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This article appears in the following Cambridge Journal of Economics issue: Special Issue: The Global Financial Crisis [View the issue table of contents]
From global imbalances to global reorganisations
* Professor of Political Economy, London School of Economics
Address for correspondence: email: r.wade{at}lse.ac.uk
The world feels itself to be in transition, but to what is unclear. Will the liberal market model retain its normative primacy once some semblance of normality is restored, or will other varieties of capitalism, with a bigger role of the state, acquire more legitimacy? The answer depends partly on one's explanation for the current crisis. This essay argues, first, that global imbalances had too important a role to ignore, in contrast to a mainstream view that focuses on mistakes in monetary policy and financial regulation. It argues, second, that in light of global dynamics, the crisis is likely to become worse by early 2010—which, on the face of it, makes significant reorganisations of capitalism more likely. The third section lays out what should be done to reconfigure capitalism at national and international levels. The final section discusses the political economy of policy reforms in terms of the difficult translation from what should be done to what can be done. The broad conclusion is that in five years from now the liberal market model will have been restored to normative primacy and ‘we must have more globalization’ will again be the elite rallying cry; but the crisis will have left behind sufficient doubts about factual propositions and value priorities that political parties and economists advocating alternatives will have more scope than they have had for the past three decades.
Key Words: Financial crisis • Global imbalances • Monetary policy • Financial regulation
JEL classifications: D30, E44, E50, E60, F01, F02, F30, F50, G15
Manuscript received March 13, 2009; final version received May 14, 2009.
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