The next financial crisis

We’ll crash again unless global leaders answer some fundamental economic questions.

Political leaders across the world seem already to be treating the global financial crisis as a one-off event. We were unlucky. Yes, we may have been driving at 100mph through a densely populated neighbourhood. There was an accident, but we'll keep hold of the wheel next time and improve the brakes. How quickly we forget.

It's a long road from the multilateral resolve of the 2009 G20 Summit in London to today's paranoia, small-mindedness and cowardice in the face of domestic politics. European finance ministers meet today with seismic activity along the eurozone fault lines starting to spike, while the IMF faces an uncertain immediate future at just the wrong time.

Domestically, the likes of David Miles and Andrew Haldane of the Bank of England warn us about future uncertainty, with financial crises more a matter of when than if. The Independent Commission on Banking knows how exposed we are as an economy. And yet, the commission recommends fairly small-scale action – bank shares climbed in the aftermath of its report being published. The reprt was more frightened of the City of London's competitiveness than any potential damage to the remainder of the economy.

In the UK context, the coalition has succeeded in selling its particular outlook on the economy as a consensual position. It is anything but. Its immediate policy – austerity despite financial stasis – is profoundly disputed in the economic academy and by the specialist commentariat. Moreover, the government has done little to drive towards a better global financial institutional structure.

Tasty story

Where the last government was ahead of this debate, the coalition prefers to hide behind a consumable story about debt. Meanwhile, it is failing to address the fundamental challenges of restoring strong growth and creating the right rules of the game.

We have an economic and financial system that is inherently uncertain and crisis-prone. We remain in the midst of a crisis that has gone from sub-prime mortgages to global financial crisis, to global recession, to sovereign debt crisis, and could yet become an even more ferocious debt and financial crisis. Greece, Ireland, Portugal and perhaps Spain are trapped, insolvent and capable only of a fiscal masochism that ultimately makes the problem worse as national income suffers as a result. And the whole time, the system remains fundamentally unchanged.

Two basic questions emerge that few of our leaders dare ask with the public in earshot. First, do we accept globalisation or not? Second, if we accept it, how do we ensure that it creates jobs and shared wealth instead of destroying them?

The answer to the first question is not obvious. We do have a choice. Globalisation is not a force of nature. There is a perfectly legitimate argument in favour of trying to play globalisation by your own rules. This has limits even for the world's two largest economies, China and the United States. In fact, in both economic and financial terms they are highly mutually dependent.

Unless legislators are willing to give preference to independence over economic prosperity the question then becomes: how do we do globalisation and make it consistent with democratic legitimacy and national welfare? What the ongoing global financial crisis shows is that we haven't got it right at all.

In a stark warning in this week's Newsweek, Gordon Brown argues that we have not properly addressed the cracks and friction in the global economy. Globalisation offers new markets as well as new competition. Play it right and we all prosper. Get it wrong and the global financial crisis of 2008 threatens to be the first of many.

Calamity lane

What is clear is that the world is crying out for leadership. The alternative is what we have now: mutual suspicion, fear, unenlightened national interest, race-to-the-bottom competition and uncertainty. We can neither afford this reckless evasion of the real challenges posed by globalisation nor pretend that there is a cosy retreat. Both nationalism and inaction pose serious threats to jobs, growth, climate change, social justice and global poverty reduction.

Once, in the historically recent past, leaders chose to create the institutional architecture of shared prosperity in response to the Great Depression and the economic devastation of the Second World War. These institutions were both domestic and international, and based around financial regulation and multilateral support for economic change combined with an opening of trade and exchange. What this meant is that societies could embed the global economy in domestic social institutions. It empowered democratic nations without precipitating economic calamity.

Whether the eurozone pops or not, strong leadership and institutional creativity are now needed once more. In this regard, leadership at the global level – including in the IMF, within the major economic blocs and domestically – is the most vital just as it suddenly seems so lacking. Or we could just repair the car that has just crashed, pretend we simply got unlucky, and go for a joy ride again. Somehow, that doesn't seem to be very sensible. Nonetheless, it is exactly what we seem to be doing.

Anthony Painter is a political writer, critic and researcher. Follow him on Twitter at @anthonypainter.

Anthony Painter is a political writer, commentator and researcher. His new book Left Without A Future? is published by Arcadia Books in November.

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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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