by V. Mathew Kurian
I. Introduction
In 2008, America confronted a financial crisis which later spread to other parts of the world making it a global financial crisis. The financial meltdown as a contagion affected adversely the functioning of the real economy, turning it into a ‘great recession'. Ten years are now over by this financial and economic breakdown of the world. In this predicament, it is worth to explore the experience of the global economy during in the last decade. Specifically, we start with an overview of financial crisis and then an investigation is made to examine the global dynamics of the world economy in the post-crisis decade. Finally, we also propose to make certain suggestions to improve the health of the world economy today.
II. Global Financial Crisis: An Overview
During the two world wars, the USA emerged as most powerful in the world both economi-cally and politically. The post-war international financial architecture was predo-minantly an American construction. In the 1944 International Monetary Conference held at Brettenwoods what America proposed became the decisions. Both the IMF and IBRD were designed by the USA. The Fixed Exchange Rate System under the IMF was solely an American creation. However, in the late 1960s the mighty dollar became relatively weak which resulted in the collapse of the Brettenwoods System in 1971. But the OPEC engineered oil crisis was instrumental in re-strengthening the American dollar. This along with the ICT revolution and globalisation helped America to maintain their global hegemony. But the rise of the so-called emerging economies, particularly of China and India, weakened the American economy mainly in the 1990s. The subprime mortgage lending was the strategy adopted by America to counter this dot com crisis. The early response was an American boon but which confronted a bust in 2007-2008.
Lehman Brothers, one of the biggest banks of America, was the first victim of it. Subsequently when other financial institutions, including AIG, faced a severe financial crunch, the American Government and Federal Reserve System came to their rescue. By this time, as the American financial system was internationalised, the crisis became a global one. The financial breakdown was not limited to the frontiers of finance, it terribly affected the working of the real economy causing the ‘great recession'. This financial and economic breakdown resulted in massive indebtedness, including certain governments' terrific unemployment and loss of homes to a large number of people.
III. World Economy in the post-Crisis Era
The global financial crisis was responsible in deviating from the neo-liberal policies which were in vogue from 1980s onwards. Almost all countries in the world, irrespective of ideological differences, declared fiscal incentive measures to overcome the financial and economic breakdown. These, to some extent, helped in recovering the world economy from recession. But there are a set of other problems which make the world economy still very fragile. Global debt ballooned 40 per cent in a decade after the financial crisis. According to the IMF, the total debt of the world has reached $ 250 trillion. This comprises both public and private debts. Swelling public debt in some countries has resulted in a ‘sovereign debt crisis'.
Lund and her colleagues of Mc Kinsey have observed that the return on equity for banks, which is a common metric used by investors, has declined by about 50 per cent since the financial crisis. So banks and other financial institutions have failed in regaining the confidence of the public at large.
The current phase the of capitalist world economy is characterised as ‘financialisation'. Under financialisation capital is ‘fictitious' and it is mainly employed for speculation to earn quick profits. Of late, crypto currencies have crept into the circulation of finance. All these are making the global economy unstable and immoral. Eminent persons, like Pope Francis, have condemned this sort of financialised capital economy.
Unemployment is another havoc in the global economy today. According to the ILO, “unemploy-ment and decent work deficits are to remain high in 2018”. As many as 1.4 billion workers are now in vulnerable jobs. The total number of unem-ployed currently exceeds 192 million persons.
The FAO estimates that presently 1.44 billion people in the world are living with less than $ 1.25 a day (the present internationally accepted poverty line). Rising inequality is another related issue making the world insecure and unhappy. More countries now have a higher Gini coefficient than in the 1980s and 1990s.
Climate change is another inherent danger of the global economy of our times. During the last ten years, in spite of the UN's intervention at different levels to reduce carbon emission, the problem has only aggravated. Karl Marx through his “‘theory of metabolic rift' predicted this sort of a turn in our earth by the onslaught of irresponsible capital”.
Of late, the current ‘Turkey's turmoil', many fear, may metamorphose into a new ‘currency crisis'. It all started with America's imposition of sanctions over President Endogan's refusal to release a pastor, Andrew Brunson, who is ‘absurdly accused of terrorism'. Donald Trump has made matters worse by vowing to slap higher tariffs on Turkish metals. The lira has lost a fifth of its value during August 2018. The America-engineered trade war and currency war also make the modern world system very unstable.
IV. Redemption of the World from this Rut
As the multi-dimensional crisis persists in the world economy, some corrective measures are absolutely necessary to make it more stable and humane. From very ancient times onwards, the economy was perceived as a social arrangement for provisioning the material needs of a given set of people. The function of the state was considered to make the economy serve the people. But with neo-liberalism, the state has become a servant of capital, antagonistic to the welfare of the people. So we need a new politics to make a people-friendly economy. Further, we require economic decisions blended with ethical norms like justice, freedom and equality. We also need to integrate ecology and economy. Ecologically unsustainable projects have to be repudiated. As modern technology has brought the entire people in the world more closer, we need to formulate a global consensus to gear the world economy and its constituent national parts towards justice and sustainability.
V. Conclusion
In this article, initially we tried to give a brief account of the global financial crisis of 2008. Then we made an analysis of post-crisis world economy which confirmed that an alternative political economic approach is required to constitute a people-centric economy with ecological sustainability.
Dr V. Mathew Kurian is the Joint Director, K.N. Raj Centre, M.G. University, Kottayam.