Crunch time

The current global financial crisis looks set to change the political, economic and social face of liberal democracies around the world

It would appear that in the wake of the global credit crunch the liberal democracies of the world are abandoning the free market approach that has been de rigueur since the governments of Reagan and Thatcher.  There has been government intervention on a scale that has been unheard of in a recent history of economic policies based steadfastly around the free market tenants of liberalisation, privatisation and deregulation.  

Bear Sterns receiving a loan from the Federal Reserve Bank, the British government using public money to rescue Northern Rock, the nationalisation of the Roskilde bank in Denmark and the injection of 95bn Euros into the Eurozone by the Central Euro Bank are all actions that contravene free market commandments but have been required since the onset of the crisis.

That is not to say that wholesale nationalisation of banking institutions on a global scale will occur but it does mean that the activities of bankers will be far closely monitored than previously.  They will be denied the opportunity to seek out supposed risk free profit opportunities, such as sub prime mortgages, with impunity.  

As such a slew of legislation that can be considered protectionist or isolationist, designed to guard against being caught out further, is likely to follow in the wake of the credit crunch. An example of such policies can be seen in Germany where there is an attempt to introduce a bill giving German fund managers the right to reject takeover bids by foreign investors.  

As well as spelling the end for the US-Anglo model of free market economics the credit crunch could have a huge impact on social policy.  America will head to the polls in November while the UK most hold an election by 2010 at the latest, well before the end of the crisis precipitated by the credit crunch can conceivably be estimated to have abated.  

Learning the lesions of the current crisis and how to help those affected by it could well prove to be the key issue of both these elections.  With 1.3 million US home subject to foreclosure in 2007 it is very likely that during the 2008 election campaign the candidates will promote a move away from the Reaganomic policies of tax breaks for the highest earners in favour of warmer FDR era New Deal style initiatives.  

In Britain the stagnating economy could be the death knell for a deeply unpopular, stuttering Labour government that has thus far only survived on the back of an, up to now, impeccable economic record.  However a Tory government led by the privately educated David Cameron may not be ideally placed to exploit this. Therefore both parties will have to abandon their free market economic and social policies in order to court a growing number of voters for whom paying their bills, not debates on foreign policy, is their greatest concern.

Through a combination of economic necessity and politically expediency the credit crunch can be predicted to facilitate a worldwide rethink in social and economic regulation in every liberal democracy in the world.