By Stella Dawson, Reuters
Dysfunctional politics threatens to deliver a protracted period of slow global growth, possibly lasting well beyond 2012, which will only deepen the political and economic problems for the West. The global financial crisis that began four years ago has morphed into a political crisis for the United States and Europe. Leaders incapable of wrestling their debt loads to manageable levels or reviving strong economic growth are stoking turmoil in markets and populist unrest among the citizenry.
The political malaise is also hastening the shift of world economic power toward developing countries led by China. At worst, it could cause a second global recession bringing with it political upheaval on a scale not seen since the 1930s. These unpalatable scenarios are being sketched by a growing number of leading political strategists, academics and economists after an extraordinary year when the once unthinkable came to pass: the United States had its credit rating downgraded while the developing world enjoys upgrades; Europe went cap in hand to Beijing for a financial bailout; and Brazil overtook Britain within the G-7 club of major economies. The shifting international economic order toward developing countries is nothing new. But it has been happening at a faster pace than expected, accelerated by what these analysts have begun describing as Western democracy in crisis. They see a government credibility problem in the United States and European Union, stemming from a perception that the political elite is too closely tied to the financial elite in the West, and their collusion caused the financial chaos of 2007 and 2008 and its messy aftermath, leaving the average citizen burdened with higher public debt, higher taxes, unemployment and austerity programs. Left to pay for what voters see as the elite’s mistakes, public confidence in government has been undermined, and political paralysis has set in as Western leaders struggle to pull governmental levers that are not working effectively. In contrast, developing nations have been modernizing their institutions and markets, delivering growth rates in the past decade triple those of the West. By 2020, the Centre for Economics and Business Research in London estimates that India and Russia will have joined China and Brazil in the G-7 ranks as the biggest economies in the world based on total GDP output, ousting Britain and France. Only the United States, Japan and Germany will be left from the old G-7 that dominated the international order since World War II. Niall Ferguson, a prominent economic historian now at Harvard, calls this an historic power shift. “For the better part of 500 years, it was Westerners on both sides of the Atlantic who could say that they had the best economic system, that they developed the best political system and so forth. And those claims have sounded increasingly hollow in our time,” Ferguson said in an interview. The breakdown in public confidence caused by the financial crisis has revealed a deeper problem. “What we’re seeing in government is part of a wider crisis of Western institutions,” he said.