His economic plan is too conventional

Obama and the world economy

For a generation, we have been living with the fiction that the world does not need governing. An orthodoxy has prevailed that states and nations should become creatures of globalisation - in other words, "market states". The job of the US, as the world's hegemonic power, has therefore been to promote ungoverned globalisation by promoting free finance and open markets with minimal rules - along with a global network of military bases to prevent any armed challenges to this notion.

It falls to Barack Obama to change this orthodoxy, and to introduce new systems of global regulation and governance. He has to combine Rooseveltian reformism at home with the international activism of Harry Truman. Whether the issue is climate change, the international financial system or the clash between Islamic fundamentalism and the rest, Obama cannot fall back on the doctrine that some combination of markets and brute force will fix matters. They haven't, and they won't. The US needs to construct nothing less than a new multilateralist international order.

The challenge is immense. Some of the problems would still be close to intractable even if there were more of a consensus on the approach - which there is not. For example, it is obvious that the entire fabric of the financial system - from floating exchange rates through to tax havens and the bloated $360trn derivatives markets - needs to be brought back onshore and managed so that its capacity for economic destabilisation can be constrained.

But are the great powers ready to accept the disciplines of managing a stabler international currency regime, by setting monetary and fiscal policy at home in such a way that the international system can function better? How would such a system work? Who, after a generation in which the only thinking permitted has been that which promotes markets, has even a semi-workable scheme to propose on currencies and banks?

So it is in issue after issue. By 2010 a quarter of global carbon dioxide emissions will come from China. The Chinese resist any deal that constrains this growth, insisting that the west must shoulder the burden of climate change adjustment and pay for the entire cost of improving China's energy efficiency. But an asymmetric deal of this type is not sellable in the US. In the Middle East, success requires Obama to take on the Israeli lobby at home to put pressure on Israel and build a coalition of pragmatic Islamic states abroad. Not impossible, but it has eluded every other US president.

All this has to be delivered while retaining what is good about globalisation - free trade. Economic growth, prosperity and employment generation have gone hand in hand with trade since the beginning of time. Globalisation has offered countries as disparate as Vietnam, Singapore, India and Brazil a way of bootstrapping themselves out of poverty. We need stronger rules about the organisation of trade - especially on labour standards and the environment - but the principle that borders should remain open to the movement of goods and services is a cornerstone of prosperity. Obama has a powerfully protectionist Democrat party to handle; the temptation to give in will be overwhelming.

Obama knows all this - but he is allowing himself to be too constrained by unnecessary genuflections to the mainstream thinking that has so let the US down. His economic recovery plan is too conventional. The US needs a huge fiscal boost; but it also needs the financial system reformed at home and abroad, about which Obama has said too little. So it is across the board. But he is his own man, and he thinks deeply. And if he can't do it, there are no other contenders. To coin a phrase, we must have the audacity of hope.

Will Hutton is executive vice-chair of the Work Foundation