The second coming

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Context:

  • Global cooperation is a vital element in managing global economic interdependence. But global cooperation is exactly what has been domestically de-legitimised in almost all democracies.
  • There are once again murmurings of a possible global economic turbulence in the air. Whether these forebodings will transpire is a matter for economists to debate. But it is worth asking if there were to be another financial crisis in the near future, would political configurations in the world have the wherewithal to respond effectively.
  • After the 2008 crisis, the global system mounted a response to contain the immediate crisis. It was by no means adequate to deal with the deep structural issues ailing the global economy. But there was, nonetheless, a coordinated response of some kind.

Political optical illusion:

  • Global crisis are preceded and followed by a kind of political optical illusion. In 2008, just before the crisis, there was, in most circles, a sense of exuberant complacency. The liberal international order was ascendant, the global economy was a non-zero sum game.
  • The optical illusion of 2008 was caused in part by complacency. In 2018, there is a danger that the optical illusion is caused by a politics of distraction.
  • For example, the trade war between China and the US is a significant shift in global politics with far ranging ramifications. But such a seismic shift in the architecture of the global economic order is overshadowed by the distractions of daily politics that it is barely debated.

For the foreseeable future this crisis will manifest itself in three ways:

  • First, political polarisation between “Left” and “Right” is likely to increase making domestic political consensus on any policy more difficult. Even if the new wave of Left democrats do well in congressional elections, forging a new political consensus is going to be difficult.
  • The second abiding crisis of democracy is the rise of executive power. This is a long historical process.

Global cooperation is a vital element in managing global economic interdependence:

  • Global cooperation is a vital element in managing global economic interdependence. But global cooperation is exactly what has been domestically de-legitimised in almost all democracies. This is manifest not just in the suspicion of supra-national institutions.
  • It is most powerfully manifest in the “Me First” sentiment that is enveloping decision-making in most countries.
  • All countries privilege their own interests.
  • But most of the global negotiations leave you with a sense that forging even the crisis-driven consensus that was possible in G-20 in the aftermath of the financial crisis, is going to be difficult.

Managing turbulence:

  • Managing turbulence in a global economic order requires something like a global political steering committee.
  • The now moribund G-20 briefly acted as that in the financial crisis. But with the will to global cooperation gone in advanced liberal democracies, it is not clear who will manage a potential crisis.
  • Emerging markets have their own vulnerabilities.
  • China could be an important player. It has the financial resources. But two things are not clear: Its own internal political dynamics, and whether the demands of internal political legitimacy will make it part of the problem rather than the solution.
  • Even if it manages its domestic transition to slower growth, it is doubtful whether it has the global political legitimacy to act as leader.

Way Forward:

  • We can hope a serious economic crisis does not come. But we should worry that the political underpinnings of global economic cooperation have eroded. Steering through the next round of turbulence will be harder.

Source:IE