Globalization at Risk with the 2008 Financial Crisis?

 

As with most of the trends discussed in this report, the impacts from the financial crisis will
depend heavily on government leadership. Proactive fiscal and monetary policies probably will
ensure the current panic and likely deep national recessions will not turn into an extended
depression, although reduced economic growth could slow globalization’s pace, increasing
protectionist pressures and financial fragmentation.

The crisis is accelerating the global economic rebalancing. Developing countries have been hurt;
several, such as Pakistan with its large current account deficit, are at considerable risk. Even
those with cash reserves—such as South Korea and Russia—have been severely buffeted; steep
rises in unemployment and inflation could trigger widespread political instability and throw
emerging powers off course. However, if China, Russia, and Mideast oil exporters can avoid
internal crises, they will be in a position to leverage their likely still sizeable reserves, buying
foreign assets and providing direct financial assistance to still-struggling countries for political
favors or to seed new regional initiatives. In the West, the biggest change—not anticipated
before the crisis—is the increase in state power. Western governments now own large swaths of
their financial sectors and must manage them, potentially politicizing markets.


The crisis has increased calls for a new “Bretton Woods” to better regulate the global economy.
World leaders, however, will be challenged to renovate the IMF and devise a globally
transparent and effective set of rules that apply to differing capitalisms and levels of financial
institutional development. Failure to construct a new all-embracing architecture could lead
countries to seek security through competitive monetary policies and new investment barriers,
increasing the potential for market segmentation.

US Government, Global Trends 2025:  A Transformed World, November 2008
NIC 2008-003 (available at www.dni.gov/nic/NIC_2025_project.html)