Populism and nationalism the true legacy of the 2008 global financial crisis

The legacy of the global financial crisis might have been a re-imagination of the market economy. “Anything goes” could have made way for something a little closer to “everyone gains”.

The bold pledges that followed the crash — think Barack Obama, Gordon Brown, Angela Merkel and the rest — held out just such a prospect. Instead we have ended up with Donald Trump, Brexit and beggar-thyneighbour nationalism.

The process set in train by the September 2008 collapse of Lehman Brothers has produced two big losers: liberal democracy and open international borders. The culprits, who include bankers, central bankers and regulators, politicians and economists, have shrugged off responsibility. The world has changed, but not in the ordered way that would have been the hallmark of intelligent reform.

After a decade of stagnant incomes and fiscal austerity, noone can be surprised that those most hurt by the crash’s economic consequences are supporting populist uprisings against elites. Across rich democracies, segments of the population have come to reject laissez-faire economics and the open frontiers of globalisation. Large-scale immigration can be disruptive during the best of times. Throw in austerity and immigrants are all too easily cast as scapegoats.

Most striking is how little has changed in the operation of financial markets. A handful of bankers were sacked and some institutions faced hefty fines. But the burden has fallen on the state or on shareholders. The architects of unfettered financial capitalism are still counting the noughts on their bonuses.

Despite initial regulatory reforms, life on Wall Street and in the City of London has gone on much as before. Bankers are paid the earth for socially use- less activities, taxpayers fund large state subsidies in the shape of too-big-to-fail guarantees, and maths wizards create obscure instruments to keep trading rooms busy.

Now, as then, profit is privatised and risk nationalised. Missing is the competition that keeps capitalism honest.

Radical conclusions were put aside to gather dust as soon as they were published. Central bankers denied complicity. So did the agencies charged with market oversight.

Alan Greenspan, who was Federal Reserve chairman until 2006, was the high priest of unfettered markets. He is still revered as a sage. As governor of the Bank of England, Mervyn King cut its systemic regulatory resources and heaped blame for the crisis on investment banks. Retired from public office, he now consults for Citigroup.

Politicians promised finance would be pulled from its gilded pedestal, that Main Street would be given primacy over Wall Street and markets would be servants of the people.

“We are all in this together,” George Osborne, then Britain’s chancellor of the exchequer, said. We were not. The cost of the crash fell largely on the shoulders of those least able to bear it. Fiscal retrenchment focused largely on cuts in public spending rather than higher taxes. The working classes were the victims.

To make these observations is to explain the return of populism. Who can be surprised that white, blue-collar Americans turned out of once-secure employment now back Trump? Nor is it strange that similar demographic groups supported Brexit, swayed by the rhetoric that blames their misfortune on immigrants. Across Europe the rise of extreme nationalism mirrors the erosion of the social market economy — a brand of capitalism that offered a stake to ordinary voters.

The strains have been intensified by the anticompetitive rent-seeking of tech behemoths. The emotion that has done most to swell the ranks of the populists has been a sense of unfairness — the belief that elites are indifferent to their plight.

Trump et al do not have any answers. The US president’s fabled “base” will be losers from his trade wars. They have been robbed by his tax cuts for the rich. British workers will be worse off as a consequence of Brexit. The League in Italy and National Rally in France are selling the same snake oil. But the grievances they identify are real.

Historians will look back on the crisis of 2008 as the moment powerful nations surrendered international leadership, and globalisation went into reverse. The rest of the world has understandably concluded it has little to learn from the West.

Many thought the collapse of communism would presage the permanent hegemony of open, liberal democracies.

Instead, what will puzzle the historians is why the ancien régime was so lazily complacent — complicit, rather — in its own demise.

THE ARCHITECTS OF UNFETTERED FINANCIAL CAPITALISM STILL COUNT THE NOUGHTS ON THEIR BONUSES