpetuation and accrual of these imbalances was both the driving force and consequence of financial globalization.

Globalization first took the form of globalization of savings. I want to say very clearly that the globalization of savings has given rise to a world where everything was given to financial capital, everything, and almost nothing to labour, one where the entrepreneur gave way to the speculator, where those who lived on unearned income took precedence over workers, where the use of leverage – it was the only thing people talked about –, was becoming unreasonably disproportionate, and all this created a form of capitalism in which it had become normal to play with money, preferably other people’s money, to make easily and extremely rapidly, effortlessly and often without creating either prosperity or jobs, absolutely enormous sums of money.

To my mind, one of the most striking characteristics of this capitalism which we have allowed to emerge, is that the present was all that mattered and the future no longer counted for anything. Everything for the present immediately, no longer anything for the future. Indeed we saw depreciation of the future in the absolutely exorbitant demand for high yields. Those yields, boosted by speculation and leverage, were the discount rate applied to future revenues: the higher they rose, the lower the importance attached to the future fell. Everything, right away.

The same depreciation of the future could be seen in accounting practices. Fantastic! We got to the point, ladies and gentlemen, of valuing a firm’s assets at the market price, forgetting that the market constantly fluctuates, in line with the surges in share values. When the markets were on a high, balance sheets were bolstered, and these figures in turn fed a new stock market high. When confidence fell, the balance sheets would suffer and bring share prices down.

During the financial crisis we saw, up close, the damage done by that kind of accounting, when the collapse of the markets led to a collapse in the banks’ capital reserves and further tightened the credit crunch. And we were told, "but watch out, the banks aren’t worth anything any more, they can no longer lend". Businesses could no longer ask for credit since no one was lending them any. They weren’t lending because the value of the banks had disappeared. The value of the banks had disappeared because it had itself been updated according to the Stock Exchange price of the day – not of the day, but of the afternoon, morning, hour or minute.

Our entire system of representation had been skewed. Can I maintain – I apologize for putting this over-simple idea to you – that the economic value of a company does not change from one second to another, nor every minute, nor every hour… To gain a clear idea of just how absurd that kind of accounting can be, we need only think of the fact that, in a market value system, a company in trouble can record a profit simply because its diminished credit rating has reduced the market value of its debts! This should have been realized.

Our entire system of statistical assessment had been distorted.
In the statistics, we saw revenues increasing.
But in life, people saw a widening inequality gap.

In life we saw – and the statistics said – that the standard of living was rising, but meanwhile the number of those feeling ever more keenly the hardships of life was constantly increasing.

Stiglitz Report / Need for Change / Deregulation / Capitalism

Let us re-read the report of the Commission led by Joseph Stiglitz and ask ourselves about our way of measuring our economic performance and its results. Basically, this means asking ourselves what our goals are. What do we want to do with capitalism?

Such reflections must not be the exclusive province of experts and statisticians. We have to leave behind the culture of experts who talk only among themselves, each in their own field.

We have to learn to think things through all together, these aren’t just technical problems. And we have to do it since if we don’t, we take unsustainable risks with the future. If we do not change the regulation of our banking system, if we don’t change the rules for prudential oversight and if we don’t change the accounting rules – but this isn’t only a technical matter, an issue only for the experts – where do we want to take our capitalism? What do we want to do with it? What goals are we pursuing.

We won’t put an end to hunger in the world if we do not succeed in stabilizing commodity prices, which at present are completely erratic. This is not an issue for experts.

We will not save the future of our planet if we do not pay the true price of scarcity. This is not an issue for experts. It concerns us all.

We will not reconcile our citizens to globalization and capitalism, if we are not capable of offsetting market forces with counterbalances or even corrective measures.

Finally, by off-loading all our responsibilities onto the marketplace we have created an economy which has ended up running counter to its benchmark values.

For example, we have over-mutualized risk and so diluted accountability. If the risks are shared ad infinitum, there’s no longer anyone accountable. If there’s no longer anyone accountable, we’re no longer in a market economy.

By placing free trade above all else we have weakened democracy, because citizens expect democracy to protect them.

By prioritizing the short-term we have exhausted non-renewable resources and devastated the environment. Sustainable development cannot be achieved if immediate profit and shareholder value are our sole criteria. I’m not saying these are illegitimate criteria, I’m saying they can’t be the only ones.

By deregulating excessively, what has happened? We have had dumping and competition which was no longer fair, but unfair. We have let globalization be based on external growth, with everybody trying to grow by taking the businesses, jobs and market shares of others instead of working harder, investing more, and increasing productivity and capacity for innovation.

