speri.comment: the political economy blog

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

Professor Colin Hay, Director of SPERI

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.

Print page

Categories: Global crisis, SPERI Comment | 2 comments

Articles and comments posted on this blog reflect the views of the author(s) and not the position of SPERI or the University of Sheffield.

Comments (2)

  1. Some very interesting points here although I am not sure I agree with all of them.
    You say we need to think in a planetary way, and while in many respects this is true, the ability to ACT in a planetary way through the current institutional framework is minmal. As you say, there are problems with the current growth model, whose deficiencies very few people would disagree require remedying, which are not the subject of discussion in the IMF etc. Deferring decision making to institutions which have proven largely ineffective to deal with the increasingly apparent pathologies of the Anglo-liberal model does surely not provide anyone with the confidence that they will do so any time soon.
    Furthermore, suggesting the need for global action which does not appear to be forthcoming can be seen as outsourcing domestic responsibility. At some point politicians need to have a proper and full debate domestically regarding growth and sustainablilty at what is perhaps a once in a generation opportunity to do so. The current model is obviously inherently flawed and in need of significant change and at some point we must take responsibility for our own decisions regardless of international agreement.

  2. This is an excellent blog post which raises exactly the right questions. However, a few things did strike me when reading it. The first of which is actually related to what Gary has just touched on, and that is the possibility and potential character of action at the global level. It strikes me that there is a potential source of tension here between the need for global thinking and the identification of this as a non-global economic crisis. If the perception that this is a geographically-specific crisis rather than a genuinely global crisis becomes the dominant perception, perhaps then it would become even more difficult to institute a new set of international economic bodies and a common notion of ‘collective public goods’. I am sceptical that international institutions could ever be shaped so that they are acceptable to ‘the global North’ whilst still meeting the perceived interests of ‘the global South’, and in a context where economic conditions are so heterogeneous it would surely be difficult to establish such common goals. But this is especially true if the idea that this is a crisis of Anglo-Liberal capitalism, and not a ‘global crisis’, becomes popular.

    The other thing that occurred to me was regarding the argument about weaning ourselves off growth – an argument I am very sympathetic to. I certainly believe that GDP has been fetishised as the sole indicator of economic success. Indeed, GDP has become a useful barometer of likely electoral success in the UK even whilst the growth generated in recent decades has not benefited large swathes of the electorate. However, it could be argued that if ever there was a time to focus on GDP it’s at a time when unemployment is high and we have a substantial level of public debt. I’m surely not alone in thinking that the level of public debt has been extremely overstated in public discourse, perhaps to further an agenda of state diminution measures which are the corollary of such a discourse, and Colin has previously stated that it is merely the symptom rather than the cause of the crash. However, if we were to ‘wean ourselves off growth’ now and perhaps move to what Herman Daly and Tim Jackson have termed a ‘steady state’ economy, it will less easy to see public debt in the Keynesian-terms of counter-cyclical and temporary public spending intended to smooth over the business cycle. Instead, in the absence of growth (or indeed a business cycle) public debt solidifies to become a more obstinate part of the national finances and a more genuine cause of concern. Whilst it may be possible (if significantly more difficult) to reduce the public debt in a zero-growth economy, it will be extremely difficult to do so whilst maintaining fiscal commitments to public expenditure on welfare and social programmes. Whilst I am sympathetic to the ‘steady state’ literature in general, it is to idealistic to think that we could meet our environmental sensibilities without making sacrifices. The social expenditure, funded by the taxable carbon-intensive dynamics of economic activity (of which GDP is a measurement), may well take a big hit anyway if growth is permanently ended (the UK budget deficit is £144billion this year) but this is even likely if deficit reduction is factored into the fiscal calculations of the state.

Leave a reply

Required fields are marked *