The global financial crisis: opportunities for change

This article was published in Open Democracy on 10 November 2008

The global financial crisis has implications that go far beyond the financial and economic sectors. Below are nine thoughts in an attempt to see the opportunities in what currently looks like a pretty grim picture.

Thought 1: The west is in trouble and has become a potential source of instability for the world

During the eight years of the George W Bush administration, the west's political leadership has been squandered. But now the economic fundamentals of the western way of life are also being squandered. This is serious. Barack Obama's election will re-establish the credibility of the United States in the world but it will not reverse the trend of decline. The challenge ahead is to manage a peaceful decline of the west while rescuing as many of the west's liberal political and economic values as possible. This will only work if the multipolar world is accepted as a reality and as an opportunity for a new style of global cooperation and governance.

Thought 2: The troubles of the west are contagious

Even in decline, the west will weather the financial crisis and a recession better than emerging and developing countries. It can be hoped that solid democracies should be better equipped to deal with economic instability. But how will Russia and China behave in a recession? Despite systemic differences, there is no room for complacency if Russia, China and other emerging economies suffer economically, as instability there will have huge political (and economic) repercussions for the west. Economically stable times are usually better for settling differences.

The world is still celebrating the Obama revolution in the US. But the hard times ahead will require hard decisions from the new US president. He has a large bank of goodwill from people around the world and he should use this credit wisely and responsibly. The financial crisis has also taught a useful lesson: in international politics, it is possible to leverage support and resources successfully only if your resources are sound and credible; for example, leveraging support from others on human rights and democracy only works if your own house is in order. Otherwise, playing with other people's credit can and will backfire.

Thought 4: Global issues have to come to a boiling-point before global action is taken

But if they boil over and a global interdependent system is close to a standstill, global leaders can and do act. Who would have thought that trillions of euros would be found within a matter of weeks to deal with the global financial crisis? This should be a lesson for other global issues such as climate change and poverty. How much would the recommendations in Nicholas Stern's review of climate change cost to implement? How many G8 summits were spent talking about "making poverty history", without the required follow-through? The question is whether we will have to come to boiling- (or drowning-) point before such dramatic government action will be taken on climate change and poverty-reduction. On climate change, global leaders cannot afford to wait until the system comes to a standstill, because it will then - even with all the money in the world - be too late to get it going again.

Thought 5: Globalisation is here to stay

We are interdependent, no question. Naomi Klein's No Logo was fun; No Lehman Brothers is the hard reality of globalisation. On the opportunities side, the attempts of major countries to work together shows that hardcore globalisation can force global government action. Will history books mark the collapse of Lehman Brothers as the start of building a 21st-century global-governance system?

Thought 6: Global governance has made a comeback

A new opening for global governance in the 21st century has emerged, and it is created by awareness that "it's the economy, stupid". We need new global governance which can both manage the ascent of China, India, Russia, Brazil as well as the relative decline of the United States and Europe. Europe and the US must concentrate on shaping this new global governance and enshrine its progressive values within it, while they still have some power to do so.

Thought 7: The early European Union: a model for 21st century global governance

The EU started as a coal-and-steel community, not as the value community of today. While the architects of the EU had a value-driven vision of Europe in mind, they started pragmatically with coal and steel. This can be a lesson for global governance. Can we rebuild global governance based on global financial governance and then move ahead in ways that echo the EU's evolution? Could this be an example for building a global open society? This would certainly be in line with the EU's founding father Jean Monnet, who thought that "the community we have created is not an end in itself. The community itself is only a stage on the way to the organised world of tomorrow". The conclusions of the EU financial summit of 7 November 2008 are a step - albeit timid - in this direction.

Thought 8: Yes we can create a new energy revolution

While we are still in the midst of the financial crisis, global leaders are already turning to the fast approaching recession in the real economy. After major bailout packages for the banks, major economic stimulus packages are now in preparation. This is the right approach. But these packages should be targeted and used to stimulate the new, renewable-energy growth sector and help to initiate an energy revolution which creates sustainable growth now and in the future. The trillions of euros which will likely be spent on fighting the global recession should be spent on fighting climate change at the same time. It's a question of efficiency and forward thinking. And it combines the urgent with the important. The European Union's structural-funds model, based on EU co-funding of up to 80%, can be used to disburse the EU's new energy-stimulation package, making it attractive also for east-central European member-states to join the new energy revolution.

Thought 9: A tightening of funds in the development and non-profit sector makes reforms essential

Development money will be scarce, at the least in the short term. This will apply to governments' development aid but also the non-profit sector in general. The outcome may be a consolidation in this sector - but also lots of broken promises. However, rather than competing for scarce resources, the development community should use the crunch in development aid to assess approaches and structures, to reform in a way that allows letting go of ineffective models. Competition for creativity should result in doing things better with less.

Undoubtedly there are many more sophisticated angles to the global financial crisis. The importance is to understand the crisis as an opportunity which should not be wasted.

Andre Wilkens is the director of the Open Society Institute Brussels (OSI-Brussels) and a founding member of the European Council on Foreign Relations.