The global financial crisis – a misnomer?

The global financial crisis isn’t really global or exclusively financial, but we do need to start thinking in a planetary way to overcome it

Colin Hay
Colin Hay

The ‘global financial crisis’ is a misnomer.  As with most things we call global, it’s not genuinely global (though it certainly raises some global issues).  And, while we’re at it, it’s by no means exclusively financial either.

The crisis isn’t global in the same way that most of the things we call global are often not actually global – it has a very particular if quite familiar geographical character, revealing a complex combination of regional and inter-regional economic interdependencies.  Its diffusion is a story of contagion and that contagion maps beautifully the highly uneven geography of what we call globalisation.  And the source of the contagion is, of course, not itself global at all but, as I argued in my previous SPERI blog, quite specifically Anglo-liberal.

But, global or not, the resolution of the crisis at a trans-national level does need to be thought about in terms of the management of economic interdependence (of what we tend to call globalisation); it needs to be about setting parameters on acceptable globalisation – such that the pathologies of, say, Anglo-liberalism and the financial interdependencies it fed off are incapable in the future of destabilising the entire global political economy.

That, sadly, is not a conversation currently taking place in the corridors of the IMF, the World Bank or the White House.

As this suggests, although this is not in a sense a global crisis it is a crisis that should make us think again about globalisation – about the parameters of acceptable globalisation and the conditions under which globalisation can be allowed to proceed.  In precisely the same vein, although this is not a narrowly financial crisis we need to think again about the parameters of acceptable financialisation.

This is less a financial crisis than it is the unravelling of the entire Anglo-liberal growth model and the financial and other interdependencies on which it rested.  That model has, since the early 1990s, been predicated on private not public debt.  It is the acceptability of that relationship that we now need to reassess prospectively – in a context in which, as we now know painfully well (though we should have known all along), we cannot rely on private institutions to provide collective public goods, domestically or internationally.

Cast in such terms it becomes so much more obvious that the proliferation of sovereign debt crises that the wider crisis has precipitated is a product not of public indebtedness per se but of public attempts to shore up private debt.  And that, of course, was made almost inevitable by the rediscovery of something else we should have known all along – namely that the state is the public good provider of last resort.

When the private banking sector is no longer solvent, either because of the systemic risks in effect that it has been encouraged to take in the interests of the growth model on which one has relied (in the Anglo-liberal cases) or because of financial parasitism on Anglo-liberal pickings (as in Europe), there is little option other than to turn private into public debt.

That in turn implies that in ensuring that this can never happen again, we need profoundly to rescale the parameters of acceptable financialisation and financial liberty.  Put simply, we cannot afford to rely again on the credit proliferation of fair weather financialisation ‑ and the asset appreciation it gave rise to.

Neither of these can be allowed again to serve as the fountain of growth in the demand-generating heartlands of the global economy. We cannot afford to sub-contract responsibility for the stability of the world economy to private institutions with no conception of the collective public good.  Collectively, we have a global public responsibility to ensure that the health of the world economy is not conditional on the good fortune of inherently risky and unstable national growth models.

The challenge is to think in a planetary way – to think about the systemic risk that we bore collectively whilst scarcely even acknowledging it by virtue of allowing economic interdependence (globalisation) to proceed in the manner in which it did.

But we also need to go beyond this in at least two ways.

First, we need to think about our shared economic futures in terms of a series of collectively determined global public goods.  And we need to ensure that we devise and design public institutions, ideally at a planetary level, capable of holding to account domestic policy-makers, the models of economic development they choose and the transnational institutions regulating their behaviour, in terms of such public goods.

Second, we need to think again about growth.  This is a growth crisis more than it’s a debt crisis – and, as we have arguably seen already, there is no way out of it if we treat the principal pathology to be addressed as that of debt.  There is, in other words, no salvation to be found in austerity.

But that’s not quite enough.  Because this is arguably not just a crisis of growth; it should perhaps also be seen as a crisis for growth – an opportunity to think again about how we gauge economic success, domestically and more collectively.  This is the really difficult bit.

In a context of accelerating environmental degradation we need incrementally to wean ourselves off growth.  In the process we need urgently to devise a more balanced and sustainable array of genuinely global (indeed, planetary) collective public goods whose promotion might eventually replace the blind and narrow pursuit of economic output as the global currency of economic success.

That is about as big a challenge as it is possible to imagine – but one we owe it to future generations to pose and to re-pose and to pose again until we have an answer.