We were promised the end to boom and bust markets and today we’re told that the US wants to hand over a greater share of responsibility for the global economy to many of the emerging Asian powerhouses of the future. Decisions and policy, we’re led to believe, will in future be influenced to a greater extent by the G20 group of nations , including China and India, rather than just the US and a small select wealthy few European nations that constitute the G8.
Does this imply a huge step has been taken towards the new economic world order that was promised by many commentators a year ago in the wake of the damaging collapse of Lehman Brothers and the multi-billion dollar rescue of Merrill Lynch and insurance firm AIG? Some think so. According to Fareed Zakaria, editor of Newsweek International and author of The Post American World, ‘This is the major power shift of the last few centuries,’ he says, speaking to the BBC World Service. ‘For the first time in at least 300 years, you have non-Western actors of a size and scale that will really be dominating the world.’
Yet the obvious new significant player in this stage show is, of course, China. Its emergence as a genuinely new global powerhouse has been in evidence for several years thanks to its vast and cheap labour force. The IMF predicted in February that China’s GDP growth could exceed 6% this year, not quite the double-digit expansion previously witnessed but impressive all the same against the belt-tightening economic backcloth. But a victory for the communist model? Such claims would have Marx and Mao spluttering their party members’ coffee since China remains hopelessly committed to emulating the western capitalist, or Wall Street, model that got us into this mess. The world’s four biggest banks are now all Chinese yet they are also all quoted on the Beijing stock market and operate to the beat of an increasingly western drum.
The problems that lay at the heart of the global financial and economic collapse are systematic and it will take far more than the introduction of a few stiffened regulations to avoid inevitable repeats. Markets are fundamentally cyclical which means individuals and organisations alike are incentivised to milk the good times while they can. But markets are not the only cyclical factors – businesses, regulators, government and investor mood is too. And just as soon as a sustained up turn is in evidence you can bet your bottom dollar that the cries to loosen the red-tape burden will be loud and wide as business attempts to maximise it position, please investors and line its pockets. This breeds a short-termism and a greed that is as understandable as it is unavoidable, where bubbles balloon on waves of market euphoria only to explode into a recessionary bloodbath.
Former Fed chief Alan Greenspan recently admitted, another financial collapse will happen… it won’t be the same as this one, history never repeats itself exactly, but it will happen. So while regulators, bankers and government desperately fiddle with one lot of parts of the global financial engine in the hope of avoiding a repeat performance, so another future disaster develops in a different part of the machinery.
Market economics is far from perfect and cyclical booms and busts remains the norm, not the exception. Finding a better system remains the challenge but it would be a start for the decisions makers to dig a little deeper for genuine answers rather than merely patching the holes that sank the ship last time round. Until they do, boom and bust will remain as certain as Benjamin Franklin’s death and taxes.