The global financial crisis: opportunities for change

The world's severe economic downturn must be addressed alongside and not to the exclusion of other problems, says ECFR Council Member Andre Wilkens




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.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.

Author

Subscribe to our weekly newsletter

We will never send you any content that is not ECFR related. We will store your e-mail address and your personal data in accordance with our privacy policy.