A Change in the Times - What is Past and What is Prologue
By Ralf Fücks
There are crises, and there are crises. Some blow over, without leaving a trace behind; others mark an historical break. We don't need much fortune-telling talent to predict that the current worldwide economic upheaval will go down in history books as a change in the times. A nearly 25-year cycle of growth is coming to an end, one that pulled almost one billion people in developing countries out of direst poverty and at the same time saw a phenomenal accumulation of wealth take place at the top of the social pyramid – and not just in the Old World, but also among the nouveau riche in China, Russia, India and Brazil.
This cycle was driven by a global liberalization of markets and a sharp increase in world trade, but above all by a feverish expansion of the financial sector. There the big money was made and the big wheel turned that has now led the world economy to the edge of the abyss. Yesterday Wall Street and the City of London were the dual heart of global capitalism; today they are the epicentre of the crisis. The global crash was triggered with the burst of the US real estate bubble, created by illusory values that led to further extension of credit. A model of growth that was driven by the expansion of public and private indebtedness has collapsed with it.
This turbo-capitalism over-extended the curve. The era of miraculous increases in capital from constant new financial products is over. In the future it will once again be more important to manufacture sensible things and offer sensible services that create added value for customers than to get rich quick through speculative transactions. The future economic leader will not be the investment banker, but the entrepreneur who contributes to the advancement of society. Rather than a determination to maximize profit in the short-term, the focus will be on sustainable value growth. The capitalism of the future will be a more virtuous one – because only responsible action can lead to long-term prosperity.
Global Rules for Global Markets
Market economies have a high number of prerequisites. They require transparency, limits on power through competition, effective price formation, owner responsibility and a balance of profit and risk. If these checks and balances are suspended, the system goes off course. That is exactly what happened. If we talk about the failure of the market, we need to mention the failure of the state in the same breath: it is incumbent upon the state to guarantee the order of markets, and it was the state governments that, in the course of global competition, released the entire financial sector from regulation. It is absurd that every medicine must go through a costly registration process, every automobile possess a vehicle inspection sticker, when financial products that can nullify entire national economies can be put into circulation without any risk provisions whatsoever.
The crisis reveals the affliction of globalization: a lack of global regulation, extreme imbalances in the world economy, unequal allocation of advantages and risks. Entire societies that in recent years have worked their way up to modest prosperity are now facing the threat of being thrown back into survival mode. A return to economic nationalism (protectionism, to put it plainly) would only exacerbate the problems. Deglobalization is no utopia – indeed, it's a nightmare. Not only because of the loss of prosperity worldwide, but also because an economic fragmentation would also fan the flames of political nationalism: say hello to the 1930s.
What we need now is more cooperation and coordination. We must strengthen the International Monetary Fund and the World Bank, so that they can play their roles in putting out fires around the globe. But we will not attain this without political reforms. The only way forward is to give increasing economic powers to these institutions and give developing countries a fair say in them. The era of Western rule of the economy is at an end. We must learn to divide power and prosperity in order to avoid a battle where it is every man for himself.
The crisis has also mercilessly uncovered the deficits in the European Union. We have a single market and have adopted a wide-ranging common currency, but we have no European coordination of economic and financial policy. What's more, European national economies have long since intermingled, for better or for worse. Solidarity with those countries that are now struggling to keep their heads above water is not just altruism, it’s common sense too. This includes binding rules to enforce fiscal discipline and prevent a taxation race at the expense of the community. If the EU uses this opportunity, it will emerge strengthened from this crisis. If the European governments fail, this threatens to erode society and break apart the Eurozone.
The Dual Economic and Environmental Crises
What distinguishes the present situation from all previous global economic upheavals is the concurrence of the economic crisis with an environmental one. Not only has the circulation of money and goods been disrupted, the ecosystem upon which human life on this planet depends is breaking down. The change in our climate is striking proof of this crisis. Dwindling oil supply, overfishing in the oceans, water shortages and the loss of fertile farmland are more alarm signals. This means that there is no way back to the old kind of economic growth.
The parallels between the paths that have led us to these dual economic and environmental crises are astonishing. Both rest on massive borrowing from future generations: the one in the form of monetary debts that have been financed through consumption, the other in the form of environmental debts. Both cases involve the externalization of consequent costs at the expense of the future: buy now, pay later. We must stop this ruinous form of debt-based economy once and for all. This also means that prices must reflect the costs to the environment, so that the market can give the proper signals to investors and consumers. The instruments are well-known: green taxes and capping CO2 emissions, the costs of which must be reflected in corporate and consumer budgets.
In view of the threat of collapse of the biosphere, this is nothing less than a green industrial revolution: a rapid increase in efficient use of resources, the transition to renewable energies on a large scale, the development of a new generation of environmentally friendly products and technologies, the switch to organic raw materials and procedures and the building of houses that will become net energy producers. To put it another way: this is a green economic miracle that is creating meaningful employment in huge numbers.
Green New Deal
The enormous amounts currently being disgorged by governments worldwide to boost economic activity must be used to lay the foundation for sustainable growth. If we miss this opportunity, we will be caught in a double bind: we will then be sitting on giant mountains of debt that will limit governments' room to manoeuvre right at the point when the environmental crisis intensifies.
Investments in green technologies are at the top of the agenda. Next up is investment in people, primarily in education and vocational training. This way we can kill more birds with one stone: education is the key to equality of opportunity and social advancement, a more just society. At the same time, we help Europe to remain a creative, dynamic society that can also ensure its future prosperity in spite of demographic change.
If we go about it in the right way, we can use the crisis for a great social awakening toward environmental consideration and fairness. Whether we call it a Green New Deal or a pact for the future, it remains important that we now mobilize all of our forces as a society to come out of the crisis better than we went into it.