More than half a decade has passed since the recession that triggered the financial panic and the Great Recession, but the condition of the world continues to be summed up by what I’ve called ‘turboparalysis’ — a prolonged condition of furious motion without movement in any particular direction, a situation in which the engine roars and the wheels spin but the vehicle refuses to move.
The greatest economic crisis since the Great Depression might have been expected to produce revolutions in politics and the world of ideas alike. Outside of the Arab world, however, revolutions are hard to find. Mass unemployment and austerity policies have caused riots in Greece and Spain, but most developed nations are remarkably sedate. Scandal and sputtering economic growth appear unlikely to prevent another peaceful transition of power within the Communist party of China. And in the US, the re-election of President Obama and the strengthening of his Democratic party in the US Senate reflect long-term demographic changes in an increasingly non-white and secular American electorate, not the endorsement of a bold agenda for the future by the Democrats. They don’t have one.
In the realm of ideas, turboparalysis is even more striking. On both sides of the Atlantic, political and economic debate proceed as though the bursting of the global bubble economy did not discredit any school of thought. Right, left and centre, the players are the same and so are their familiar moves. Public debate is dominated by the same three groups — market fundamentalists, centrist neoliberals, and mildly reformist social democrats — who have been debating one another since the 1980s. Someone who went to sleep like Rip Van Winkle in the 1980s when Reagan and Thatcher were in power and awoke today would find nothing new in the way of economic theories or political doctrines.
By now one might have expected the emergence of innovative and taboo-breaking schools of thought seeking to account for and respond to the global crisis. But to date there is no insurgent political and intellectual left, nor a new right, for that matter. In the US, the militant Tea Party right, many of whose candidates went down to defeat in this year’s elections, represents the last gasp of the Goldwater-Reagan coalition, not something fresh. The American centre-left under Obama is intellectually exhausted and politically feeble, reduced to rebranding as ‘progressive’ policies like the individual mandate system (‘Obamacare’) and tax cuts for the middle class which originated on the moderate right a generation ago. In Britain, the manifestos of various ‘colour revolutions’ — Blue Labour, Red Tory and so on — have the feel of PR brochures promoting rival cliques of ambitious apparatchiks rather than the epochal thinking the times require.
Why has a global calamity produced so little political change and, at the same time, so little rethinking? Part of the answer, I think, has to do with the collapse of the two-way transmission belt that linked the public to the political elite. Institutions such as mass political parties, trade unions, and local civic associations, which once connected elected leaders to constituents, have withered away in more individualistic and anonymous societies. One result is a perpetual crisis of legitimacy on the part of political elites, who owe their electoral successes increasingly to rich donors and skilful advertising consultants. New political movements are hard to found. At the same time, anachronistic movements can continue to raise funds or entertain audiences, even if, like America’s conservative movement, they lose election after election.
But there is a deeper, structural reason for the persistence of turboparalysis. And that has to do with the power and wealth that incumbent elites accumulated during the decades of the global bubble economy.
In essence, the bubble economy was a dysfunctional marriage of export-driven economies like China, Japan and Germany and debt-addicted nations like the US and many of Germany’s European neighbours. As international trade imbalances built up, from the 1980s to the 2000s, so did the wealth and power of elites who profited from the system, from Chinese Communist princelings with a stake in overbuilt export industries to the financiers of Wall Street and the City of London.
A global economic system that relied on excessive borrowing by consumers, particularly in the US, was bound to grind to a halt when fearful consumers switched from borrowing to saving. But the crash was only the first stage of the adjustment. The second stage is rebalancing. Countries like China and Germany must rely more on domestic consumption; countries like the US and UK must rely less on private consumer debt and shift resources from finance and housing to productive, traded industries.
But these reform agendas, from the downsizing of the overbuilt industrial sectors of mercantilist Asian nations to the pruning of finance in the Anglo-American world, threaten the very interests that profited from the preceding bubble and now glare defensively at a changing world, like Fafnir crouched upon his hoard. In the US, the wealth of the bubble-swollen financial sector has been transmuted into political power via campaign contributions. While Mitt Romney, the candidate of Wall Street, lost his bid for the presidency, the American financial industry overall has been successful in blocking reforms like the nationalising of failed banks (rather than government bailouts with few conditions) and the restructuring of private household mortgage debt. These reforms, along with a dose of moderate inflation and much more aggressive fiscal policies like massive investment in infrastructure, would have helped the economy recover more rapidly. But they would have imposed significant costs on economic elites who have wielded their power to thwart them.
