British Labour politician Peter Mandelson, who is the U.K.’s secretary of state for business, innovation, and skills; first secretary of state; and Lord President of the Council, addressed the question “Is the Banking Crisis a Failure of Globalization?” in a March 3 speech at the NYU School of Law.

Putting forward a description of the economic values of the U.S. and U.K.—namely, open trade, a free-market economy, and state support for protection of property and person—Mandelson asserted that this worldview has defined the post-World War II world and the era of globalization: “Although globalization is partly driven by changes in telecommunications and transport, it is above all driven by the political commitment to open trade and open markets. My question is: To what extent is the banking crisis, the credit crisis, a crisis for this kind of globalization that we’ve created?”
Stressing that markets are only as good as their human element, Mandelson argued that, pre-credit crisis, they “were awash with complex financial products that were overengineered to the point of obscurity. But the banking crisis hasn’t actually undermined the case for markets in general. It’s a warning, nonetheless, against an ideological belief in the efficiency of markets, and a reminder, too, that they can be distorted by perverse incentives—a bonus culture that simply overreached itself.” He also asserted that open trade was still desirable and, in fact, instrumental to economic recovery.

Mandelson coupled his defense of a globalized economy with four political caveats: the importance of government regulation and self-regulation in preventing the introduction of bad financial products in one part of the world that then contaminate the global market; the exigencies of a dramatically shifting global economy with emerging leaders such as China and India; the necessity of a basic social contract between governments and citizens to address people’s concerns about globalization’s economic effects on individuals; and the need for all global market players to be internationally minded. In the latter vein, Mandelson struck a critical note when he remarked, “President Obama’s proposals on banking regulation, I have to say, came as a bit of a surprise to the people working on the G20 agenda, and it’s important that we keep the multilateral process firmly on track.”

In the end, Mandelson said, “Open markets and open trade are not immutable economic facts; they are political choices. They have costs and they also have benefits, and we can design ways of handling them that magnify the benefits and reduce the costs.... We have been challenged by the financial crisis to think about the risks of assuming that free markets are always self-correcting. And we have had an object lesson in the way in which a failure in financial markets can affect the rest of the economy. When this happens on a global scale, we have a problem of the first order. We need new solutions to this.... There are many forms of globalization, and the policy frameworks that surround it, and we can choose between them.”

Posted on March 5, 2010