“The world economy is more dangerous and less stable now than in 2008”

Nearly ten years on from the global financial crisis of 2008, Colin Hay, researcher at Sciences Po’s Centre for European Studies and Comparative Politics, and Tom Hunt (University of Sheffield) have edited a little book which provides a timely warning as to the dangers still present and building in the global economic system. In The Coming Crisis (Palgrave, 2017) they draw on research on the political economy of growth, stagnation, austerity and crisis, placing each in the context of the wider environmental crisis. Interview with Professor Hay.

Why this book? Haven’t elements been put in place to prevent a crisis similar to that of 2008?

One might hope so; but things are not quite so simple. When one analyzes the global economy in any detail, it is clear that very significant risks still exist. That is the simple conclusion of the fourteen leading political economists who have contributed to this work. Each chapter dissects the global political economy in a different way, uncovering and exposing the current sources of disequilibrium and instability.

Each contributor offers a distinct perspective on the symptoms of the present moment, reflecting and speculating on the extent to which the world economy has become more dangerous, and less stable, since 2008.

The book explores multiple dimensions of the coming crisis through issues such as the contagion effects of financial markets, secular stagnation, widening global inequality, the European migrant crisis, the Eurozone, China’s development and the ecological crisis. 

Isn’t it rather pessimistic to presume that we are the verge of another crisis?

Yes and no. To prepare ourselves for the possibility of a coming crisis certainly sounds pessimistic. But it can also be thought of as the very condition of any realistic optimism. It is better to be optimistic having considered the potential reasons for pessimism than to allow one’s optimism to prevent one from acknowledging the very possibility that there might be things to worry about in the first place. Put slightly differently, optimism sounds good, but optimism today is typically accompanied by a certain complacent naivety. Our aim in this book is, in effect, to stress test the characteristic optimism of mainstream economic approaches.  

What should we be worrying about?

It is at least credible to think that the world we live in today is a more dangerous place and is less stable systemically than it was in 2008. In the economies from which the contagion effects of the last crisis radiated outwards, there has been little if any ‘rebalancing’ of the domestic economy. Such economies remain stubbornly dependent on credit and an overgrown financial sector, with growth once again associated with alarming asset-price inflation.  

And on a global stage there is little to lift the gloom. The period since 2008 is likely to be remembered as one in which the opportunity for global financial market re-regulation and genuine governance was missed. Our banks remain too big or too interconnected or too correlated in their behaviour to be allowed to fail and yet too big, too interconnected or too correlated to bail. What that means is that a second crisis has certainly not become less likely. And what we also know is that the capacity to deal with such a crisis has been significantly eroded by the nature of the public response to the first crisis – to the point where it is no longer clear what the response to a second crisis might now be.

Are there new phenomena that add to the previous risks and our failure to address them?

Absolutely, especially in Europe. First there is ‘Brexit’ – a genuine threat not just for the British economy. If Ricardo taught us anything it is that a worsening of the terms of trade between partners hurts all parties. ‘Brexit’, in other words, may be self-inflicted but it is not a victimless crime. And ‘Brexit’ feels to us to be part of a wider dynamic – a tipping-point, perhaps, in which European integration starts to give way to a no less protracted but rather different process of European disintegration.  

What is also clear – indeed, rather more clear (for very little about ‘Brexit’ is clear at this point) – is that austerity is ravaging Southern Europe and, in combination with the migration crisis, is contributing to the resurgence of a political right likely to accelerate the pace of European disintegration, not just economically but also socially.

Why are phenomena such as migration in Europe or the ecological crisis creating economic risks?

Both pose not just economic risks, but risks of a more general kind – indeed, both might be thought of as profound humanitarian crises. These dwarf in a way their economic effects. But the economic risks of each are also considerable and should not be understated. Take the implications of the migrant crisis for Greece, for instance. Here, in a country already mired in economic crisis, suffering profoundly with the austerity imposed upon it, the migrant crisis has produced a flourishing of the informal, illegal and illicit economy, with major consequences both for the capacity of Greek institutions and the Greek economy to rebuild and for the deepening of social inequality. If anything the potential effects of the environmental crisis are more profound still – in that they are genuinely global and genuinely system threatening. The escalating costs of adaptation to, and compensation for, accelerating global environmental change alone threaten to push public spending and, above all, public indebtedness beyond what have already proved historically unprecedented and unsustainable levels. It is in this way that these crises are mutually reinforcing – ‘a perfect storm’, as we suggest.

And how might we guard against these risks?

