Contemporaries are often poor judges of historical events. People who saw a group of soldiers pushing around a man in rags before he was crucified could be excused for not realising they were witnessing perhaps the most important event in human history. On the misty, cold morning of October 25, 1917, those who saw a few detachments of soldiers crossing the vast plazas of Petrograd did not recognise the beginning of the biggest revolution since the one in France. And when the Dow Jones Industrial Average fell 9 per cent on October 24, 1929, few had heard of an Austrian citizen named Adolf Hitler.
Thus, today, too, nobody knows which way the financial crisis will go, with what force it will spill into the real sector - decline in output, higher unemployment - and finally, perhaps most importantly, to what outcomes it will lead in the political arena. But what certainly raises fear among ordinary people is that politicians and economists alike seem equally baffled, as if they were in the presence of a cyclone whose true origin or destination are unknown.
We cannot foretell the course of this cyclone nor its ultimate effects, and can only summarise its impact so far, broadly surmising the direction the world may be headed.
In the speed with which this turmoil propagates itself, how it has spread from the United States to Asia to Russia and to Europe, it’s indeed the first worldwide crisis in the current era of globalisation.
It started in the citadel of global neoliberal capitalism, the United States, and even more centrally so, in Wall Street. The very heart of the system was discovered to be corrupt and mismanaged. Since globalisation has been so successful in rapidly encompassing the entire globe into one single system, now the crisis likewise affects all. As the means of communications have become capable of real-time transmission of information, panic in any one place spreads quickly to the other end of the globe.
All the advantages of financially-driven globalisation - sophistication of the financial markets, speed and volume of transactions, with US$3 trillion on average traded every day, the geographical reach - have suddenly transmuted into disadvantages.
This crisis’s global effects differentiate it from earlier crises like the Asian 1997-98 crisis which spread only to Russia and Brazil or from the debt crisis of the early 1980s that affected the developing world. It’s different from the recessions of 1973-75 and 1979-81 because they did not propagate as fast and hardly affected China, India and the Soviet Union.
So, how does the crisis affect the process of globalisation? To see this, we ought first to recall the current makeup of globalisation - a two-pronged process, resting on two pillars. On the one hand, globalisation means an ever-tighter integration of markets for goods, capital and technology - and to a much less extent, labor - undergirded by an ideology best summarised in the Washington Consensus’ 10 precepts among which privatisation, deregulation and generally a lesser role of governments were key. The first pillar provides incentives for and ideology of globalisation.
But there’s also a second pillar which provides the muscle. Globalisation is not underwritten solely by ideology and interests but also by the military might of the US. This part was made clear in the by-now infamous “Project for the New American Century,” developed in the 1990s by leading neoconservatives, which laid out the blueprint for American domination of the world, justifying it by the need to allow other nations to compete peacefully in matters of economics, but not in destructive nationalism. The invasion of Iraq was a logical consequence of this policy.
The crisis severely undermines both pillars. It sweeps the rug out from under neoliberal capitalism by making it painfully clear that the precepts dished out with abandon around the world - transparency, efficiency - were openly flouted even as they were preached. And with own wealth at stake, the ideology of self-regulating markets is easily forgotten, and recourse unabashedly made to state subsidies, so reviled only months earlier. It will be a long time before the cheerleaders of globalisation can flaunt its textbook advantages with a straight face.
Thus the massive bailout, done in the face of obvious reluctance of the public and taxpayers, the swelling real estate crisis born of financial mismanagement by “the best and the smartest,” severely undercut the first ideological pillar.
In the rest of the world, government interventionism will now be seen as more acceptable than at any time in the last quarter century. More countries will experiment with economic policies that do not fully follow the tenets of neoliberalism.