The crash of September 2008 is, I think, the third world historic event of my adult lifetime after the fall of the Berlin wall and 9/11. But it reminds me most of the feeling I had at the time of the break up of Yugoslavia, a sense of witnessing the re-enactment of events that we thought were safely confined to history books. Quite a large slice of this issue is devoted to understanding what has been going on in modern finance and reflecting on how much of a "hinge" event for Anglo-American capitalism, if not for the market system itself, this will turn out to be.
The two immediate questions are how deep will the recession be, and what will it do to our politics? Wearing my optimistic hat (in my lead Opinion this month) I speculate about the possibility of a "good," shallow recession that purges the system of some of its decadent excesses without damaging employment or incomes too severely. But given Britain's particularly acute exposure to the credit crunch that may be wishful thinking. The size of the modern state and the activism of politicians means that a repeat of the great depression is unthinkable, but a lot of harm can be done with only mildly negative growth for a few years—as we saw in the early 1980s. Even if things do get bad, there seems to be no appetite out there for abolishing capitalism—the serious left has settled for taming it with some bigger social funds, as Robin Blackburn spells out in his debate with Anatole Kaletsky. Recent history suggests that liberal democracies can swing either left or right in response to economic troubles, but the most common response is to chuck out the incumbents—something that Barack Obama and David Cameron should benefit from (notwithstanding Gordon Brown's more confident leadership in recent weeks). The extreme parties, such as the BNP, might pick up more support, especially as the recession will be the first since the biggest wave of immigration in British history. A "first past the post" electoral system and the tendency towards violent factionalism in the extreme parties should help to keep a lid on things. On the other hand, there will be some increase in racial tension in parts of Britain, and recent events in the Metropolitan police (see Andrew Gilligan's Opinion column) suggest that racial resentments remain depressingly entrenched at the highest level in some of our most important institutions.
After a long period of economic growth and political apathy it is possible that a recession could be a source of renewal for our political institutions and even a broader sense of responsibility. Given that political ideology is unlikely to enjoy a similar renewal, there is a big space for non-conformist ideas to meet the troubles that lie ahead. Read them here.
