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About this book

This major re-assessment by a leading political economist shows that the 2008 financial crash was no ordinary crisis, but the harbinger of a much deeper convulsion comparable to the major past crises of capitalism. While it is still uncertain whether it will become a transformative crisis for the international order, what we do know already is that:

• While the crash particularly affected western states, and those unevenly, no part of the international economy is immune from its effects.
• While the immediate crisis was contained, its magnitude is shown by how long it has taken western economies to recover, and by the need for exceptional measures, such as near-zero interest rates over a prolonged period.
• There is not a single crisis, but a series of crises, highlighting in particular a deeper set of dilemmas about western leadership, democracy and prosperity which unless addressed, will preclude sustained recovery and pave the way to new and deeper crises.

Andrew Gamble maps out likely scenarios in a turbulent world in which the weakening of the old western international order as a result of the decline in the capacities and will of the United States combine with internal deadlocks in both the US and the Eurozone over the management of austerity and debt and in many of the rising powers, especially China, over the management of growth and rising expectations. The path to a new era of prosperity depends on a reformed international order, solutions to budget as well as fiscal deficits, and new forms of sustainable growth. But these demand a political will so far notable by its absence at all levels without which there is little prospect of escape from a future of crisis without end.

Table of Contents

Introduction: Living in a Neo-Liberal World

Abstract
On 15 September 2008, the fourth largest investment bank in the United States filed for bankruptcy protection. A small event in itself, it triggered a cataclysm. We are still living with the consequences. The US authorities who had been quick, earlier in the year, to ease the sale of another ailing investment bank, Bear Stearns, and had intervened swiftly as well over the summer to prop up the public sector mortgage lenders, Freddie Mac and Fanny Mae, decided to treat Lehman Brothers differently. They wanted to send a signal to the markets that banks, however large and prestigious, would no longer be bailed out. If they got themselves into an unsustainable position they would be allowed to go bankrupt.
Andrew Gamble

Chapter 1. The New Stagflation

Abstract
The crash of 2008 presents a paradox. If it was such a cataclysm, why five years later has so little apparently changed? The basic structures of the political economy are still in place. There have been some reforms, most notably in financial regulation, but banks are still paying bonuses, corporate power is unruffled, key international institutions are still unreformed, international negotiations on climate change and on trade are still deadlocked on the big issues, and the dominant ideologies of the last 30 years — the various strands of neo-liberalism — remain dominant and for the most part unchallenged. Despite the extraordinary state rescue of the financial system, states are still in retreat, shrinking their spending and their employment in accordance with the dictates of the new austerity. The G20 has emerged as an important international forum, eclipsing the G8, but most countries are still excluded from it. Parties belonging to the political mainstream and accepting the political orthodoxies of the last 30 years still rule in all the centres of western power. The neo-liberal order seems resilient and secure. In which case, should we speak of a crisis at all? Were the events of 2008 nothing more than a blip, similar to the stock exchange crash of 1987, a brief interruption in the otherwise smooth upward path of the neo-liberal era?
Andrew Gamble

Chapter 2. Understanding ‘Crisis’

Abstract
‘Crisis’ has become such a ubiquitous term in modern politics that it often seems to have lost any precise meaning. The media turn every event into a crisis, so much so that crises are now weekly or daily, even hourly, occurrences. In this usage, ‘crisis’ means little more than a critical situation, a sudden emergency, something which requires concentrated effort and quick decision, but which normally passes as quickly as it has arisen. Such a crisis is situational, precipitated when something happens which was not anticipated, but is judged to require an immediate response, which is consequently often hasty and improvised, sometimes in an atmosphere of panic, a resort to desperate measures to stop the boat capsizing. But in many situational crises of this kind the boat is not really in danger of capsizing, although it may feel like that to those caught up in the rush to deal with the emergency. Such crises are moments of difficulty rather than danger and arise from pressures and circumstances at a particular time and place and which are generally ephemeral and soon forgotten when the next ‘crisis’ strikes. They are not existential crises which threaten the survival of the individual, the organization or the regime.
Andrew Gamble

Chapter 3. The Crash and the Recovery

Abstract
In the five years since the crash, the international market order has proved resilient. This was the biggest convulsion since the 1930s but so far with less impact on economics, politics and ideology than the smaller convulsion in the 1970s. What looked like breaches in the walls have since been repaired, and now that the recovery is again under way, there is a new willingness to draw a line under the past and turn to the future. But the underlying reasons for the crisis have not gone away.
Andrew Gamble

