In recent days the warning lights for the global economy have started flashing red. Yesterday it was revealed that China’s industrial output is growing at the slowest pace in 17 years, while the powerhouse of Europe's economy – Germany – is facing recession.
Financial markets have been further spooked by the inversion of the ‘yield curve’ in the US and the UK, which means that the cost of government borrowing for longer term bonds has become cheaper than for short term bonds.
Historically this has served as an accurate predictor of a looming recession: an inverted yield curve has preceded every US recession for the past 45 years. These developments confirm what many economists have long feared – that another crisis could be just around the corner.
However, as the below table shows for the US, inverted yield curves don’t immediately lead to recessions – they can take a year or more to materialise.
What does this mean for those who are striving to create a fairer and more sustainable economy?
After the last crisis hit in 2007, a lack of preparedness meant that many were slow to respond. Without a coherent analysis of what went wrong and a credible alternative, many progressives struggled to make their voice heard in the process of reform that followed. As a result, governments around the world were able to double down on the existing neoliberal order, imposing austerity while scapegoating minority communities.
This time it must be different. In a famous remark, Milton Friedman, a key architect of the neoliberal ascendency, said:
“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”
Today the set of economic ideas and policies that have dominated politics for the past 40 years are rapidly losing legitimacy, even in the eyes of their previous adherents.
In a remarkable editorial this week, the Financial Times – long a supporter of free market orthodoxy – declared that “markets do not allocate capital to the most productive places”, and called on countries to “drop concerns around state planning” to enable a “transition to a worker-led economy”.
As the global economy slides towards a recession, it is essential that those who want to see a fairer and more sustainable economic system start planning how to respond to the next crisis so that whenever it arrives, we do not see a repeat of 2007/08.
That’s why today we are launching a new series, ‘Preparing for the next crisis’, which is inviting contributors to debate and discuss the contours of a response that not only ameliorates the harmful effects of a recession, but which also lays the foundations for a new political-economic paradigm.
We are not simply looking for a shopping list of ideas, however. We are also inviting contributors to grapple with strategic questions relating to how to turn the necessary ideas into reality.
This includes identifying the ‘critical paths’ that need to be followed to open up space for radical change before, during and after a crisis; appraising the power dynamics of implementing bold policies and displacing entrenched vested interests; debating any key tensions or disagreements; and highlighting any research or policy development work that needs to be undertaken to fill any intellectual or implementational gaps.
If you would like to contribute to the series, please get in touch.