Losing Control: The Transatlantic Partnership, the Developing Nations, and the Next Phase of Globalization
The financial economic crisis of late 2008 was a seminal moment for the post-war global economy. The financial tsunami that swept over Wall Street in September 2008 not only laid waste to venerable institutions like Lehman Brothers and battered the reputations of Goldman Sachs and other financial stalwarts. The “Made in America” crisis also undermined the capacity and credibility of the world’s global economic architects — the United States and Europe, or the transatlantic partnership. After years of living beyond their means and after amassing mountains of debt, the music finally stopped for an economic alliance that had long set the tune for the global economy and grown accustomed to standing at the pinnacle of the global economic order.
The epic U.S. housing boom and bust culminated in one of the worse financial crisis in U.S. history. In the ensuing months following the stunning collapse of Lehman Brothers, global growth declined, world trade and investment plunged, and the rate of global unemployment soared. It was a humbling and humiliating moment for the United States — the long-time champion of globalization. In the quarter century leading up to the financial crisis, most of the world had little qualms with a global economy largely groomed and managed by the West, principally the United States. Or little resistance to the central tenets of globalization — namely industry deregulation, unfettered global capital flows, trade and investment liberalization, and the primacy of the private sector. This acceptance was underwritten by superior results. From the early 1980s forward, the global economy experienced a blessed period of muted inflation, low unemployment, and infrequent and shallow recessions. Global trade and investment rose sharply over this period. The integration of China, India, and Russia into a world economic order structured and headed by the United States helped lift millions out of poverty. There were periodic financial crises during this time frame but never at the core of the global economy — or the United States.
Those days are past, however. The financial crisis not only decimated the portfolios of investors all over the world. The “Made in the U.S.” financial debacle also demolished the ability and authority of the United States and Europe to lead the global economy. The world no longer beats to the tune of the United States. The transatlantic-centric global economy of the past three decades is being reshaped. New economic powers are on the ascent — lead by nations like China, India, Brazil, and Turkey, for instance — with these emerging players less inclined to strictly follow the global rules laid out by the United States and the West. The developing nations, or “the Rest,” have their own ideas about how the global economy should be managed, and are in very strong position vis-a-vis the West to have more sway when it comes to issues of global governance.
As discussed below, the financial crisis accelerated a number of key long-range trends that were already in motion before the crisis struck. The relative economic decline of the developed nations and the rising influence of the emerging markets in general and China in particular were fast-forwarded by the crisis and have, in turn, accelerated the move toward a less U.S.-centric, more multi-polar world. While the global economy has recovered from the crisis, we are not going back to “business as usual.”
The new world before us will be more complex, fluid, and disruptive — notably for the architects of the post-war economic system. The United States and Europe have lost control of the global economic agenda and, critically, no longer control the key inputs of economic growth — labor, capital, and natural resources. These inputs are increasingly concentrated in the developing nations, who have emerged from the crisis more confident and emboldened. The future of globalization will be less U.S.-centric and more encompassing of Chinese, Turkish, Brazilian, and other characteristics of the developing nations. This phase of globalization heralds both promise and peril for the transatlantic partnership.