The book makes the case for a form of prospective precautionary thinking to anticipate and protect ourselves against a coming crisis. What is required is a change in mind-set and disposition. Instead of reassuring ourselves that we have entered a post-crisis period and are now on the road to recovery, we suggest that we should instead be looking out for the frailties and contradictions that remain within the system. We need to identify these and to start to build potential scenarios around them. The book starts to develop some of these, but its contribution is less to provide a definitive resolution of these issues than it is to re-focus thinking on the difficulty and necessity of the task that still remains. That might not sound very optimistic – and in a sense it is not. But it is, we feel, a necessary step in developing the kind of precautionary thinking that can best protect us from the risks present in the economic system. It is, in that way, a first step on the path from blithe and blinkered optimism to a more tempered realism.

Colin Hay, Tom Hunt (Eds.), The Coming Crisis, Palgrave, 2017

Read more

Colin Hay is Professor of Political Science at Sciences Po’s Centre for European Studies and Comparative Politics

Subscribe to Cogito, the Sciences Po research newsletter

Lifting the barriers to female entrepreneurship

Lifting the barriers to female entrepreneurship

Whether setting up a new business, negotiating a pay rise or taking on more responsibility in the workplace, women can be supported in reaching leadership positions. As of 2018, Sciences Po's Women in Business Chair aims to improve understanding of the obstacles women face and spearhead action to remove them. Interview with Anne Boring, researcher in charge of the Chair. Anne’s work focuses on the analysis of gender inequalities in the professional world.

More
Mary Robinson’s 3 Steps to Tackle Climate Change

Mary Robinson’s 3 Steps to Tackle Climate Change

Mary Robinson, now President of the Elders and climate justice activist, was the seventh President of Ireland, and the first woman ever to hold this office. She also served as United Nations High Commissioner for Human Rights from 1997 to 2002 and as Chancellor of the Trinity College Dublin for twenty years. In June 2019, she was the guest of honour at the Paris School of International Affairs’ graduation ceremony. In her talk, she gives graduates 3 key steps to do their part in the fight against climate change. Watch the video to find out what they are.

More
U7+ Alliance: A University Alliance To Weigh in on the G7 Agenda

U7+ Alliance: A University Alliance To Weigh in on the G7 Agenda

Under the high patronage of the President of France, Emmanuel Macron, the first annual U7+ Alliance Summit took place at Sciences Po on July 9 & 10, 2019, with 47 university leaders from 18 countries. The purpose of the summit was to formalise and vote on a series of founding principles for the U7+ Alliance, and for universities to commit to associated concrete actions to tackle global issues, within their own communities, in the context of the upcoming G7 Summit in Biarritz in August 2019.

More
Blended Learning: Focus of the 2019 International Teaching and Learning Workshop

Blended Learning: Focus of the 2019 International Teaching and Learning Workshop

This June 2019, Sciences Po hosted the second annual Teaching and Learning Workshop with our global university partners to discuss, debate and share research and methods on the latest innovations in education. This year, the focus was "Blended Learning and Educational Impact," with participants from Harvard University, the National University of Singapore, the Ecole Polytechnique de Lausanne, LSE, King's College London, the African Leadership University, and more.

More
Highlights of the 2019 Graduation Ceremonies

Highlights of the 2019 Graduation Ceremonies

Over 7,300 people attended the four graduation ceremonies of the Class of 2019 on June 28 & 29, 2019. Graduates walked under the proud gaze of their parents, friends, teachers, companions, and sometimes children to receive their diploma. Relive these unforgettable moments in video.

More
2019 Graduation: Who Are Our Graduates?

2019 Graduation: Who Are Our Graduates?

Bright and engaged citizens. Promising futures. Inspiring guests and motivational speeches. Parents brimming with pride. On Friday, 28th of June and Saturday, 29th of June 2019, the Sciences Po graduation ceremonies brought together over 2,500 graduates and their guests at the Philarmonie in Paris. So who are the graduates of the Class of 2019? More

Green China: A Quixotic Vision

Green China: A Quixotic Vision

Despite an overarching negativity where China and the environment are concerned, it is set to become the leading power in the green economy. However, it is the political elective which must make the policies to make China’s future green. As a one-party-state there is very little green opposition should environmental reforms not be put into practice.

More
An Early Alumnus from Across the Channel

An Early Alumnus from Across the Channel

Since its opening in 1872, Sciences Po has welcomed thousands of British students from neighbouring universities across the Channel. Among the very first Brits to enrol at the university was Sir Austen Chamberlain, an ambitious Cambridge graduate with a brilliant future in European diplomacy. Best known for his role negotiating the Locarno Treaties, for which he was jointly awarded the Nobel Peace Prize, Chamberlain held the position of Foreign Secretary in the inter-war years from 1924 – 1929. What did he take away from his time as the only British student in Sciences Po’s Class of 1886, and how was that to shape his policy during such a pivotal period in Europe’s history?

More