If we are to get the response to the crisis right and to put it right, we first need to get the crisis right
The crisis has been understood in a variety of rather different ways – most of them credible in at least some respect. Is this Britain’s crisis or a global financial crisis or a crisis of the west or, perhaps, a crisis of the Eurozone and its immediate hinterland from which Britain is largely exempt? There is a great deal at stake in our answer to these questions.
If this is an external crisis and Britain has been exposed to it only through contagion effects, then the solution is as much about managing exposure to future shocks as it is about managing the transition to a different model of political economy. But if Britain’s crisis is an internal affair then a much more serious dose of domestic reform may be required to address it.
It’s not surprising that policy-makers, from all parties, have been so keen to emphasise the external character of the crisis – appealing to Britain’s affliction as the local manifestation of a global phenomenon. But they have been in very good company in doing so. Most of the journalistic and broader public commentary on the crisis has assumed it to be largely external in origin – even if it has exposed some domestic frailties. This is wrong.
That’s because this is both an internal and an external crisis – a British crisis, a Eurozone crisis (of sorts), a crisis of the west, even a global crisis. But, from a British perspective, it is also far worse than that. Why? Because the origin of all of these associated crises lies in the Anglo-American capitalism of which Britain, since at least the 1980s, has been perhaps the key architect.
It is a crisis of Anglo-liberal excess and of a globalisation couched in this image. Consider just one example – the mortgage backed securitization which went so horribly wrong in the US. This is justifiably fixed in the public imagination of the crisis as the moment of bubble burst in the US economy – and that, in turn, is invariably seen as the spark that ignited a global firestorm.
But the point is that although mortgage backed securitisation was pursued even more aggressively in the US than in the UK, that it took root in the US in the first place was the result of the deregulatory impulses of consecutive British administrations. Mortgage backed securitisation in the US was the product of US regulators who feared a British competitive advantage in the market for securitised assets if they didn’t match the deregulatory disposition across the pond.
In the ensuing deregulatory arbitrage, US and UK regulators sought to outdo one another in how far they could liberalise market rules. It was this that led to the sub-prime lending that imploded in the bubble burst.
Although scarcely acknowledged in the public debate or even the academic literature, there is considerable domestic complicity and culpability in the origins of the global financial crisis, not just its local manifestation. To see this solely as a story of contagion from the US and an ailing Eurozone is a convenient fiction. It’s also an appalling disavowal of responsibility (even if it arises from a misunderstanding rather than from any conscious attempt to deceive).
A model of capitalism and an associated model of growth built in Britain and the US, is responsible. And both major political parties are implicated – over a considerable period of time, certainly since the 1980s. However painful it may be, we have to acknowledge this if we are to have any chance of understanding the crisis and putting things right.
This was an endogenous crisis. But one that was reinforced by the exogenous contagion effects conventionally understood to be its source. The irony is that such contagion effects were in effect things returning to haunt the British economy. Home grown pathologies were the original source of problems that proved contagious to Britain (through, for instance, financial exposure to US losses).
These pathologies are contained within the fabric of the Anglo-liberal model of capitalism in whose image globalisation has been constructed.