Wednesday, 13 July 2011

The social implications of economic crisis

Where economic crisis prevails, social upheaval is soon to follow.  The Arab Spring may offer a glimpse of what is to come in Europe.
Whatever you may wish to call it (The credit crunch, Great Recession, World Financial Crisis etc) , the financial crisis at the end of the last decade has been roundly described as the worst since the Great Depression of the 1930s.  It’s a sobering comparison in a social, as well as economic sense; the rise of fascism tore Europe apart in hitherto unimagined ways.
The lessons of protectionism that exacerbated the Great Depression have already heeded; the dangers of unfettered capitalism less so.  But the Depression sits within the larger chapter of modern history that is the inter-war period; glibly put the First World War begat the Great Depression which in turn begat the Second World War.    
All of these events are interrelated and are difficult to separate from one another.  The devastation of WWI destroyed economies and toppled governments and Empires across Europe.  The economies of Europe attempted to return to their state of affairs in 1914 but this simply wasn’t possible, eventually the world economy collapsed.  Out of this emerged political and social revolutions as fascism swept across Europe.
The policy response of world leaders in 1942-7 reveals much about the lessons learned from the Great Depression just over a decade earlier.  Following another catastrophic World War, world leaders sought to head off the threat of social revolution that was fermenting in the economic ruins of post-war Europe, much as it had done throughout the 1920s and 1930s.  This resulted in the Post-War consensus; capitalist economies regulated by the state, nationalised industry, full-employment and a robust welfare state. 
Both social democrats on the left and economic liberals on the right agreed; the world economy would have to be fair and benefit those people who participated in it if destructive revolutions were to be avoided.  The lessons of the Great Depression taught them that an unemployed and impoverished population would not tolerate a socio-economic system that had left with them with nothing, but others with everything.  This threat of revolution focussed their action and clearly illustrated that there could be no return to business as usual.
A return to ‘business as usual’ has been the sole aim of policy responses to the financial crisis thus far.  Yet as the crisis looks set to take a turn for the worse and sovereign debt threatens to destroy the Eurozone, this approach is no longer tenable.  Should the worst occur the repercussions are difficult to predict, but they would certainly result in an unprecedented global financial crisis greater than that already experienced.  Even a mild crisis would have serious repercussions for the societies in the Eurozone periphery.
In the last year the crisis has developed a social dimension.  Although there is no Soviet Union alternative model for radicals to rally around, there is widespread disenchantment at the status quo.  Italy, Spain and Greece have all witnessed calls for changes to the economy and society.  These will only increase should this crisis engulf the whole of Europe yet further.
The Arab Spring has demonstrated what can happen when economic collapse forces a population to question the assumptions under which they have been living.  Dictators were tolerated when the economy flourished and employment was high; only once the dream was over did people realise the trade-off (economic success at the expense of democracy) was a false economy.  The elites were rich and in power, the general population had no power, no jobs and no security.
The volte-face of both Arab and Western governments from opposing the uprisings to at the very least accepting their legitimacy, demonstrates the survival instincts of governments and their elites.  Hosni Al Mubarak hoped to placate his population with reform, but that was not enough.  Once it became untenable to support Mubarak’s despotic regime, the US quickly moved to oppose it.
Europe is not in the same situation as the Maghreb region by some distance, let alone the post-war Europe of 1945.  But social unrest and a will for change are likely to grow if the economy collapses once more.  The people of Greece, Spain and Italy are already questioning the assumptions upon which their societies are constructed.  Unfettered financial capitalism, does not after all, trickle down its benefits to the wider population but instead trickles its problems down to the bottom in the form of taxpayer bailouts and austerity measures. 
This actually presents an opportunity for serious and meaningful reform, which has yet to take place in the aftermath of the crisis.  European leaders will do everything possible to stave off a social crisis, including closing the barn door after the horse has bolted and implementing serious regulation.  Unfortunately the opportunity to seriously reform our economies and the financial sector will only be achieved if and when we reach the bleakest possible point.
The lesson is that governments and elites are, and always have been, prepared to act decisively when under threat.  It’s unlikely that major financial institutions will ever call for strenuous regulation, but they may accept it if the alternative is a call for mass nationalisation by populations on the streets with nothing to lose.  It will be a case of seeing who blinks first. 
But it is also important to note that social revolution can take place without mobs taking to the streets. Social media and the internet, with their ability to circumvent traditional hierarchies have undoubtedly played a crucial role in changing our major institutions.  Five years ago financial institutions were unquestioned sources of our economic growth, MPs claimed ludicrous expenses as if it were a right, a vote on AV was a mere fantasy of electoral reformers, News International was an unstoppable media juggernaut, North Africa was dominated by decades old dictators and Wikileaks was completely unknown.
Social upheaval and or revolution is not just the preserve of the Left, many right wing governments have come to power to enact austerity measures across the globe.  The de facto privatisation of the NHS seemed unthinkable even a year ago, the threat has yet to recede.  Whether prompted by Left or Right, the major institutions of the UK (welfare state, Parliament, press) have all been subject to serious challenge since 2008.
For now we must wait and see if Eurozone leaders can finally muster the will to take decisive action and prevent a second financial crisis in less than five years.  Depending on the solution adopted, the crisis may not be averted and we may see many more citizens taking to their streets to demand reform, fairness and justice.  The deeper the crisis, the louder the cries; only time will tell if the crisis sinks deep enough for our governments to listen.

No comments:

Post a Comment