By Fareed Zakaria
We are now almost a year and a half into the pandemic. Enough time has passed to begin to look back and learn lessons, especially comparing it to the last great shake up in the international system – the global financial crisis. Did we learn from 2008?
At first glance, the comparison would seem to favor the present. About 18 months after the start of the 2008 crisis, U.S. unemployment was at its highest level in decades, the stock market was recovering from one of its worst slumps in history, and home foreclosures hit their worst level ever. checked in.
In contrast, with half of the population vaccinated today, the US economy is booming. Growth rates rival the Reagan boom. The stock market is reaching new highs. Even wages are showing signs of increasing. While the United States is doing better than most, the other major industrial countries are also on the road to recovery. The main reason is that everyone has learned the lesson of 2008: During systemic collapses, governments have to go big and fast, spend money and provide liquidity.
This is where the good news ends. In 2008, policymakers quickly recognized the need for fundamental change. The financial system was risky, poorly regulated and unstable. In 2010, Congress enacted sweeping reforms for banks – higher capital requirements, lower leverage, less speculation, stress tests – that banks lobbied against. But the banks were wrong. During this pandemic, the financial system performed well – a testament to these reforms. Despite the virtual shutdown of the global economy in 2020, banks have weathered the storm almost everywhere. This is because central banks supported them, but also because they were well capitalized and more tightly regulated.
However, in the current crisis, despite our many failures in the fight against the disease, there is very little talk of reforms. At the onset of the pandemic, we saw governments in many countries fail in basic public health functions such as testing, tracing, quarantine, and clear public communication. Some have learned and recovered, but many have simply been saved by the early arrival of vaccines. Almost none have started to wonder how to genuinely reorganize their healthcare bureaucracies, learn from countries that have done it right, and put in place new policies, procedures and frameworks to ensure better performance next time. pandemic – which will surely come.
The divergence between the last crisis and this one was most marked at the global level. As Daniel Drezner, professor of international politics at Tufts University, wrote in his book “The System Worked”, people viewed global governance as Woody Allen joked about the food in the Catskills complexes: so bad and yet, so small portions! In fact, as Drezner documents, global governance worked surprisingly well during the financial crisis. Countries cooperated, central banks worked together, and a downward spiral was avoided. Washington has played the central role, pushing countries to align, but also acting in a way that helps others. Economic historian Adam Tooze points out that about half of all liquidity provided by the Federal Reserve has been used by European banks.
It was not done out of blind generosity. “We recognized that it was in our enlightened self-interest to save the international dollar-based financial system, and that required helping others, not just ourselves,” the former secretary of the board told me recently. Treasure Timothy Geithner. He acknowledged that much of the global cooperation happened because many key players around the world were “gut-stinging multilateralists.” He said: “We all knew we wanted to prevent the nationalism and protectionism that caused so much damage in the 1930s.”
Sadly, while the response to the 2008 crisis was economically successful, it failed politically, triggering the wave of populism and anti-elitism that has crippled the response to the current crisis. Men like Donald Trump, Hungarian Viktor Orban and Brazilian Jair Bolsonaro have responded to the pandemic by curling up, consolidating their power and blaming foreigners. Liberal-minded politicians have adopted protectionist measures and even blocked the export of vaccines. In China, the epicenter of the pandemic, President Xi Jinping was less open, cooperative and multilateral than his predecessor during the last global crisis.
President Biden has made a start, but Washington must lead the world in a fundamentally different direction. Unless we make an effort to vaccinate the entire planet, this pandemic will persist and transform and possibly even spread. The only way to restore and sustain global growth is to help developing countries which are struggling with a huge debt burden. And the best way to prepare for future crises, whether they involve pandemics, extreme weather or cybercrime, is collectively. This is not dewy-eyed idealism. The system worked ten years ago; it still can.