Chapter 4. The Global Shift

Abstract
The international as well as the domestic resilience of the international market order was tested by the crisis. The financial crash took place in the heartlands of the western economy, the OECD states, and at first its direct impact on other parts of the international market order was limited. Many non-western economies continued to grow at very high rates, emphasizing that they were not dependent on western markets. But this was an illusion. They could afford to be indifferent at first to what was going on in New York and London, because they were insulated from the effects. The tide of protest which swept away so many incumbent governments between 2008 and 2013 was mainly felt in western democracies. Among the eight western powers in the G20 only Canada and Germany have had the same major party continuously in office since 2008. The reverse is true among the 11 non-western members of the G20. Only Mexico has had a change of government in this time.
Andrew Gamble

Chapter 5. The Governance Conundrum

Abstract
In the aftermath of the 2008 crash, the international market order has proved resilient, but it still faces serious challenges. The financial crisis was contained, but the deeper structural crisis of the neo-liberal order remains unresolved. This structural crisis is expressed through three conundrums which face contemporary government and which, if not addressed, threaten to unravel western prosperity. These are: the governance conundrum, how order can be achieved in an increasingly interconnected and multipolar world in the face of the global shift described in Chapter 4 (Desai 2013; Germain 2013); the growth conundrum, how sustainability can be achieved in the face of the new stagflation and environmental risks; and the fiscal conundrum, how legitimation can be achieved in the face of debt, austerity and falling living standards.
Andrew Gamble

Chapter 6. The Growth Conundrum

Abstract
In Capitalism, Socialism and Democracy first published in 1943, Joseph Schumpeter wrote: ‘Can Capitalism survive? No I do not think it can.’ Schumpeter was a political economist, influenced by the Austrian School and by Max Weber. He was briefly Austrian finance minister, and held chairs at Bonn and Harvard. He was a realist, a pessimist and conservative in his political sympathies. He cordially disliked the liberal pretensions of the British and criticized the shallowness of their economists from Smith to Keynes. His thought that the remedies which Keynes and his followers proposed for dealing with the Great Depression treated surface phenomena only and did not understand the deep forces which had shaped capitalist civilization. Few economists were more attached to capitalism than Schumpeter, but the entrepreneurial capitalism he so much admired had run its course. The great experiment of the previous 200 years was at an end. It had lifted the rate of growth of the world economy to an unprecedented level, making the growth cumulative and progressive, rather than cyclical, and ushering in the marvels and horrors of the modern age.
Andrew Gamble

Chapter 7. The Fiscal Conundrum

Abstract
The fiscal conundrum is the third of the great structural tensions in the neo-liberal order which threatens to unravel western prosperity. Like the governance conundrum and the growth conundrum, with both of which it is intimately linked, the fiscal conundrum is not new. It has occupied political leaders in every era of the modern liberal political economy and the international market orders associated with them. It takes a particular form in the neo-liberal era, but questions of tax and spending have always been central to how the market order makes itself legitimate. The modern state is a tax state because it is mainly dependent for its revenue and therefore for the resources at its disposal on the taxes it is able to levy and collect on private households and corporate households. The state and its spending are necessary partly to reproduce the social conditions for a liberal market economy and partly to make the institutions and outcomes of that economy legitimate for its citizens. The fiscal conundrum for the neo-liberal order since the crash has been how to achieve this legitimation in the face of threats to social cohesion, such as extreme inequality, falling living standards, cuts in public services and a flat economy. In coping with the after-effects of the crash, governments have become painfully aware of the gap between what they need to spend and what they can raise in taxes or borrow.
Andrew Gamble

Chapter 8. Paths to the Future

Abstract
Modern capitalism has passed through many crises in the last 200 years. Some of them seemed to mark the end of the world at the time, but in retrospect even the largest of them can be seen to be no more than temporary interruptions to the advance to ever higher peaks of output and prosperity. The powers of recuperation of capitalist economies have always been formidable, and these have not suddenly disappeared. As capitalism has evolved through crises and conflicts, so all social and political institutions have gradually been reshaped to create the best possible conditions for continued economic growth. It has become the default position of our politics, and alternatives are increasingly hard to imagine. Once several generations have lived within a society shaped by capitalism, going without the many advantages and benefits which a capitalist order provides becomes hard to imagine for most people, and even dire economic circumstances do not spark the kind of revolt and regime breakdown which were once predicted as necessary consequences of the way capitalism had developed.
Andrew Gamble
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