Saturday, March 21, 2009

Is it 1929 or 1989?

We may be in the throes of an epochal change whose unfolding consequences will be felt for decades

Dominique Moisi
guardian.co.uk, Saturday 21 March 2009 17.00 GMT

As the economic crisis deepens and widens, the world has been searching for historical analogies to help us understand what has been happening. At the start of the crisis, many people likened it to 1982 or 1973 – which was reassuring, because both dates refer to classical cyclical downturns.

Today, the mood is much grimmer, with references to 1929 and 1931 beginning to abound, even if some governments continue to behave as if the crisis was more classical than exceptional. The tendency is either excessive restraint (Europe) or a diffusion of the effort (the United States). Europe is being cautious in the name of avoiding debt and defending the euro, whereas the US has moved on many fronts in order not to waste an opportunity to implement badly-needed structural reforms.

For geo-strategists, however, the year that naturally comes to mind, in both politics and economics, is 1989. Of course, the fall of the house of Lehman Brothers has nothing to do with the fall of the Berlin Wall. Indeed, on the surface it seems to be its perfect antithesis: the collapse of a wall symbolising oppression and artificial divisions versus the collapse of a seemingly indestructible and reassuring institution of financial capitalism.

Yet 2008-2009, like 1989, may very well correspond to an epochal change, whose unfolding consequences will be felt for decades. The end of the East-West ideological divide and the end of absolute faith in markets are historical turning points. And what happens in 2009 may jeopardise some of the positive results of 1989, including the peaceful reunification of Europe and the triumph of democratic principles over nationalist, if not xenophobic, tendencies.

In 1989, liberal democracy triumphed over the socialist ideology incarnated and promoted by the Soviet Bloc. For many of his supporters, it was President Ronald Reagan who, with his deliberate escalation of the arms race, pushed the Soviet economy to the brink, thereby fully demonstrating the superiority of liberal societies and free markets.

Of course, there are obvious differences between 1989 and now. First, and perhaps above all, the revolutions of 1989 and the subsequent collapse of the Soviet Union put an end to global bipolarity. By contrast, 2009 is likely to pave the way to a new form of bipolarity, but with China substituting for the Soviet Union.

Second, whereas democracy and market capitalism appeared as clear – if more fragile than expected – winners in 1989, it is difficult in 2009, with the spread of the global crisis, to distinguish winners from losers. Everyone seems to be a loser, even if some are more affected than others.

Yet, history is unfair and the US, despite its greater responsibility for today's global crisis, may emerge in better shape than most countries from the morass. In better shape, but not alone. As a visiting professor at Harvard and MIT, I am getting a good preview of what the world could look like when the crisis finally passes.

One senses something like the making of an American-Asian dominated universe. From the incredible media lab at MIT to the mathematics and economics departments at Harvard, Asians – Chinese and Indians, in particular – are everywhere, like the Romans in Athens in the first century BC: full of admiration for those from whom they were learning so much, and whom they would overcome in the coming decades.

But before this new order appears, the world may be faced with spreading disorder, if not outright chaos. What, for example, will happen to a country as central and vulnerable as Egypt when hundreds of thousands of Egyptians working in the Gulf are forced to return to their homeland as a result of the crisis in the oil-producing countries? When the rich get less rich, the poor get poorer. And what about the foreign workers who have reached for the "European dream" and are now faced with potential explosions of xenophobia in Europe's supposedly open countries?

The consequences of 1989 ended up being less enduring than many observers, including me, would have assumed. We can only hope that, in the end, the consequences of 2009 similarly prove to be far less dramatic than we now – intuitively and in our historical reflexes – feel them to be.

Copyright: Project Syndicate, 2009.

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