As the stock market bombs again – for millions of people their next pensions statement will be grim reading – the search for culprits continues. Will Hutton, one of the few economists who can credibly claim to have warned us what was coming, yesterday described what he sees as a toxic mix of free market ideology and weak global regulation http://www.guardian.co.uk/business/2008/oct/05/banks.marketturmoil.
For long term critics of capitalism like Madeline Bunting – writing in today’s Guardian http://www.guardian.co.uk/commentisfree/2008/oct/06/economics.economy – the downturn is the result of Government and people succumbing to the false religion and marks the failure of the religion of neo liberalism.
On the right there are those who see the crisis as resulting from Governmental interference. It was weak politicians who made debt to easy to come by, politicians who changed the rules so the poor could be enticed into home ownership. My old sparring partner John Montgomery FRSA makes this latter point in The Australian (http://www.theaustralian.news.com.au/story/0,,24427661-30538,00.html).
The crisis is so fast moving that speculation about the long term consequences remains just that. Dominique Moise in the FT says that the weakness of the West’s response, particularly highlighted by the nationalistic behaviour of European countries, ensures that the crisis will mean a further transfer of power from the West to the East http://www.ft.com/cms/s/0/afca6780-92e0-11dd-98b5-0000779fd18c.html
Larry Elliot (another economist entitled to say ‘told you so’) also highlights the failure of the European Union to act collectively or collectively http://www.guardian.co.uk/business/2008/oct/06/creditcrunch.eu. If ever we wanted evidence of the ‘free rider’ problem at the international level we need look no further than the behaviour of the Irish!
So it is far too early to know what all this will mean but here, for the sake of debate, are two ‘finger in the wind’ thoughts:
The retreat from globalisation: On the one hand the credit crunch is a global contagion – with bad decisions on American mortgage lending impacting every economy in the world. On the other hand, the failure of global regulation and the behaviour of European states in unilaterally guaranteeing the deposits in their own banks demonstrate the weakness of collectivism at the international level. While financial capitalism is genuinely global, the institutions of global governance and civil society are weak. The rich East will buy out big swathes of the Western economy (a kind of reverse imperialism), but before a future wave of economic globalisation, national publics and decision makers will demand the institutions are there to provide effective governance and the capacity to act in an emergency. This could take a generation.
The reconnection of politics, democracy and economics. By the time this is all over Governments around the world will hold major stakes in their country’s commercial assets. This power, allied with citizen disenchantment at a debt fuelled, inequality enhancing, quality of life sapping economy (which was only ever justified by a broken promise to keep making us richer every year), will lead to a more substantive debate about what kind of economy we want than we have ever seen before. This will be shock to the system of politicians and business leaders alike. But it will also have implications for all of us. As our Tomorrow’s Investor project is showing, people want safe, ethical, high return financial products but resist the idea that they will have to be more engaged as investors. A more democratic economy means one where we take responsibility for our power as consumers and investors.
A long, long time ago Tony Blair said ‘the market is our servant not our master’. Whether or not he meant it, it was never acted upon. Anyone who suggested that the market be subject to democratic control was told that globalisation was a force we could only bow down before and that it would, anyway, deliver ever greater affluence to all. Both these arguments are now looking threadbare.
As the stock market dips again what comes next is full of doubt and peril but there are opportunities too for us to remember that the economy is our invention and that ultimately it must be judged by whether it works for us.