CRISIS CAN TRIGGER WORLD WAR
economic insecurity, inequalities and deprivation are expected to
strengthen ethno-populist and jingoistic nationalist sentiments, and
increase social tensions and turmoil, especially among the growing
precariat and others who feel vulnerable or threatened.
Jomo Kwame Sundaram and Vladimir Popov
Kuala Lumpur/Berlin -- Economic recovery efforts since
the 2008-2009 global financial crisis have mainly depended on unconventional
As fears rise of yet another international financial crisis,
there are growing concerns about the increased possibility of large-scale
More worryingly, in the current political landscape, prolonged
economic crisis, combined with rising economic inequality, chauvinistic
ethno-populism as well as aggressive jingoist rhetoric, including
threats, could easily spin out of control and "morph" into
military conflict, and worse, world war.
CRISIS RESPONSES LIMITED
The 2008-2009 global financial crisis almost "bankrupted"
governments and caused systemic collapse.
Policymakers managed to pull the world economy from the
brink, but soon switched from counter-cyclical fiscal efforts to unconventional
monetary measures, primarily "quantitative easing" and very
low, if not negative real interest rates.
But while these monetary interventions averted realization
of the worst fears at the time by turning the US economy around, they
did little to address underlying economic weaknesses, largely due
to the ascendance of finance in recent decades at the expense of the
Since then, despite promising to do so, policymakers have
not seriously pursued, let alone achieved, such needed reforms. Instead,
ostensible structural reformers have taken advantage of the crisis
to pursue largely irrelevant efforts to further "casualize"
This lack of structural reform has meant that the unprecedented
liquidity central banks injected into economies has not been well
allocated to stimulate resurgence of the real economy.
FROM BUST TO BUBBLE
Instead, easy credit raised asset prices to levels even
higher than those prevailing before 2008. US house prices are now
8% more than at the peak of the property bubble in 2006, while its
price-to-earnings ratio in late 2018 was even higher than in 2008
and in 1929, when the Wall Street Crash precipitated the Great Depression.
As monetary tightening checks asset price bubbles, another
economic crisis – possibly more severe than the last, as the economy
has become less responsive to such blunt monetary interventions –
is considered likely.
A decade of such unconventional monetary policies, with
very low interest rates, has greatly depleted their ability to revive
The implications beyond the economy of such developments
and policy responses are already being seen.
Prolonged economic distress has worsened public antipathy
towards the culturally alien – not only abroad, but also within. Thus,
another round of economic stress is deemed likely to foment unrest,
conflict, even war as it is blamed on the foreign.
International trade shrank by two-thirds within half a
decade after the US passed the Smoot-Hawley Tariff Act in 1930, at
the start of the Great Depression, ostensibly to protect American
workers and farmers from foreign competition!
Rising economic insecurity, inequalities and deprivation
are expected to strengthen ethno-populist and jingoistic nationalist
sentiments, and increase social tensions and turmoil, especially among
the growing precariat and others who feel vulnerable or threatened.
Thus, ethno-populist inspired chauvinistic nationalism
may exacerbate tensions, leading to conflicts and tensions among countries,
as in the 1930s. Opportunistic leaders have been blaming such misfortunes
on outsiders and may seek to reverse policies associated with the
perceived causes, such as "globalist" economic liberalization.
Policies which successfully check such problems may reduce
social tensions, as well as the likelihood of social turmoil and conflict,
including among countries.
However, these may also inadvertently exacerbate problems.
The recent spread of anti-globalization sentiment appears correlated
to slow, if not negative per capita income growth and increased economic
To be sure, globalization and liberalization are statistically
associated with growing economic inequality and rising ethno-populism.
Declining real incomes and growing economic insecurity
have apparently strengthened ethno-populism and nationalistic chauvinism,
threatening economic liberalization itself, both within and among
INSECURITY, POPULISM, CONFLICT
Thomas Piketty has argued that a sudden increase in income
inequality is often followed by a great crisis.
Although causality is difficult to prove, with wealth
and income inequality now at historical highs, this should give cause
for concern. Of course, other factors also contribute to or exacerbate
civil and international tensions, with some due to policies intended
for other purposes.
Nevertheless, even if unintended, such developments could
inadvertently catalyse future crises and conflicts.
Publics often have good reason to be restless, if not
angry, but the emotional appeals of ethno-populism and jingoistic
nationalism are leading to chauvinistic policy measures which only
make things worse. At the international level, despite the world's
unprecedented and still growing interconnectedness, multilateralism
is increasingly being eschewed as the US increasingly resorts to unilateral,
sovereigntist policies without bothering to even build coalitions
with its usual allies.
AVOIDING THUCYDIDES' ICEBERG
Thus, protracted economic distress, economic conflicts
or another financial crisis could lead to military confrontation by
the protagonists, even if unintended.
Less than a decade after the Great Depression started,
the Second World War had begun as the Axis powers challenged the earlier
entrenched colonial powers.
They patently ignored Thucydides' warning, in chronicling
the Peloponnesian wars over two millennia before, when the rise of
Athens threatened the established dominance of Sparta!
Anticipating and addressing such possibilities may well
serve to help avoid otherwise imminent disasters by undertaking pre-emptive
collective action, as difficult as that may be.
The international community has no excuse for being like
the owners and captain of the Titanic, conceitedly convinced that
no iceberg could possibly sink the great ship. – Third World Network
About the authors: Jomo Kwame Sundaram, a former economics professor,
was United Nations Assistant Secretary-General for Economic Development,
and received the Wassily Leontief Prize for Advancing the Frontiers
of Economic Thought in 2007. Vladimir Popov, a former senior economics
researcher in the Soviet Union, Russia and the United Nations Secretariat,
is now Research Director at the Dialogue of Civilizations Research
Institute in Berlin.
above article is reproduced from Inter Press Service, 12 February
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