‘History suggests “boom and bust” won’t go away’
David Hall-Matthews |
On the Today programme on Thursday 8 April, Gordon Brown was challenged by John Humphreys over his oft-repeated claim as Chancellor of the Exchequer that he had "put an end to boom and bust" in the UK economy. From a man once hailed as a brilliant economist, this was always an astonishingly naive, ahistorical assertion. I was not alone in predicting that a global recession would return eventually, as sure as night follows day, and that, when it did, the UK would be worse affected than the rest of the G8, because its high ratio of imports and exports to GDP meant that it was tied closely to the global economy and therefore exposed to global risk (along with smaller economies like Holland and Iceland).
Brown can legitimately argue not only that the global recession started outside the UK, but also that its longer and deeper impact here than elsewhere reflected structural factors in the economy that were not entirely of his making - and can be seen as long-term strengths.
However he undermines this case by affecting shock that external forces should have ruined his careful economic planning. Brown argues that his "end to boom and bust" claim reflected the government's successful control of domestic inflation. That implies that he took no account whatsoever of the possibility of a historically predictable global crisis. On Thursday, he confirmed this by contending that the origins of the downturn were unique - and thus, by implication, unforeseeable. He told Humphreys: "the problem we faced was that we had a global financial system that was growing, it's the first globalisation crisis, it's the first crisis of international banking. The international banks let us down".
Globalisation is a convenient scapegoat. Not only is it often taken to imply - quite wrongly - that even advanced economies can no longer be managed by their national governments, it is a slippery term to define. What you mean by globalisation also determines when it can be seen to have started. Some historians date it as far back as the 15th century European conquests or beyond. For many, though, globalisation is a modern economic phenomenon associated with the neoliberal promotion of a global economy via free trade, allied to technology that accelerates and cheapens transactions. If that is accepted, economic historians would immediately point to its origins in the mid-nineteenth century "era of free trade", a combination of tariff reductions, most favoured nation treaties, colonialism and improved shipping, lasting from around 1850 to 1873.
Why such a precise end? Because it was 1873 that saw the first globalisation crisis. What's more, it was an international banking crisis. The depreciation of silver in relation to gold threw national currencies out of kilter, with devastating effects for silver-based economies like India, "bimetallic" ones such as Germany and thus for international trade. The consequence was global recession and retrenchment. The same could self-evidently be said of the Wall Street Crash of 1929 - the mother of all globalisation / international banking crises. Even the oil crisis of the 1970s was identifiably a globalisation crisis, if not necessarily a banking one (though banks' debt-pushing of petrodollars - a remarkably similar strategy to their recent pushing of sub-prime mortgages - played a significant part in extending its impact).
International banking crises may not be common, but they are not new and the current one was not unforeseen. There is relatively little that national politicians can do to stop them (though improved regulation would be a start). But history shows that booms and busts will always occur - and it is a key part of the Chancellor's job to anticipate them. Far from preparing for the worst - as was done in other globally exposed economies such as Holland and Canada - Brown's daft downplaying of future dangers actively encouraged over-confidence and risk-taking within British banks, which greatly exacerbated the domestic impact.Please note: Views expressed are those of the author.
- Hall-Matthews, David
- Economy and taxation
- History in practice
- Political institutions and ideas
'Globalisation and the role of the British state' in Reinventing the State: Social Liberalism for the 21st Century (Politicos, 2007), edited by Duncan Brack, Dr Richard S. Grayson, and David Howarth MP.
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