The countries not letting a crisis go to waste
In 2008, before the financial crisis had even reached its nadir, Rahm Emanuel famously said: âYou never want a serious crisis to go to waste.â Emanuelâs quote became the conventional wisdom for crisis management, even if the idea is age-old: John F. Kennedy Jr. famously pointed out that the Chinese word for âcrisisâ is composed of two characters, one for âdangerâ and one for âopportunity.Â
Nearly five years after the global economic meltdown, we can now look at the worldâs major powers and assess how well theyâve responded to their various crises. Three categories emerge. Who took advantage of crisis? Who never really had a true crisis? And who is letting crisis go to waste?
A crisis unwasted:Â Japan and the Euro zone
Letâs begin with Europe, which experienced a real and urgent crisis. Remember that as little as 18 months ago, the media and bond markets had the euro zone pegged for imminent fracture, when the debts of its member countries and the untenable divide between its core countries and those on the periphery threatened to overwhelm the political unity and economic cohesion that the bloc enjoyed. A lack of fiscal coordination, political and monetary dexterity, and balance between strong and weak states pushed the worldâs largest economic bloc into existential crisis.
But with the help of Germany, bolder monetary policy from the European Central Bank, and some very painful budget-control measures, Europe has emerged on sounder footing, and the prospect of collapse is firmly behind it. There has been a fundamental restructuring, and now Europe is on the mend. The looming crisis itself helped affect structural change. Without market pressure and alarm bells, the periphery would not have been shaken from complacency, nor would the ECB have taken a bolder stance to put a floor under the crisis.
Japan had a very different crisis than Europe did. Two âlost decadesâ didnât spur the Japanese into action. Japan went through nearly 20 years of stagnation, stuck in a whirlpool of deflation,Â low growth and rising public debt that prevented the country from competing as the rest of the worldâs powers modernized their economic approaches. What shook Japan out of its malaise? In part,Â it was an increasingly acrimonious challenge from China, which has surpassed Japan to become the worldâs second-largest economy. Japanese votersâ economic and security fears from the regional superpower prompted them to give Shinzo Abe another crack at the prime minister post. Heâs used it to create an economic plan heavy on stimulus, join the Trans-Pacific Partnership trade pact negotiations, and work toward makingÂ all âthree arrowsâÂ (monetary easing, government spending and structural reform) of his economic plan take flight. Itâs still unclear whether Abeâs ambitious plans will succeed, but there is no question that Japan has converted its slow-motion crisis into a remarkable opportunity.
A crisis untrue:Â United States and China
It was only two years ago when all anyone in Washington could talk about was the debt ceiling. The S&P downgraded the U.S.âs credit rating, Congress embarrassed itself, markets plungedÂ and then everyone just moved on. Whatâs happened since? America went over the fiscal cliff by a day, the debt ceiling is still a bargaining chip in Washington power politics, and Congress couldnât avoid the sequester that subsequently took effect.Â
And yet Americaâs still kickingÂ and its major stock market indices continue to reach new heights. Thatâs becauseÂ the only genuine emergencyÂ America experienced was its banking crisis, and in 2008 and 2009 Washington met the challenge, much like the euro zone met its own existential threat. The U.S.âs standing is so firm that itâs hard to saddle it with a structural crisis like the ones we saw in Europe and Japan. Debt matters less here — for at least as long as the United States can continue to finance it at such low rates.
In that sense itâs true that the U.S. failed to take advantage of a crisis a few years ago — but thatâs because the crisis wasnât big and imminent enough. Americans were not desperate enough toÂ forceÂ their leaders to change.
There are plenty of looming threats that might eventually beget a full-fledged American crisis. For example, income inequality isnât a crisis today — itâs an alarming and growing problem in the longer term. Thatâs why Occupy Wall Street resonated. But it faded before forcing any structural change in the American political system, leaving a potential crisis for another day.
China is a similar story. Many fear a hard landing in China — a drop in economic growth rates that leads to unsustainable unemployment, posing a threat to the Chinese political system. And yet, China remains stable. Its growth is declining,Â but manageably, and its state capitalist model is inefficient but still robust for the near future. This is the kind of casual, slow change you expect to see when a country doesnât faceÂ an imminent shock to the system. Does China have huge hurdles on the horizon? Absolutely. The demographics are worsening, state capitalism cannot last forever, and an enriched citizenry will increasingly demand more accountability and transparency from its government. But none of these are sufficiently urgent to send Beijing into crisis management today. For the time being, China might be tackling these issues insufficiently precisely because they are not yet worrisome enough to warrant a broader response.
A crisis unacknowledged: France
In the third and final category, we have a country in crisis that has refused to acknowledge it. That country is France. France is facing deep structural troubles, with an unemployment rateÂ above 10 percent, an underproductive workforce, fiscal imbalances, and unsustainable spending on social services and pensions. Today, public spending in France has reachedÂ 57 percent of GDP — good for first place in the euro zone — even though 15 years ago, Franceâs tally was on par with Germanyâs. And the French havenât given President Francois Hollande the political capital necessary to do enough about it — nor did Hollande really make his case any easier. He campaigned on a platform that pushed back against much of the austerity that the country so sorely needs. Because France was considered part of the European core, it was able to skirt the wave of euro zone pressure that led to change in the periphery.
On June 8th, HollandeÂ declared, âWhat you need to understand is that the crisis in Europe is over.â He was more or less correct, and thatâs precisely the problem. The rest of the euro zone leveraged its crisis to make structural changes; the peripheral European states have already made their corrections (even if it came at a painful social and economic cost). France used the euro zoneâs turbulent restructuring to brush its own inaction under the rug.Â
Some countries have proved far more adept at crisis management than others. And some countries are not facing true crisis at all; while that explains their complacency, it is no justification for it. After all, those who work to avoid a crisis in the first place are in a category above the rest.
This column is based on a transcribed phone interview with Bremmer.
PHOTO:Â G8 countries leaders (From top C, clockwise) Britain’s Prime Minister David Cameron, U.S. President Barack Obama, France’s President Francois Hollande, Canada’s Prime Minister Stephen Harper, Italy’s Prime Minister Enrico Letta, Â European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Japan’s Prime Minister Shinzo Abe, Germany’s Chancellor Angela Merkel and Russia’s President Vladimir Putin attend a working session at the Lough Erne golf resort where the G8 summit is taking place in Enniskillen, Northern Ireland June 18, 2013. Â REUTERS/Yves Herman