Brown and the crisis
I’ve just read Gordon Brown’s book Beyond the Crash: Overcoming the First Crisis of Globalisation. As an exercise in hubristic self-justification, it’d be difficult to surpass — but that’s to be expected. Few long-lasting politicians with the craving for office necessary to become Prime Minister could be expected to issue a mea culpa within months of getting the boot.
To his credit, Brown does appear to actually understand finance (although I wonder how much is ghost-written). He explains the collateralised debt obligation. Can you imagine George Bush holding forth on the CDO? Brown knows what an optimal currency area is. There’s an illuminating section on the euro. He seems to get Keynes.
Beyond the basic economics, Brown presents a decent analysis of the global economy. He rightly explains that the Asian crisis was a precursor to the economic turmoil, and that the failure of the IMF in 1997-8 prompted Asian countries to build up massive foreign currency reserves, helping generate the imbalances that now plague the world economy. Brown presents some interesting thoughts on how China can consume more and America less.
Keynes’s biographer, Robert Skidelsky, praises Brown for his intelligence and resolution: “He was the one national leader who came to the crisis with a plan and the authority to push it through.”
Even if you disregarded the analysis, the book inevitably presents a unique account. It’s worth reading for statements like: “Seated around the table were actually twenty-six national leaders, including the newly elected president of the United States, Barack Obama” and “No Prime Minister I know cares more about the poor than Manmohan Singh.”
Behind the name-dropping is a morality story underpinned by religious belief — Brown thinks that markets should be tamed to serve the worst-off; that left unregulated, globalisation will lead to more crises and more inequality. To avoid isolationism and protectionism, he proposes a global compact aimed at creating higher growth and more jobs.
He’s mostly right. But at the same time he’s bizarrely short-sighted (and i’m not referring to his rugby-induced blindness in one eye). When discussing the euro, how can he fail to spot the irony in the statement that “some countries ran up debt even as their competitiveness declined”? Under his own watch, the deficit expanded and productivity growth stagnated.
Brown doesn’t acknowledge that as British Chancellor he played a prominent role in creating the crisis. He was responsible for the kind of economic policy that unleashed the destructive greed of the banks. In some places he’s just naive: “The Lehman case reveals that right at the heart of the world’s biggest banks was a culture of unethical financial practices… I was furious to discover that other major banks too were recklessly using their customers’ own money to speculate”. Imagine that! Bankers, unhindered by regulation, trying to make as much money as they can? Next you’ll be telling me that Santa Claus doesn’t exist.
Brown’s moralising seems to miss the point, clear to neoclassical and Marxist economists alike, that markets are amoral, that no amount of international summitry and chin-wagging will tame them. Talking about the need to make markets moral is a bit like hoping that an avalanche will flow upwards or that the sun should stay up a bit longer in the evenings.
Brown glosses over his mistakes. No mention of his decision in 1999 to sell over half the country’s gold reserves — 400 tonnes — at the bottom of the market. It’s not so much that he should have predicted an upturn, but that gold is a hedge against volatility, and that he must have actually bought his own claim to have ended the boom and bust cycle.
And therein lies the problem at the heart of the New Labour project: its self-confidence. New Labour actually believed it was beyond left and right, that it’d found the answers. All that was needed was a bit of tinkering. The opposition; popular will — both were just inconveniences to be tolerated rather than indulged.
Brown’s preoccupation with morality isn’t just naive, it’s worrying, because it presents a kind of certainty that isn’t achieved by debate or comparison of the evidence, but through belief. Overcoming the first crisis of globalisation will require a lot more than morality and the hope of a better world. It’ll need openness, debate and humility, and wholesale re-engineering of national and international markets so that they serve all of us, not just the elite.