The financial crisis – and how the times they are a a-changin’
The ISS conference ‘Crisis of Capitalism? Crisis of Development’ highlighted the great and probably increasing diversity in perspectives on this ‘global’ crisis. One the one hand there is the perception of and focus on the nucleus of the crisis, the financial system in the Anglo-Saxon world that had created its own bubble following the promises of liberalization.
The impact of this on what economists call the ‘real economy’ (strangely suggesting my savings in banks and pension funds were not real) will be felt for a long time, even though the signs now as Rob Vos (UN-DESA) noted at the conference are that it’s unlikely that we are facing a depression like the Great one of the 1930s, and the world’s political leaders deserve at least some credit for at least responding better to the crisis than their counter-parts in the 1930s.
We don’t know what the long term impacts will be – predictions are just very hard to make, particularly those about the future. It is notable however how quickly the mood has changed. Half a year ago there was a great deal of optimism that the crisis could be an opportunity, for a more just global economy than the one that had seen ever growing inequalities previously, for a more proactive state along the model of FDR’s New Deal, and perhaps even a green deal given the simultaneous environmental crisis.
The mood now – at least at this and other conferences I attended – appears much more sober, with indications that labour markets will not restore to previous levels of employment, linked to that continued rising disparities between returns to capital and wage, and much uncertainty about where a New Green Deal might come from.
Voices from outside the OECD context strike me as remarkably different. For China, the crisis does not appear as a crisis of capitalism. In China, this is often seen as a crisis of the western system, and one witnesses a fair amount of Schadenfreude about the problems faced by a usually arrogant West, and certainly a very healthy increase in confidence regarding the further emergence of the Chinese economy, gradually taking back its place in the world economy it deserves and indeed had 200 years ago before western intervention.
But these are probably mere symbols, of a visibly rising and welcome nationalism, as the key concerns for China are how to continue on its path of modernisation, within its political system, and particularly how to maintain growth rates of 8 percent while the world economy is contracting.
For Gong Sen of the State Council’s Development Research Centre, in China the crisis is not one of capitalism, and the question is really whether the state is able to promote a more equitable system, and is able to address the institutional problems and vested interests in health, education and housing, which are currently critical blockages to promote more equitable development paths.
In other emerging economies too, the interpretation of the nature of the crisis differs from what is regularly discussed in OECD countries. For the President of Brazil, Lula, who has put the time that stock markets went down on the prospects of him coming to power long behind him, the problem was not capitalism per se but the irrationalism in the West.
‘It is a crisis caused and encouraged by the irrational behaviour of white people with blue eyes,’ he said in March, ‘who before the crisis appeared to know everything, but are now showing that they know nothing.’
And in the critical analysis of Professor Jayati Ghosh, the crisis is only a small part of the problem, with the previous boom being not only inherently unstable but also increasingly unequal. The problem is, however, that while not everybody benefited from the boom, very few are escaping the effects of the downturn.
This thus is a very different crisis than that of the 1930s, not only because of the better international cooperation, but also because the economic powers seem to be shifting as we speak. It was soon after the crisis broke out in the US, and while 20 million workers in China were losing their jobs, that ads started to appear in the Chinese papers for trips to the US to buy houses.
The international financial imbalances – which did not cause the crisis but were an integral part of the unbalanced system – continue to exist. While the emerging economies are weathering the crisis, they also continue to enhance their global economic power. This is not new and not caused by the crisis, but it appears to be happening ever more rapidly.
However, there are few signs that the new order will be any more just than the previous one: may be a more equal and long overdue readjustment in favour of the emerging economies, but with few signs this will make much difference for the poorest countries, nor the poorest people in those poorest countries, or indeed elsewhere.