Throughout its history, capitalism has shown an outstanding ability to evolve and adapt to changing political and technological environments. Confirmation of this can be found, specifically, in the numerous variations in the relationship between government and the market that we can see in the world’s most dynamic economies today. What we are currently experiencing is the (serious but possibly not terminal) crisis of a given type of capitalism, which could accelerate the relative decline of the Western countries by comparison with other emerging powers. Yet we should not forget that there is a very high degree of interdependence in today’s world, due in particular to technological considerations, thus the global trade system is extremely sensitive to local crises, which results in volatility and in rapid contagion.
In this connection, there are certain important aspects which are specific to the various economic areas in the wake of the crisis that began in 2008. Europe is paying the price for failing to resolve a series of issues related to its institutional setup, particularly in the euro zone. The crucial problem seems to be the insufficient application of the ground rules agreed on rather than those rules’ inadequacy – although there are still measures that need to be adopted with a certain urgency, particularly with regard to the European Central Bank’s mandate and to the banking industry. Thus the principal shortcoming is political in nature, and indeed this is borne out by the growing tendency to renationalize the debate on government intervention. The current debate (with its as yet highly uncertain outcome) on the centralization of both strictly fiscal and broader economic policies is taking place against this backdrop. The fiscal compact is going to have to be assessed on the basis of its effective implementation rather than of its general principles, and in any case it will not be sufficient to overcome the obstacles hampering economic recovery and, more importantly, the prospect of sustainable growth.
The United States finally seems to have set off down the path of genuine economic recovery, although numerous question marks still hang over the management of its public debt. Moreover, despite its persistent ability to adapt rapidly, the US economy could well suffer the negative repercussions of one or more energy shocks, which we should consider likely in the medium term in view of the overall state of the commodity sector (both in terms of the ratio between supply and demand and of the political-cum-strategic situation).
China is fast approaching a turning point in many spheres. There is the sensitive issue of political succession at the head of the state and of the party, amid growing civic participation and pressing demands for institutional modernization at different levels; there is the changing demographic trend in the face of serious shortcomings in the health and welfare systems; and there is the need for an in-depth overhaul of the banking system and of way state-owned corporations are run. The so-called “Chinese model” – based on the state playing a strong and direct role in economic policy decisions, with the partial “marketization” of trade – may have reached its physiological cut-off point. At this juncture it requires deep change if the country is going to realize its potential in full, particularly in the spheres of innovation and of the spread of prosperity to the further reaches of society. It is obvious that a series of institutional reforms designed to introduce a genuine rule-of-law state entail an overall rethink of the political system. Other emerging markets, for their part, are displaying immense vitality but they remain vulnerable to global trends, to problems connected with their political and institutional systems, and to the threat of potential regional crises.
Given the origin of the crisis, the banking sector inevitably is still the center of attention, but other areas of vulnerability have appeared in the global economic picture, due in particular to the massive imbalances that are one of its most prominent features. Certain other variables are at least as influential as those that are strictly financial: they include the ratio between domestic demand and export in such large economies as China’s; the ground rules governing trade; currency exchange rates; and the transfer of the resources needed to run welfare systems capable of meeting demographic trends. Thus bank-related issues need to be seen against a far broader and more complex backdrop, even if we cannot help but objectively note the huge mass of financial wealth (as opposed to the development of the real economy) that has been created over the past few years.
The social repercussions of the crisis are serious and they go way beyond the albeit crucial issues of unemployment and of the risk of a prolonged period of low growth. Strong tension is taking hold of the very fabric of Western democracies, and that tension is only highlighted by the instances of recession with danger of default and their attendant austerity measures. The most worrying aspect is the crushing of the middle classes, a process which tends to increase inequality and to benefit the more extreme political parties and movements.
A further problem which has emerged in euro-zone member countries regards the political legitimacy of measures that are often peddled as being enforced by the European Union – or rather by those governments most influential in the defining of common policies. It is obvious that Germany occupies a special position in that sense, thus it has a special responsibility in ensuring the maintenance of a broad pro-European consensus, above and beyond the formal principle of solidarity.
A widespread threat is the loss of confidence in the benefits of globalization and of free trade fueled in part by the populist rhetoric espoused by various political movements under pressure from the crisis – a problem that also affects the United States, where there has been a substantive increase in ideological polarization. In such a climate, it is even more crucial for leaders to be prepared to make unpopular decisions and to communicate in clear terms the problems that need to be addressed.