A big crisis, but was it big enough? That’s the question on the mind of Larry Elliott, economics editor of The Guardian newspaper following last week’s OECD Forum in Paris. Elliott went along to one of the event’s most talked-about sessions, “The Future of Capitalism”, which featured contributions from – among others – economic historian Robert Skidelsky and commentator Anatole Kaletsky (who previewed some of the issues raised in the session in the OECD Observer).
Writing later in The Guardian, Elliott reflects on a warning from another session speaker, the OECD’s Adrian Blundell-Wignall, that the crisis may not have been severe enough to prompt much-needed reforms.
“Speaking in a personal capacity … Blundell-Wignall warned there was likely to be a second, even bigger, meltdown unless there was radical reform of the financial sector, including splitting up banks with both retail and speculative arms,” Elliott writes.
“Although this is a sombre conclusion, it may prove accurate. The current crisis has yet to have the cathartic impact of the slump of the 1930s, when the economic cost was far higher and the links between the failure of the old laissez-faire model and the drift to political extremism were plain.”
Geoff Gallop of The Sydney Morning Herald offers another view of the session here.
Over on the OECD’s YouTube channel you can see video interviews from the Forum, including one with Lord Skidelsky, who weighs in on the debate over fiscal consolidation. Or you can just scroll down the page to catch up on the OECD Insights Blog postings from the Forum.
We are publishing From Crisis to Recovery, a new book from the OECD Insights series here on the blog, chapter-by-chapter. This book traces the roots and the course of the crisis, how it has affected jobs, pensions and trade, while charting the prospects for recovery.
These chapters are “works in progress” and their content will evolve. Reader comments are encouraged and will be used in shaping the book.
By way of introduction …
Perhaps no image from the Great Depression of the 1930s is more iconic than “Migrant Mother”, a photograph by Dorothea Lange. It shows a tired-looking woman staring out from under a rough canvas tent; in her arms a baby is nestling, against her shoulders two older children are resting.
The woman’s name was Florence Owens Thompson, and she was travelling with her family through California looking for work when she was spotted by Lange. “I saw and approached the hungry and desperate mother, as if drawn by a magnet,” the photographer later recalled. “I did not ask her name or her history. She told me her age, that she was 32. She said that they had been living on frozen vegetables from the surrounding fields, and birds that the children killed.”
Eighty years on, it’s hard to think of a single image that bears such eloquent witness to our era’s “Great Recession”. That’s not too surprising. Even though many people have lost their jobs, and some their homes, the suffering and hardship of the 1930s have not been repeated. Indeed, as economies continue their slow recovery, it’s tempting to imagine that this slowdown will soon be forgotten – just a blip in the world’s otherwise orderly economic progression.
Tempting, but dangerous. Just as the Great Depression defined the lives of a generation and reshaped the world’s economic and political contours, the recession we’ve lived through will have long-term consequences. Some of these will be economic, some social, and some may not become fully apparent for years to come.
To think about some of these long-term impacts, this chapter poses five questions:
► What’s the long-term economic impact?
► When will government policy get back to normal?
► Has the global balance shifted?
► Can the crisis become a green opportunity?
► And, does economics need a rethink?
Recovery from the recession is continuing, but looks set to slow slightly in the first half of this year, according to the latest assessment of the global economy from the OECD.
The Interim Assessment says growth “gathered steam” in the last quarter of 2009, and stood at 3.7%* in G7 economies (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.). It was strongest in the United States, at 5.6%, and Japan, 3.8%, and weakest in Italy, which contracted by 1.3%.
But the assessment suggests growth will slow slightly in G7 economies in the first half of this year, to 1.9% in the first quarter and 2.3% in the second. For the three euro economies in the G7 – France, Germany and Italy – growth will be lower, with a forecast of 0.9% in the first quarter and 1.9% in the second.
Overall, the assessment notes a number of positive developments: Trade is recovering; business confidence is rebounding; unemployment may have passed its peak in the U.S., and lending conditions for banks have improved.
But there are downsides: The assessment warns that governments still need to be cautious in how soon they roll back the special measures they took during the crisis, citing “the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets”.
* The growth numbers quoted here do not include standard error ranges; these are included on page 4 of the Interim Assessment pdf.
We reported last year that no less a figure than the UK’s Queen Elizabeth II had admitted to bafflement about the financial crisis. “ … She asked me: ‘How come nobody could foresee it?,” Professor Luis Garicano of the London School of Economics (LSE) told reporters back then.
The professor and his colleagues later wrote to the Queen to try to answer her question, blaming in part “a failure of the collective imagination of many bright people”. Now, they’ve sent another letter to Her Majesty, suggesting she could actually play a role in helping to avoid the next crisis.
The academics’ idea is that the Queen should request a monthly briefing on the state of the economy and – crucially – what may lie ahead. This would go beyond forecasting, which is an attempt to say what will happen; instead, the aim would be say what could happen under a variety of different possible outlooks – so-called horizon-scanning.
As The Guardian reports, the economists’ letter “explained the need for less complacency and more horizon-scanning, during which various scenarios are thought through, however unwelcome their outcomes might seem.”
Interestingly, this idea is not dissimilar to OECD proposals on financial reform, which include the idea that government figures and regulators in every OECD country –not just the UK – “should publish annual reports that give an overview of developments in the financial system, identify key risks and explain how they are addressing them.”
We asked Tim Besley, one of the signatories of the letter and a professor of economics at LSE, to explain a little bit more about the proposal, which came out of a forum organised by the British Academy.
“It’s difficult to get busy people, whether they’re ministers, senior civil servants or even academics to take their eyes off their desks, look into the future and say, ‘what are the bigger-picture issues we should be worrying about?’,” says Prof. Besley. But, he adds, if we’re to develop a proper system for spotting risks and vulnerabilities “we have to institutionalise this more long-run, horizon-scanning focus.”
Prof. Besley admits that creating such a committee would carry its own risks, including the danger of it getting stuck in a rut: “I think there’s a sort of tendency for people to get bogged down in their own thinking about their own issues,” he says. It would also be hard “to get anyone to take any notice of the output of this institutionalised committee.”
Which is where the Queen comes in: While providing a report to the head of state wouldn’t be the main function of the committee, it would, Prof. Besley believes, be a useful catalyst – focusing minds on the need to communicate clearly and to keep on thinking the unthinkable: “The idea would be to keep the thing fresh and really try to find the key issues every month.”
Useful links OECD
The OECD International Futures programme carries out horizon scanning
The OECD Horizon Scan was part of the Danish government’s Forsk2015 strategic planning exercise
OECD Insights: From Crisis to Recovery (forthcoming)