Mr. Stephens is columnist for the FT. He covers the politics of globalization, which largely means he writes about state action in a world in which global market logics challenge government sovereignty. He considers the role that governments still play despite the ascendance of global capital. In this article -- "Why global capitalism needs global rules" -- he argues that states have a large role to play in world affairs directly because of global capital. The following is the beginning and the end. Read the whole thing here.
After the Crash: Why global capitalism needs global rulesby Philip Stephens
When enough banks have been nationalised or gone bust, when the last reputations have been properly shredded, and when prices of Fifth Avenue apartments and Mayfair town houses have fallen finally to earth, politicians are going to have to think hard about the lessons of the financial crash of 2008.
Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.
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Yet once the storm abates – and FT colleagues better versed in these matters tell me that it will take some time – the task for politicians will be to ask some bigger questions. Putting aside the technicalities of collateralised debt obligations, capital ratios and the rest, what does the crisis tell us about the nature of the world in which we now live?
The messages are not straightforward; some appear contradictory. Overall, they speak to a growing tension between global integration and a shortage of credible international governance. Governments have been left with responsibility without power.
One big consequence of globalisation has been to weaken decisively the grip of individual states on the levers of economic management. Few political leaders outside the US were even vaguely aware of the degree to which their own banking systems were held hostage to the subprime loans made to American homeowners. This loss of control has not been matched by any corresponding diminution of responsibility. Voters still hold their own politicians to account for the insecurities that flow from interdependence. Blaming someone else offers insufficient answer to the homeowners trapped in negative equity or to depositors or creditors in a failing bank.
The tensions, of course, do not apply solely to financial markets or indeed to economics. They are inherent in globalisation. Voters want the ease of movement across national borders that comes with cheap travel. But they also want governments to control immigration and cross-border crime. They want to buy cheap electronics from China – and to blame politicians when global supply chains threaten job security at home.
The credit crunch and the financial firestorm have also provided a neat metaphor for the big shift in economic power in the world. Financial crises used to start in the developing or emerging economies: in Latin America, Asia or Russia. All the west had to worry about was contagion.
This time the crisis was made in the US. It is the emerging powers of the east that fear contagion. So far, Asia’s rising economies have been largely immune to the shocks, though the demise of the US insurance giant AIG, with its huge interest in China, is a warning that that could change.
The tensions are not susceptible to neat solutions. But all point in the same direction. Interdependence is no longer an abstract noun. Governments need to find ways to reclaim some of the sovereignty lost to globalisation. That means more global governance: credible international rules.
Capitalism will survive these financial shocks. The risk, though, is of a retreat to economic nationalism. The stresses of globalisation are visible everywhere. Ultimately, if the politicians want the liberal market system to work, they will have to make multilateralism work.