How will the global crisis that originated in Wall Street affect politics inthe world? First, consider briefly why the economic crisis occurred; then,broadly, how the economic crisis most likely will be defused; and finally, howthat could change the world’s politics.
Some critics blame globalisation, practiced by multinational corporations, asthe villain of the crisis. Others gloat that governments bailing out crippledfinancial institutions with public funds signifies a return to the Soviet systemof state capitalism. Both views seem mistaken.
Multinational corporations did not introduce globalisation. Technology did that.Business, quick to seize profit, took advantage. National capitalism,transformed to global capitalism, increased exponentially the scale of businessoperations. Beyond a point the change in quantity creates a change in quality.Capitalism as the world knew it was fundamentally altered. Big multinationalswith budgets exceeding those of some governments started exerting a new anddangerous degree of influence on governments. Their power was reinforced by bigmedia with a global reach acting as the voice of big business. Too few peopleaccountable practically to nobody determined the destiny of too many.Unfortunately, while capitalism globalised at breakneck speed, labour remainedapathetic. No significant globalisation of the trade union movement has occurredup till now. Distortions were bound to grow. When power corrupts, greed erupts.
The immediate trigger for the crisis was housing loans that had great andgrowing demand in the US. The housing market heated up. More and more peoplestarted getting loans on the basis of surety derived from guarantor institutionsin search of quick profit. In this heated rush for profit the creditworthinessof debtors was overlooked. When debtors started to default, even the bigcompanies went broke. Defaulting debtors had created non performing assets forthe lenders which were overstretched to play the market.
Some companies went bankrupt, others were taken over. Confidence broke down.Banks and companies started viewing each other’s claims with suspicion. Normalfinancial intercourse between them got reduced to a trickle. The US and Europeangovernments have provided banks huge bailout funds of public money to keep themafloat till confidence is restored and the economy stabilizes. The governmentfunding of banks ensures government regulating their operations. But thisarrangement is deemed temporary. During the time when the economy normalizes,governments are expected to devise a new system to ensure more effectiveregulation of the companies and banks.
It is unlikely therefore that government’s role in regulation will bepermanent. As the collapse of the Soviet system revealed, political vestedinterests do not allow the financial system to work in health. The presentcrisis shows that in an unchecked market financial vested interests do not alloweither the economic or the political system to work in health. Governmentregulation failed. Market regulation has failed. Clearly a new kind ofregulation will have to be devised.
America’s crisis arose from reckless expenditure in excess of its wealth. Howdid this happen? It arose from distortion in the American corporate mindset. Theadvent of this distortion has a background. Its seed was sown when American andChinese economies started to interact. American capital overlooked US nationalinterest to exploit cheap Chinese labour for bigger profit. Till 2001, China hadnot entered the World Trade Organization. From the late 1970s till that time nolabour norms in China could be regulated internationally. It was in this periodthat virtual slave labour was utilized by American capital to flood the US withlow tech goods exported from China. US vested business interests prevailed onthe political establishment to permit a five to one trade deficit with Chinaimperiling America's security. Most of the companies exporting to the US wereowned by the People’s Liberation Army. It was this scandalous handling of USpolicy that resulted in the US getting into heavy debt and with China holding USTreasury Securities worth over a trillion dollars. It was this three-decade longprocess that shifted the US corporate attention from the Atlantic to thePacific. The current crisis may reverse the trend. American and Chineseeconomies are joined at the hip. America consumed recklessly on borrowed moneymostly from China. China depends heavily for its growth on exports to America.To revive itself America in the long term will have to close the gap betweenconsuming wealth and producing it. But if exports to America shrink, where willChina turn for an equal alternate market? America has its traditional allyEurope to fall back on. European presence in America may increase. The Chinesepresence may wane.
Most likely the systemic reforms being devised by governments will rely on oldand trusted principles of democracy: to broaden the base of decision makers; andto introduce a new system of checks and balances dependent on non-governmentinstitutions to ensure better regulation and accountability. No system canpreclude a crisis. However, reforms conceivably could reduce the likelihood ofone occurring.
How might all this affect world politics? After the Soviet collapse the worldmoved from a bipolar world to a unipolar world. The current crisis indicates theemergence of a genuine multipolar world. Contrary to popular perception this maynot signify decreased globalisation. It may in fact lead the world closer to aworld government of sorts that addresses the concerns of all its continents.This crisis may not even signify diminution of the US role. It may simplydramatically alter it. In the unipolar world the US increasingly resembled anempire. In the multipolar world the US might well transform itself from being aconventional nation to becoming the capital of a world order.
Until now America has interfered in the affairs of almost all nations. In thefuture more and more nations may start dabbling in American affairs. As anethnic melting pot, as host to the United Nations, America already seems to behalf way there. What is yet required is change in the American mindset.Regardless of who becomes the next US president, does not the fact of SenatorObama becoming the presidential candidate indicate that the mindset already hasstarted to change?
