Fiscal system needs global regulation

The worst-ever financial crisis in living memory does not mean that the capitalist system is wrong.

The underlying strengths of the market mechanisms have not failed in their task, but what has gone wrong is the way in which they are managed and regulated at a national level with little regard for the global level.

This means that an unscrupulous financial institution, driven by the need to produce ever-growing profits, can innovate its way into products that are not understood and therefore are unregulated.

It can do so in all the markets of the world, with nothing to stop it or even to see a problem emerging.

On the closing day of the World Economic Forum's Summit on the Global Agenda, an important observation was that the world's trade is working because it has global regulation, based on the World Trade Organisation (WTO), whereas the world's financial system has failed as it is regulated nationally.

The serious crisis of the past few months is being dealt with by the world's leading governments, but each government acts in its own territory and has no global impact.

The G7 did meet to plan urgent action, but the G20 will only meet next week to plan what they can do.

The G7 and G20 are still working at a national level, and they are still only talking, months after they should have taken action.

This situation requires a long-term reform of the financial system, which will need global legislation, which will impact countries' sovereignty.

Free trade and the WTO have brought the world unprecedented wealth through open markets and trade, and proved that protectionism will fail its people in the end.

The same benefits need to be brought to the world's financial markets, ensuring people's confidence in the system while at the same time offering them better products.