The US economy is facing a crisis that is conjuring up images of the calamities of the Great Depression of the 1920s. European and Asian financial markets are tumbling as terror and panic hits Wall Street. And when US lawmakers failed to pass a controversial $700 billion rescue package on Monday that promised to stop the credit market from shutting down, stocks plummeted forcing the Dow Jones Index to shed 7 percent of its value or over a trillion dollars, the biggest single drop since 9/11.
The threats to the global economy are real and daunting. The collapse of America's mighty financial institutions will have far-reaching ramifications on almost every country on the planet. This is the nature of the global world we live in. The failure of the biggest economy on earth will usher challenges that few can fathom or imagine.
Already there are those who have declared the death of capitalism, almost 20 years after the collapse of communism and the unraveling of the Soviet Union. Others, like Germany's finance minister, are predicting the demise of the United States as a financial superpower. And there are those, like France's President Sarkozy, who believe the world should get ready for a new global financial system.
In reality, it is early to pronounce the death of anything. The American economy is in deep water and the prospects for a quick recovery are dim. The so-called meltdown is already happening but it would take weeks and months before the full extent of the damage, which started with the collapse of the subprime mortgage market in the US, is fully uncovered.
Chances are we will see more bloody Mondays in the coming weeks before the turbulent markets settle down and begin to recover. Meanwhile, we should brace ourselves for more bailout actions for failing banks and financial institutions around the world. More than a handful will not make it. It will be a time for quick mergers and acquisitions. The structure of the world economy will never be the same.
When communism went bankrupt, American philosopher Francis Fukuyama was bold enough to predict the end of history arguing that "liberal democracy and free market capitalism as the most fundamentally satisfying form of government and method of organizing the economy, represents the final stage of human government." Witnessing America's economic turmoil of the last eight months negates such prediction. One of the conclusions of the current crisis is that economic liberalism and free market capitalism are at a crossroad; both have failed to deliver and both are in trouble in their native land.
Critics of American-style capitalism are many and it would be redundant to go through their grievances and objections. America today is a unique case study where millions of citizens are about to lose their homes and where the life savings of the working man are in danger of disappearing overnight. America owes trillions of dollars to foreign governments; its so-called brick and mortar industries, from autos to airlines, from beverages to foodstuffs, are either out of business or have been picked up by foreign investors. Millions are jobless and tens of thousands are losing their only source of livelihood every week. Unlike many in Western democracies Americans have no national health system.
And there are those who believe the problem is not in the system, but in leadership. Like Democratic presidential candidate Barack Obama, they believe the current predicament is the result of eight years of short-sighted Bush policies, which has favored the rich and mighty, the highly paid executives, the oil companies, while spending hundreds of billions of dollars on unpopular wars in Iraq and Afghanistan. This argument could be true as well.
In reality, it is difficult to pinpoint the direct reasons for the present crisis. Leadership or lack thereof, deregulation, weak government oversight, avarice, unbridled consumerism, and corruption have all contributed to some degree to the problem. Whether a new leadership that calls for change and reform will be able to save the world's biggest economy from imminent disaster will have to be seen.
Meanwhile, the world is not safe. Capitalism has contributed directly to the complex challenges that humans face today from climate change to soaring energy prices. As the Americans get busy trying to fix their economy, the rest of the world should get busy as well in an attempt to figure out ways to cushion the effects of America's financial downfall and chart a new course for hundreds of smaller, and more vulnerable, economies.
In the Arab world, we should pay attention to what is happening in America, more so because in the past decade or so liberal economists appear to have taken the lead pretending to have a magic wand in their hands. Not to be confused with liberal politics, their doctrines have shaken the foundations of our societies and cultural beliefs. The net result of their policies has not been added up yet, but the symptoms are not encouraging.
We are yet to come up with solutions to poverty, unemployment, lack of social justice, corruption and misuse of public funds. We are yet to provide free health and education to all, harness consumerism, tame inflation and preserve our cultural heritage in the process. And we are still far from building vibrant civil societies that guarantee equal opportunity and provide for transparency, good governance and the rule of law.
We could either heed the lessons from what is happening to America and other countries, or bury our heads in the sand and pretend that the reverberations will not reach us. These are historic times and history is very much alive and kicking. Those who fail to learn from it will pay dearly.
- Osama Al Sharif is a veteran journalist based in Jordan.