The globalization we had dreamed of was of the kind where, instead of taking from others through monetary, social, fiscal or ecological dumping, each of us would found development on social progress, increasing purchasing power and improving quality of life.

Look at the ILO, IMF, World Bank, FAO and G20, at the end of the day we are always talking about the same thing, seen from different points of view; the big question of the 21st century: how can we make the economy again serve mankind? This is the question facing every leader. How can we ensure that the economy no longer appears as an end itself, but as a means to an end? How can we move towards a globalization in which the development of each will assist the development of the others? How can we build a globalization which has to be more cooperative, because today it is too conflictual?

Let us be clear about this, and I want to be understood here: it isn’t a matter of asking ourselves what we will replace capitalism with, but of knowing what kind of capitalism we want.

The crisis we are experiencing is not a crisis of capitalism. It is a crisis of the distortion of capitalism.

Capitalism has always been inseparable from a value system, a civilization project, and a certain idea of mankind.

Purely financial capitalism is a perversion which flouts the values of capitalism. But anti-capitalism is a dead end that is even worse. There is no solution in anticapitalism. There’s no system other than the market economy.

But we will save capitalism and the market economy by radically reforming it – dare I use the word? –, by giving it a moral dimension. I know saying this will raise a lot of questions.

21st Century Governance

What do we need, in the end, if it isn’t rules, principles, a governance reflecting shared values, a common morality?

We can’t govern the world of the 21st century with the rules of the 20th.
We can’t govern globalization while relegating half of mankind to the sidelines.
We can’t take decisions on globalization without India, Africa or Latin America. That’s madness.
We can’t look at the post-crisis world in the same way as the pre-crisis world.

Tomorrow’s world won’t be yesterday’s.


We have to face up to our responsibilities. There are indecent behaviours that will no longer be tolerated by public opinion, my dear friends, in any country in the world, even the biggest.

There are excessive profits which will no longer be accepted because they won’t be in any way commensurate with the ability to create wealth and jobs.

Let’s go a bit further. There are remuneration packages which will no longer be tolerated because they bear no relationship to merit. That those who create jobs and wealth can earn a lot of money is normal, there’s nothing shocking about it. We have to do some educating on this. What is profoundly abnormal is that someone who earns a lot of money when things go well considers it normal to go on earning a lot of money when things are going badly. No one can accept that. Big remuneration packages, big responsibilities. Those who contribute to destroying jobs and wealth without paying any heed to the actual situation – that’s morally unacceptable.

There was the chairman of a major French bank whose resignation I called for because one of the bank’s traders who, alone, had committed a fraud costing the bank several billion euros. It’s not normal in a case of such malfunctioning for that person to stay in his job, or, if it is, we’re no longer in a system where people are accountable. At the same time, I defended a French industrialist taking the top job in a major French company, with a higher salary, because he’s a man with recognized expertise.


Similarly, the bonuses. When you make a list of bonuses for everyone who has helped a company make a profit, it’s absolutely fine. But when the company makes a loss, people mustn’t come and explain to me that they were capable of making the bonus list but incapable of making the "malus" one. When we gain whatever happens, we are no longer in a market economy system. We mislead people, and morally we are indefensible. Those who act like that, ladies and gentlemen, destroy the values of the market economy which we are all defending together. It makes a mockery of what we’re defending and a miniscule minority can distort, in the international public’s eyes, a system that has proved itself.

In future, there will be a much greater demand for income to better reflect social utility and merit; a greater demand for justice; and a greater demand for protection.


So I believe, Professor Schwab, that we haven’t got a choice. Either we change of our own accord, or the changes will be imposed on us. By what? By whom? By economic, social and political crises. If we choose to do nothing, the system will be swept away, deservedly!

Either we will be capable of responding to the demand for protection, justice and fairness through cooperation, regulation and governance, or we will have protectionism, isolation and every man for himself. I am in favour of free trade, but is there anyone able to say that the public will accept some countries being exempt from all rules and flooding the markets of the others which respect rules? This sort of malfunctioning will lead to protectionism, which no one can ever approve of.

The G20 foreshadows the planetary governance of the 21st century. Without the G20, we would have had the triumph of "every man for himself". Without the G20, it would not have been possible to regulate bonuses, close down tax havens and change the accounting rules.

But I want to say one thing about Davos: it’s fine to take decisions, but they still have to be implemented! I want to seize this opportunity to say that while we are seeing the signs of recovery that seem to mark the end of the global recession, this mustn’t encourage us to be less daring, but even bolder. Even bolder in reforming our systems of social protection, improving our public finances, more stringently prosecuting the war against tax fraud in order to invest in the future. If we don’t do so, this recovery will be only a respite.

