The System Worked: How the World Stopped Another Great Depression
Daniel W. Drezner
Oxford University Press, 2014
278 pp., 29.95
The System Worked
Amidst the orgy of dystopian alarmism that has swept global markets since 2008, Daniel Drezner has taken a piece of crucial advice from Douglas Adams' famous Hitchhiker's Guide to the Galaxy. He has written a persuasive, powerful argument about the political economy called The System Worked: How the World Stopped Another Great Depression—or, Don't Panic.
Drezner's argument is simple: despite the potpourri of public punditry on the calamitous state of our international financial institutions, these institutions did—by and large—weather a very nasty storm, a storm that did less damage than it would have without them, and these institutions are better for it. In other words, the system worked.
Notice Drezner is not saying "all is well." All is clearly not well in the global economy. But in systems and institutions, wellness is not measured by abstract perfectibility. Success in politics is measured by making things better than they were. "Looking for perfection in global governance," waxes Drezner, "is the enemy of finding the good in global governance." To say that international economic governance has been tested, tried, found wanting in so (so) many ways, is not the same as saying it failed. In the stress-test of the Great Recession, he argues, global economic governance "passed," even if it's still not the kind of report card you'd want to bring home.
You don't need me to tell you that this is not conventional wisdom. Citing myriad polling data, Drezner presents a convincing picture that Americans, in particular, are extremely cynical about international institutions. Everyone can shoulder some blame for this, in his view, including the usual media outlets like The Financial Times, for whom "trashing global economic governance seems to be a prerequisite" for employment. In the world of international affairs punditry, he writes, pessimism sells. Pessimism porn, Hugo Lindgren dubbed it, in New York magazine in 2009:
Like real porn, the economic variety gives you the illusion of control, and similarly it only leaves you hungry for more. But econo-porn also feeds a powerful sense of intellectual vanity. You walk the streets feeling superior to all these heedless knaves who have no clue what's coming down the pike. By making yourself miserable about the frightful hell that awaits us, you feel better. Pessimism can be bliss too (Lindgren, "Pessimism Porn" in New York, February 1, 2009).
American attitudes on global governance structures prior to the financial crisis were already trending down. These institutions were equally hated by the left and the right: the left because of the rapacious reputation international financiers had for exploiting the poor, the right for the prospect that multilateral organizations might somehow override questions of national jurisdiction. Put a Tea Party Republican and a social justice Democrat in a room together and the one thing they can probably agree on is that they hate the IMF.
Drezner reminds us that the world's highest growth economies during (and now after) the Great Recession are in the developing world; they're in Africa, in the Middle East, and in Southeast Asia. These economies recovered more quickly and posted higher growth rates; while the German economy poised on the brink of contraction, and the Greek economy collapsed completely, sub-Saharan Africa was posting average rates of return for the pre-recession world, phenomenal rates of growth for the post-2008 world. But to hear tell of the Great Recession is rarely to get the global story. Authors based in the United States and Europe were responsible for approximately 93 percent of scholarly articles on the Great Recession. The American recovery was weak, so it was presumed that global governance utterly failed. But the first thing can be true and the second false.
Let's talk development. In the Great Depression, global economic output shrunk by about 3 percent in 1930, and then contracted at annual rates of about 4 percent for the next two years. Contrast this, in 2009, to the IMF's World Economic Outlook, which charts global economic output about 0.59 percent lower, followed by 5.22 percent growth in 2010 and 3.95 percent in 2011. Not only is this growth on par with rates in the decade preceding the financial crisis, it is growth that is meaningfully reducing poverty, partly because (as we've already seen) the most ambitious growth rates are largely to be found in the developing world. Writes Drezner, "in the teeth of the Great Recession, the World Bank reported that the first Millennium Development goal of halving the 1990 levels of extreme poverty had been achieved ahead of schedule." The United Nations' own Development Program reported that despite the 2008 crisis, development since 2001 has far outstripped that of the 1990s, in part because developing economies had greater access to global markets. Is the world still wracked by fundamental and systemic economic injustices? It is, but those injustices are fewer today than they were in 2010, than they were in 2007. That is something.
What about those rapacious bankers the Occupiers had in their sights? Didn't they smooth-talk their way to outrageous settlements and more business as usual? Far be it from this Canadian to judge American justice, but on a global level, they didn't. In fact, international banking policy is one area where significant improvement followed the Great Recession. In case you ever need a cure for insomnia, the regulatory revisions made by the Basel Committee on Banking Supervision (BCBS) to Basel II, creating—wait for it—Basel III, show that the major international banks at the table went home disappointed. Powerful North Atlantic banking interests certainly saw minor success, for example on the liquidity coverage ratio (LCR), but by and large banks were forced into much stricter regulation that required more-liquid (thus, lower returning) assets in reserve. Without higher liquidity levels, banks were unable to function during credit crunches. This was a failure of Basel II, to be sure, but hardly a primary cause of the meltdown. It was also noted prior to 2008, and resolved through Basel III with relative speed.
And the cases go on. They prove only that while there is plenty of reason for criticism, even systemic overhaul, of global governance structures, ugly as it may have been, the system kind of worked: no great reversal of globalization like the Great Depression followed, and relatively aligned and even haltingly coherent national-financial policies emerged. That's how systems and institutions work: it's ugly, it's borderline broken, but it kind of worked, and it's better than it was. That's politics.
I count myself among Dan's skeptical readers. After 2008, I panicked. I joked sarcastically, but also with a little veiled seriousness, to students in political economy that it might be time to buy gold and stuff it under our mattresses. Like any serious work of political economy, then, The System Worked contains much which is convicting and confessional. It proves something which I, as a Calvinist, have long suspected: I am the problem.
"The last decade," writes John Ikenberry, "has brought remarkable upheavals in the global system—the emergence of new powers, a global recession, and bitter disputes among allies … . Despite these upheavals, liberal international order as an organizational logic of world politics has proven resilient. It is still in demand." "Still in demand" is the kind of Churchillian political rallying cry I can gather around. Turn off the pessimism porn, says Drezner; "a healthy dollop of optimism is in order."
Robert Joustra teaches politics and international studies at Redeemer University College, where he is Director of the Centre for Christian Scholarship. He is editor, with Jonathan Chaplin, of God and Global Order (Baylor Univ. Press, 2010); author, with Kevin den Dulk of Persecuted (Calvin College Press, 2015); and author, with Alissa Wilkinson, of The Politics of Apocalypse (Eerdmans, 2016). He tweets @rjoustra.
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