For their part, the masses seldom unite against the classes in democracies because they are divided among themselves. When nations realise that they will be collectively poorer in the future than they had expected, the usual result is not solidarity but rather civil war, by means of ballots and sometimes bullets. Confronted by a crisis like the Great Recession, each section of society uses its political influence to try to maintain its share of the national wealth, while forcing the cost of economic adjustment to others. The rich try to shift adjustment costs to the middle class, who in turn try to pay for their own subsidies and entitlements by cutting the programmes of the poor.
History is sobering, in this regard. The Great Recession, which continues despite a technical ‘recovery’, can be viewed as the third great economic collapse of the industrial era, following the ‘Long Depression’ of the 1870s-1890s and the Great Depression of the 1930s. The earlier two episodes of global economic crisis witnessed setbacks for liberalism, democracy and free trade and the flourishing of illiberal nationalism, racism, imperialism and beggar-thy-neighbour economics. While slow growth combined with national rivalries have not yet engendered anything like the autarkic economics of the earlier two crises, it would be premature to predict the survival of present levels of financial and economic integration in a world that wobbles between feeble recoveries and renewed recessions.
Nowhere is there greater potential for conflict than in the relationship between the two poles of the now-collapsed bubble economy — the US, which specialised in exporting debt to China, and China, which specialised in exporting manufactured goods to the US. Since the Great Recession began, American attitudes toward China have grown strikingly more negative. The much-discussed ‘pivot’ in American strategy away from fighting jihadists in the Middle East and Central Asia towards unnamed great power rivals in East Asia is manifestly a shift toward greater military containment of China.
And in the recently concluded US elections, both candidates competed in promising to protect American producers from unfair Chinese competition. The Trans-Pacific Partnership, from which China is excluded, combines military and trade concerns in a single set of America-centred Asian alliances. Gone is the Clinton-era vision of China as a liberalising and democratising partner of the US in a world of great-power harmony.
The last global depression was brought to an end by the second world war. This time a ‘hot’ war is extremely unlikely and a cold war merely possible. Nevertheless, geopolitics may do what domestic politics has failed so far to do and free the world’s leading countries from ongoing turboparalysis.
The various national systems from which today’s leading global elites benefit, from hyper-industrial Germany to financialised Britain, grew up under the Pax Americana of the late 20th century. The US offered free security, a global currency, and the world’s largest open consumer market to allies — and potential allies — who were encouraged to specialise in non-military roles including industrial production (first Japan and Germany, later China) or finance (Britain and the US). The world order that resulted was well suited to East Asian and German industrialists and American and British bankers.
But while the US will remain the leading global military power for some time, the Pax Americana cannot survive the disappearance of a common Soviet threat and the diffusion of wealth and power to rising giants like China, India and Brazil. If, as many believe, the US will adopt a policy of moderate inflation in the future to help melt away the icecap of its public and private debt, the dollar as a store of value will be less attractive to foreigners. And while a stronger US economy can help promote a global recovery, the days when American consumers powered global economic growth may be past. Indeed, an ageing and increasingly unequal America which is creating chiefly low-wage jobs will have trouble merely maintaining a healthy middle class of its own.
In the long run, regional hegemons, including China and Germany, may be compelled to take on some of America’s duties, from bailing out bankrupt countries to providing regional security. But that would require their political elites to focus less on economic statistics and more on their people and the world. The equivalent in the US would be a rebalancing of economic power and prestige away from financiers towards others — perhaps leaders of the fracking-driven energy renaissance or advanced manufacturing.
In some form or another, profound shifts like these are coming, because, as Mrs Thatcher would have said, There Is No Alternative. Going back to the pre-2008 world is not an alternative. Neither is the present state of suspended animation in politics and policy.
Nothing lasts forever. At some point today’s extended intermission in domestic and world affairs will give way to a new act. But for now the vehicle remains stuck in the ditch, while the wheels continue furiously to spin. The age of turboparalysis goes on.
This article is the from the bumper Christmas issue of The Spectator which (as American readers of this blog may not know) is the best-written and most entertaining magazine in the English language. To sample it for free, download a trial for Kindle, iPad or iPhone by clicking here.