So the commitments made must be honoured.

G20 / Prudential Rules

I’m going to give some examples. If the absolutely crucial debate on accounting standards gets bogged down, if the private agencies to which we have delegated regulatory power deliberately flout the mandate given them by heads of State and government, and we let them get away with it, nothing will be left of the G20’s credibility. And if nothing is left of the G20’s credibility, we will lose the beginnings of world economic governance and that will be a disaster.

If competition is skewed by prudential rules remaining different from one country to another, from one continent to another, when we had decided the opposite should be the case. For example we must agree on a common definition of equity. And if we don’t agree on that, well, a lot of players will consider it normal to return to the habits they had before the crisis. I won’t be content with a symbolic and political decision being taken, I will ask for its implementation.

How, for example, in a competitive world, can we insist that European banks have three times more capital to cover the risks of their market activities, without demanding the same of American or Asian banks? Who could understand that? It would be a scandal and we won’t be able to accept it.

How can we accept the obligation for banks to retain in their balance sheets a portion of their securitized loans not being included in the regulation of G20 member countries, when this principle was adopted by unanimous agreement? We won’t be able to accept it! Only here, the difference is that France, for example, won’t say: "ah, I’m waiting for the others to do it before I do!" We will do it, we will scrupulously respect the rules. But we will call global public opinion to witness and those not applying the rules we have jointly defined and unanimously adopted will have to explain themselves to their publics.

If we devise standards that do not draw the lessons of the crisis and lead long-term investors to scale down their equity portfolios – which is unlikely –, then we must not be surprised if market prices become even more unstable and a large number of companies find themselves even more threatened by speculative pressure. If the conclusion drawn from the crisis is to ask investors to invest less in shares, then what happened a year ago hasn’t been properly understood.

Failing to do what we decided would be an economic error, a political error and moral error.

Action Needed / ILO / Copenhagen / WEO / Innovative Financing / International Transac tion Tax / UK

Basically, we all know well what we have to do together.

We must do away with a system without rules that drags everyone down and replace it with rules that pull everyone up. Now, I’m well aware that, as a Frenchman, I’m regarded with suspicion from this point of view, but for goodness’ sake, can we try and get this reasonable idea across? That while too many rules kill dynamism, the absence of rules kills capitalism! It’s nevertheless not a difficult idea to get understood on every continent.

This doesn’t mean having the same labour legislation everywhere, obviously.

But at the same time, here in Davos, I’d like to ask this question. How can we accept that some 50 Member States of the ILO – ILO members! – have not even ratified the eight conventions defining fundamental labour laws? I can perfectly understand a country which isn’t a member of the International Labour Organization not adopting the conventions, but when you are a member of an organization, adopting rules and not ratifying the conventions! Who can trust what you say? What is this system? It isn’t regulated globalization, it’s the jungle.

In Copenhagen, quantified commitments on climate change were made by 192 countries. How can we ensure these commitments are honoured without a World Environment Organization which France is calling for? How can we not see that the possibility of adopting a carbon tax at borders against environmental dumping is a strong incentive for every country to respect the common rule?

I think the crucial step forward would be to put environment law, labour law and health law on the same footing as trade law. It’s a revolution in world regulation and means that specialized institutions can intervene in international – and notably commercial – disputes by referring questions for a preliminary ruling. The international community cannot continue to be schizophrenic, yes we are schizophrenic! We disavow at the WTO or IMF what we decide at the ILO or WHO. But they are the same! They are the same countries; they are the same leaders; you can’t in the same year say two totally different things, depending on which forum you are in. That isn’t how we restore confidence and live up to our responsibilities.

Of course, the poor countries will have to be helped.

Of course, the innovative financing issue is key, given all the money we’ve committed out of our budgets to avoid the disaster. We won’t escape the debate on taxing speculation. Wanting to curb the frenzy of the financial markets to finance development aid is actually rather good news and I want to say how much I support the initiatives of the United Kingdom and Gordon Brown.

To conclude, the other question we can no longer avoid. I know I’m speaking to a high-calibre audience, but nevertheless this question has to be asked. What role must banks play in the economy. Bank isn’t a "four-letter word". What is the job of a banker? Let’s go back to the fundamentals: the banker’s job is not to speculate, it is to analyse credit risk, assess the ability of borrowers to repay their loans and finance the growth of the economy. Financial capitalism went so wrong because banks were no longer doing their job. Why take the risk of lending to entrepreneurs when it is so easy to make as much money by speculating on the markets? Why lend only to those who can repay the loan when it is so easy to shift the risks off the balance sheet? The very concept of "off-balance sheet" is something I find hard to understand, and when I’ve understood it, to accept. Why make rules if a whole part of your activity is outside the rules, off-balance sheet?

