How will the global crisis that originated in Wall Street affect politics in the world? First, consider briefly why the economic crisis occurred; then, broadly, how the economic crisis most likely will be defused; and finally, how that could change the world's politics.
Some critics attribute globalized economy practiced by multinational corporations as the villain of the crisis. Others gloat that governments bailing out crippled financial institutions with public funds signifies a return to the Soviet system of state capitalism. Both views seem mistaken.
Multinational corporations did not introduce globalization. Technology did that. Business, quick to seize profit, took advantage. National capitalism, transformed to global capitalism, increased exponentially the scale of business operations. Beyond a point the change in quantity creates a change in quality. Capitalism as the world knew it was fundamentally altered. Big multinationals with budgets exceeding those of some governments started exerting a new and dangerous degree of influence on governments. Their power was reinforced by big media with a global reach acting as the voice of big business. Too few people accountable practically to nobody determined the destiny of too many. Unfortunately, while capitalism globalized at breakneck speed, labour remained apathetic. No significant globalization of the trade union movement has occurred up till now. Distortions were bound to grow. When power corrupts, greed erupts.
The immediate trigger for the crisis was housing loans that had great and growing demand in the US. The housing market heated up. More and more people started getting loans on the basis of surety derived from guarantor institutions in search of quick profit. In this heated rush for profit the creditworthiness of debtors was overlooked. When debtors started to default, even the big companies went broke. Defaulting debtors had created non performing assets for the lenders which were overstretched to play the market.
Some companies went bankrupt, others were taken over. Confidence broke down. Banks and companies started viewing each other's claims with suspicion. Normal financial intercourse between them got reduced to a trickle. The US and European governments have provided banks huge bailout funds of public money to keep them afloat till confidence is restored and the economy stabilizes. The government funding of banks ensures government regulating their operations. But this arrangement is deemed temporary. During the time when the economy normalizes, governments are expected to devise a new system to ensure more effective regulation of the companies and banks.
It is unlikely therefore that government's role in regulation will be permanent. As the collapse of the Soviet system revealed, political vested interests do not allow the financial system to work in health. The present crisis shows that in an unchecked market financial vested interests do not allow either the economic or the political system to work in health. Government regulation failed. Market regulation has failed. Clearly a new kind of regulation will have to be devised.
America's crisis arose from reckless expenditure in excess of its wealth. How did this happen? It arose from distortion in the American corporate mindset. The advent of this distortion has a background. Its seed was sown when American and Chinese economies started to interact. American capital overlooked US national interest to exploit cheap Chinese labour for bigger profit. Till 2001 China had not entered the World Trade Organization. From the late 1970s till that time no labour norms in China could be regulated internationally. It was in this period that virtual slave labour was utilized by American capital to flood the US with low tech goods exported from China. US vested business interests prevailed on the political establishment to permit a five to one trade deficit with China imperiling America's security. Most of the companies exporting to the US were owned by the People's Liberation Army. It was this scandalous handling of US policy that resulted in the US getting into heavy debt and with China holding US Treasury Securities worth over a trillion dollars. It was this three-decade long process that shifted the US corporate attention from the Atlantic to the Pacific. The current crisis may reverse the trend. American and Chinese economies are joined at the hip. America consumed recklessly on borrowed money mostly from China. China depends heavily for its growth on exports to America. To revive itself America in the long term will have to close the gap between consuming wealth and producing it. But if exports to America shrink, where will China turn for an equal alternate market? America has its traditional ally Europe to fall back on. European presence in America may increase. The Chinese presence may wane.
Most likely the systemic reforms being devised by governments will rely on old and trusted principles of democracy: to broaden the base of decision makers; and to introduce a new system of checks and balances dependent on non-government institutions to ensure better regulation and accountability. No system can preclude a crisis. However, reforms conceivably could reduce the likelihood of one occurring.
How might all this affect world politics? After the Soviet collapse the world moved from a bipolar world to a unipolar world. The current crisis indicates the emergence of a genuine multipolar world. Contrary to popular perception this may not signify decreased globalization. It may in fact lead the world closer to a world government of sorts that addresses the concerns of all its continents. This crisis may not even signify diminution of the US role. It may simply dramatically alter it. In the unipolar world the US increasingly resembled an empire. In the multipolar world the US might well transform itself from being a conventional nation to becoming the capital of a world order.
Until now America has interfered in the affairs of almost all nations. In the future more and more nations may start dabbling in American affairs. As an ethnic melting pot, as host to the United Nations, America already seems to be half way there. What is yet required is change in the American mindset. Regardless of who becomes the next US president, does not the fact of Senator Obama becoming the presidential candidate indicate that the mindset already has started to change?