Irresponsible credits, greedy investments and questionable deregulation do not suffice to explain the financial crisis that caused the Great Recession. In the article The Twin Excesses – Financialization and Globalization – Caused the Crash, Bardhan argues that while over-financialization in the US caused a bubble in the value of financial assets (“the gross market value of outstanding derivative contracts more than doubled between mid-2006 and mid-2008”), globalization and the inter-dependent, inter-connected world make this phenomenon a global crisis. The US’s “insatiable appetite” for consumption matched China’s “unbounded capacity” to manufacture goods, and as global consumption patterns increased, their ‘marriage’ fueled an extraordinary increase in trade.
However, Branko Milanovic believes there is another cause behind the 2008 recession: increased inequality. In Grounded: Income Inequality and Speculative Investments Led to the Financial Meltdown, he goes on to explain that for the past thirty years, the accumulated wealth in the US has been disproportionately distributed to favor the top 5% (an observation that agrees with Piketty’s analysis in his Capital in the Twenty-First Century). This divide has simultaneously created pockets of wealth looking for profitable investment opportunities and a discontent in the middle and working class as their purchase power has been reduced. Politicians, together with the financial sector, provided a solution by ‘reselling the American Dream’ through credit loans, a ‘solution’ that satisfied the interest of multiple parties. Thus, Milanovic argues, the scenario for a perfectly deregulated crisis was born (given that the greedy and irresponsible investment practices pre-date this ‘modern crisis’).
While the class dived widens in developed countries like the US, the exploitation of brown bodies continues in East Asia, also increasing the global class divide. In China Makes, the World takes, Fallows illustrates how thousands if not millions of people have moved from rural areas to satisfy the labor market and find a sustainable living in the Shenzhen province. According to his analysis, most of this relatively new working class is young, rural, unschooled, poor, and female. With terrible working conditions, 12 hour+ working shifts, recurrent deadly threats, and insulation (they work, sleep and live within the same complex/city and go home perhaps once a year), the Shenzhen workers exemplify the new type of slavery in the world. Yes, they have jobs and salaries that did not exist years ago thanks to globalization, but it appears that there is a ‘glass ceiling’: their low-paying jobs won’t allow them to escape poverty, but to (barely) sustain a living.
Globalization is not the direct cause of this global divide; as Stiglitz points out, it has increased the dimension of the consequences because of the unjust, undemocratic way in which it has been managed. So my question is: what does it take to ‘manage’ globalization? Since world powers and global financial institutions are immersed in the problem and have not offered a solution so far, who then can lead the way? Would it suffice to have compassionate, well-prepared, conscious people leading these countries and institutions, or is the world in need of a more democratic, powerful, international, economic-regulating institution? Though the latter does sound very utopian…