I agree with President Obama when he deems it necessary to dissuade banks from engaging in proprietary speculation or financing speculative funds.

Ladies and gentlemen, if we perpetuate the imbalances that are the root of the evil, we won’t succeed. Countries with trade surpluses must consume more. Countries with deficits must consume less and repay their debts.

Exchange Rates / Bretton Woods

Now, another sensitive issue. Currency: do we have the right to talk about it? I say it’s a duty to do so; I don’t understand why talking about currency is in itself a problem. It’s always a problem when you don’t talk about things and when you refuse to think about them. Currency is at the heart of these imbalances. We can’t put finance and the economy back in order if we allow the currency disorder to persist. Exchange-rate instability and under-valuation of certain currencies prevent trade from being equitable, prevent competition from being fair. Saying this is, after all, common sense. Employment and purchasing power constitute the adjustment variable for what I will call – excuse the expression – monetary manipulation. The prosperity of the post-war era owes a great deal to Bretton Woods, to its rules and its institutions.

We need a new Bretton Woods. We can’t have, on the one hand, a multipolar world and, on the other, a single benchmark currency across the globe. We can’t, on the one hand, advocate free trade and, on the other, tolerate monetary dumping. France, who will chair the G8 and G20 in 2011, will place on the agenda the reform of the international monetary system, which is a gripping and absolutely crucial subject for every country in the world. I hope that in Davos it will be a major one, for example, at the 41st meeting.

Until then – and here I conclude, we must manage, prudently, the adoption of measures to support activity and withdrawal of the surplus liquidities injected during the crisis. I firmly believe that too abrupt a tightening could well result in another total collapse.

* * *

What remains to be done is for us to bring into being a new growth model, invent the State, company and city of the 21st century.

My dear friends, a few years ago people were predicting the end of nations and intellectuals were talking about the advent of nomadism. But in the crisis, I want to pay tribute to the most globalized companies and the most global banks which rediscovered with disconcerting ease that they had a nationality. None went to the wrong counter! The tie hadn’t been broken, all were well aware of where they were from. And with the first adverse wind, the "we are big companies which straddle continents and have no nationality" had gone out of the window.

A few years ago people were announcing the decline of organizations, the end of companies. They wanted to apply to companies the principles of portfolio management. We are rediscovering today, happily, that they are human communities and living organizations, which need a leader, a boss, an entrepreneur who relies on their employees’ know-how. A company is a living entity. It’s a community. It breathes. It creates wealth. It must have an end purpose which isn’t just a stock market price, even though a stock market price is important.

A few years ago, people were predicting that the city would spread, break up, and with it social cohesion, human relations and community relations. We are rediscovering the need for conviviality and urbanity.

Basically, it looked as if citizenship would dissolve in the global market. Citizens have found new strength in the ordeal of the crisis. The big lesson is that tomorrow, we must again take account of citizens in all our countries.

Citizenship is not a separate category, it is each one of us. The company head, shareholder, employee, trade unionist, non-profit activist, political leader – they are all citizens who have responsibilities to others, to their country, to future generations and to the planet.

Tomorrow’s world will have to take account of citizens, of the demands of morality, demands of responsibility and demands of dignity for citizens. I suggest, ladies and gentlemen, that we see this not as yet another problem, but as part of the solution, to look at the emergence of this new global citizen not as an additional difficulty, but as something healthy, a bit of good news, something honourable. Do you know why? Because, perhaps, the emergence of this clearer-thinking, more realistic, more aware and more exigent citizen, will lead us to feel happier with what we are, and above all happier with what we accomplish.

Thank you.

Sorry, I’d like everyone to understand one thing: that in our world – I’m not starting all over again! – the differences between the Anglo-Saxon and continental European approaches are completely fading away. I find it very striking that, confronted with a huge problem, we found ourselves on an equal footing.

I also ask you, Professor Schwab, not to forget the Global Fund, the Millennium Development Goals and to ensure not only that we, the States, deliver, but that the generous donors can ensure – I know that Melinda Gates is coming tomorrow – that people don’t forget that in Davos, there is a human end-purpose to all this, that we aren’t technicians reflecting only on wealth creation, but that it’s legitimate for you to think about wealth distribution. Never let yourselves be prisoners of a distorted picture of reality. That would make the enemies of the market economy only too happy; it would be too serious if that were the case.

Thank you. I’m really going now.