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Where do we go from here?

The markets have ruled for a third of a century, but it has all ended in tears. A return to selfish nationalism is possible. If we are to avoid this sombre outcome, we must find ways to rub the rough edges off globalisation

by Robert Skidelsky / January 17, 2009 / Leave a comment
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Any great failure should force us to rethink. The present economic crisis is a great failure of the market system. As George Soros has rightly pointed out, “the salient feature of the current financial crisis is that it was not caused by some external shock like Opec… the crisis was generated by the system itself.” It originated in the US, the heart of the world’s financial system and the source of much of its financial innovation. That is why the crisis is global, and is indeed a crisis of globalisation.

There were three kinds of failure. The first, discussed by John Kay in this issue, was institutional: banks mutated from utilities into casinos. However, they did so because they, their regulators and the policymakers sitting on top of the regulators all succumbed to something called the “efficient market hypothesis”: the view that financial markets could not consistently mis-price assets and therefore needed little regulation. So the second failure was intellectual. The most astonishing admission was that of former Federal Reserve chairman Alan Greenspan in autumn 2008 that the Fed’s regime of monetary management had been based on a “flaw.” The “whole intellectual edifice,” he said, “collapsed in the summer of last year.” Behind the efficient market idea lay the intellectual failure of mainstream economics. It could neither predict nor explain the meltdown because nearly all economists believed that markets were self-correcting. As a consequence, economics itself was marginalised.

But the crisis also represents a moral failure: that of a system built on debt. At the heart of the moral failure is the worship of growth for its own sake, rather than as a way to achieve the “good life.” As a result, economic efficiency—the means to growth—has been given absolute priority in our thinking and policy. The only moral compass we now have is the thin and degraded notion of economic welfare. This moral lacuna explains uncritical acceptance of globalisation and financial innovation. Leverage is a duty because it “levers” faster growth. The theological language which would have recognised the collapse of the credit bubble as the “wages of sin,” the come-uppance for prodigious profligacy, has become unusable. But the come-uppance has come, nevertheless.

Historians have always been fascinated by cyclical theories of history. Societies are said to swing like pendulums between alternating phases of vigour and decay; progress and reaction; licentiousness and puritanism. Each outward movement produces a…

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  1. Michael Barnett
    June 26, 2010 at 22:46
    I think nationalism, has been looking the wrong way, governments are becoming increasingly irrelevant, with respect to the wage power of the common man from which governments get most of their wealth and power from. This will have its advantages, less wars perhaps. And Its disadvantages, wages will fall for everyone but the elite. This means living standards will fall. But what I am warning people is the deeper I look into what I think is happening the more irreversible things seem to be. Globalisation is not government, nothing about Globalisation suggests to me, it will be able to identify and reverse the consequences of the jobs and wage drain for the common worker. As living standards fall I expect to see populations fall, only stabilising when global population is a fraction of what it is now.

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About this author

Robert Skidelsky
Robert Skidelsky is the author of John Maynard Keynes 1883-1946: Economist, Philosopher, Statesman (Pan)
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