SEOUL – Hubris usually gives birth to disaster. The root cause of the current global crisis was intellectual hubris in the form of the blind belief that markets would always resolve their own problems and contradictions. Thirty years after the Reagan-Thatcher revolution, the ideological pendulum has begun to swing in the opposite direction.
Each time in the last hundred years that a shift of this magnitude has occurred in beliefs about state-market relations, a major political-economic upheaval has ensued. For example, World War I marked the end of the nineteenth-century’s laissez-faire liberalism and ushered in a period of state-centered economic systems. The Great Depression and World War II opened the new era of the Bretton Woods system of a more balanced state-market relationship.
Similarly, the 2008 global financial crisis ended three decades of neo-liberalism, characterized by free trade and financial globalization. We still do not know the nature of the era ahead of us; we can only be certain that the global economy is in the middle of a major transition, and that the old ways will not work anymore.
The main concern in this period of great uncertainty is whether the transition to a new paradigm can be managed without further destabilizing the international political-economic order. There are already some serious signs of distress – the currency war between the United States and China, and its spread to other countries, being a case in point.