Abstract
Reviewed by: Eric Helleiner (ehellein@uwaterloo.ca ), University of Waterloo, Ontario, Canada
In the past, international financial crises have often been catalysts for the unravelling of a dominant global political and economic order. Recall, for example, what quickly followed the momentous financial crisis of 1931. For the first half decade after the 2008 crisis, however, many scholars (including this reviewer) suggested that the legacies of this crisis were less transformative. In this excellent and extremely readable book, Adam Tooze highlights how different the situation looks at the 10-year anniversary.
A key change has involved the domestic politics of the country at the epicentre of the 2008 crisis: the United States. In the 2016 election, the “centrist liberalism” of the Obama administration was forcefully rejected not only by Trump supporters but also by many on the left (20). This American political upheaval, Tooze argues, was, in part, a reaction to the 2008 financial crisis and its management, which reinforced pre-crisis trends of growing inequality: “People on welfare scraped by while bankers carried on their well-upholstered lives” (15). Tooze suggests that the legitimacy of the political mainstream was particularly undermined by the enormous government support provided during the crisis to big banks: “After the events of 2008–2009 and the spectacularly lopsided bailouts, could anyone seriously doubt whom government was for?” (460).
Tooze argues that the transformative political legacies of the crisis have been even more significant in the European Union. Although Europeans initially saw the 2008 crisis as an American problem, they were soon forced to recognize how deeply implicated their over-leveraged financial institutions were in the financial mess. In Britain, the resulting bailouts, austerity, and growing inequality generated a political environment that contributed, Tooze argues, to the dramatic outcome of the 2016 Brexit referendum. In the eurozone, political disillusionment and polarization also resulted from policy choices that turned the initial financial turmoil into mismanaged sovereign debt crises, driving “tens of millions of its citizens into the depths of a 1930s-style depression” (15). In addition to generating unnecessary suffering, Tooze concludes, the European mismanagement of the crisis has shaken “Europe’s politics to its foundations” and undermined its role in the global economy: “Rather than an autonomous actor, Europe risks becoming the object of other people’s capitalist corporatism. … In the wake of the double crisis, Europe is out of the race” (317, 17).
A great virtue of Tooze’s analysis is that he also highlights the links between the crisis and changing geopolitics. He argues that the crisis accelerated a shift in balance of economic power to East Asia—particularly China, which responded to the crisis decisively in the economic realm as well as by assuming a higher international political profile. Tooze also devotes considerable attention to growing tensions between Western powers and Russia, with the latter increasingly seeking to promote a more multipolar order and carve out its own sphere of influence.
While these developments signalled the unravelling of the post-Cold War unipolar moment, Tooze highlights the enduring centrality of the United States in the area of financial crisis management at the international level. As he shows very effectively, the 2008 crisis provided a stark reminder that the United States was the only state capable of acting decisively to contain the meltdown because of its ability to produce unlimited quantities of the currency everyone needed: US dollars. Through the extension of enormous swap lines to leading foreign central banks, the US Federal Reserve “without public consultation of any kind, made itself into a lender of last resort for the world” (203).
Will the US authorities be willing to play the same role in a future global financial crisis? This question haunts the fourth and final section of the book. As Tooze notes, a key lesson of the 2008 experience is that crises are hard to predict, complex, and difficult to manage without political leadership and action. Tooze rightly highlights the fragility of the dollar-based global financial order in a context where US policymakers are less interested in global leadership and international cooperation, and where the geopolitical rivalries are coming to the fore. Tooze is also concerned about the growing integration of Chinese business and finance within that global financial order, a situation that may require the Fed and the Chinese central bank to cooperate much more closely in a future financial crisis. The politics of that cooperation, Tooze suggests, may be very different and less stable than that associated with the 2008 crisis: “Unlike South Korea, Japan or Europe, China is not a subordinate part of the American global network. When the United States extended swap lines in 2008, it was acting in a zone that is both a depoliticized realm of economic activity and yet framed by a deep power relationship” (611).
This short summary does not do justice to many of the fascinating details of Tooze’s well-researched analysis, an analysis that stretches over 600 pages of text. Even at that length, the book is not able to devote much attention to the legacies of the crisis beyond the countries and regions noted above (readers of International Journal looking for analysis of the Canadian experience will be disappointed). Although the writing is engaging, the length and detail of the book may also cause some readers to lose the thread of the overall argument in places. But for those seeking an introduction to the political economy of global finance over the past decade, I would recommend this book very highly. Specialists on the topic also have much to learn from it. It may still be too early to understand the full political significance of the global financial crisis of 2008, but Tooze has made an important contribution to the literature on this topic.