The Planet in the 21st Century: We’ll have to Negotiate

On September 24th a roundtable discussion on ‘Geopolitical Consequences of the Financial Crisis. A New World Financial Order?’ took place at the HSE. It was organized by the ‘Liberalnaya Missiya'(‘Liberal Mission') Foundation and during the event Deepak Lal, Yegor Gaidar, Vladimir Mau and Evgeniy Yasin discussed what’s going on in the world.

A presentation by Deepak Lal, professor of the University of California, Los Angeles, was dedicated to the problems that humanity is facing because of the global financial crisis. The last two centuries have been a time of domination of two imperialist systems, English and American, who have created the global liberal order, which, as a result of Great Britain's and the USA's mistakes, has led to such rivals as fascism and communism. According to Prof. Lal, today this global liberal order is in serious danger. The United Stated of America has maintained this order for a long time but might be unable to perform this function any longer.

Prof. Lal defines capitalism as a ‘process of creative destruction', which is not supposed to develop smoothly. Indeed, such an understanding of capitalism assumes that development is something that has cyclical booms and crashes. But what are the reasons for these booms and crashes? According to Lal, the main reason for today's financial crisis is an attempt by governments to influence the free market.

Deepak Lal

Professor Lal has compared the modern crisis with the economic crisis of the 1870s, the Great Depression, and the crisis of the 1980s. In 1916, Keynes wrote that the financial hegemony had moved from London to New York. Today's crisis, in Lal's opinion, may end with the latter's move from New York to somewhere else. But where can it move to? It cannot move to Tokyo because of the continuing recession. The same can be said about Europe, because ‘Europeans lack political will'. The financial-political hegemony cannot move to China, since the American and Chinese economies have symbiotic relations. India is also not a candidate, since, according to Lal, no one can even imagine a situation when India sends peacekeeping forces to Afghanistan. Russia, as an old imperial state, could, according to the Professor, replace the U.S. But it would be very difficult for many reasons. The main reason is its dependence on oil, which allows comparison of the economic situation in Russia with situations in Africa and Latin America. Such an economy is very vulnerable. Furthermore, the demographic situation in Russia is very hard. The main natural resources are located in Siberia, which is an object of China's strategic interest. In Professor Lal's opinion, if Russia's economic model does not change, in the near future very few Russians will remain in Siberia. In such a situation, according to the American economist, Russia can only be saved by a transformation into a ‘normal European country, developing a science-intensive economy with the use of skilled labour'.

Therefore, in Lal's view, today the U.S. does not have a successor who could take over its role. So, Rome may fall. The Professor compared the current situation with the fall of the Roman Empire. In his opinion, the decline of the Roman Empire was mainly due to economic reasons. Rome's revenues, which allowed it to maintain a high standard of living, were ensured by constant military expansion, the cessation of which led to a financial crisis and toughening of taxation pressures. As a result, the currency collapsed. Due to this, it was no longer possible to maintain the former level of army financing. Just the same, professor said, is now going on in the U.S. Obama promises to cut military spending in Afghanistan and increase spending on healthcare. The increase in healthcare spending was, Lal believes, one of the causes of the crisis, and only tax cuts can help end to the crisis. Tax increases, on the contrary, will lead to the end of U.S. hegemony, which, in turn, will cause global conflicts all over the world.

Accordig to Yegor Gaidar, Director of the Institute of Economy in Transition, who spoke after his Californian colleague, the current crisis has been the most severe of the last 80 years. And the world we are now living in has emerged only 25 years ago. It is still not studied and unknown to its inhabitants. Nevertheless, Gaidar has suggested some ways of overcoming the current crisis and preventing the next one. In the first place, it is necessary to strengthen the world financial structure, for example, the IMF. And the developing countries should not see such institutions as instruments of U.S. and European domination, but as global and regulatory.

Vladimir Mau, Rector of the Academy of National Economy under the Government of the Russian Federation, draw the audience's attention to the fact that it is impossible to solve economic problems with the use of outdated concepts. According to him, governments have used the same strategy throughout every world crisis of the 20th century. During the first years of a crisis, the government attempts to use old, i.e. ineffective, methods. So, if we compare the current crisis with a previous one, we are now living in Hoover's era - trying to maintain the gold standard. But a new model of global regulation is needed, which is outside the squabbles of monetarists with Keynesian economists. This model is supposed to solve the conflict of productivity and capitalization and to build up a new format of relations between owners and managers. Another problem to be comprehended is the problem of big structures in the economy. It was only a short time ago when it was widely believed that the big structures had had their day, but today, according to Mau, the saying ‘too big to fail'is a reality. Furthermore in his opinion, the discussion about a new international reserve currency deserves closer attention.

Evgeny Yasin

, HSE Academic Supervisor, recalled the three scenarios of human development, which he had proposed some time ago:‘decline of the Roman Empire', ‘Pax Americana'and ‘the Holy Alliance'. The first scenario was described by Deepak Lal;the second one has totally failed, which, according to Yasin, has become obvious after the invasion of Iraq;and the third scenario may use the European experience of the early 19th century. ‘In the 21st century humanity will be developing on a planet which will eventually become smaller and smaller. We'll have to negotiate'- he said. The Unites States and Europe, however hard it may be, will have to reduce their standard of living, and developing countries will have to ‘overcome the culture barrier'.

 

Sergey Stepanischev, HSE News Service

Photos by Viktoria Silayeva