GENEVA, Switzerland – Rising global trade tensions are a symptom of a decade-long failure to address the very same excesses and inequalities linked to the 2008 financial meltdown, the United Nations (UN) said Wednesday, September 26.
Countries have failed to change their policies to prevent a repeat of the crisis, and have instead allowed financial giants – and debt – to grow uncontrolled, the UN Conference on Trade and Development (UNCTAD) said in a report.
“The immediate pressures are building around escalating tariffs and volatile financial flows,” agency chief Mukhisa Kituyi said in a statement.
But, he said, “behind these threats to global stability is a wider failure, since 2008, to address the inequalities and imbalances of our hyper-globalized world.”
The spiraling trade fights between US President Donald Trump’s administration and China especially are a symptom of “a degraded economic system” and its multilateral institutions, UNCTAD said.
The run-up to the financial crisis was marked by pervasive “complacency,” the report said.
“What is more surprising still is just how little has changed in its aftermath,” it added.
Instead of addressing the causes of the crisis, the world has allowed banks to get even bigger and shadow-banking to swell to $160 trillion – twice the size of the global economy.
“The world economy remains on shaky ground a decade after the 2008 financial crisis, with trade wars a symptom of a deeper malaise,” UNCTAD said.
‘Walking a tightrope’
The agency said it saw “economic storm clouds gathering,” with tepid growth being fueled by skyrocketing debt.
Global debt stocks have risen to nearly $250 trillion – 3 times the world’s income and 50% higher than at the time of the crisis.
“The world economy is walking a tightrope between debt-fueled growth and financial instability,” said Richard Kozul-Wright, head of UNCTAD’s globalization and development strategies division.
“What we know from history is that debt-fueled booms always end badly,” he told reporters.
Growing indebtedness, he said, was closely linked to rising inequality amid the rising influence of financial institutions and a smaller number of huge firms.
“Trade is a big firm game,” Kozul-Wright said, pointing out that over half of world trade is run through just 1% of corporations.
This is worrying, he said, since “big firms have been a major source of inequality in this highly financialized world.”
This is particularly true of big tech companies, which he warned are “more prone to monopolization and rent-seeking behavior than the old analogue economy.”
Erosion of trust
Trust in the system has meanwhile eroded dramatically, the report said, pointing to resentment over the sense that the financial institutions that caused the crisis got away with it – and have even profited from it.
“Trust was sucked out of the financial system with the crisis in 2008, and trust is now being sucked out of the political [system] as a consequence of the failure to deal with these problems,” Kozul-Wright said.
“The trade war is in many respects a reflection of that lack of trust across the political system.”
UNCTAD warned that the recent rounds of tit-for-tat tariffs could have “damaging consequences” beyond trade.
But he noted that the subprime mortgage market that sparked the 2008 crisis “was only a tiny part of the US housing system, and it made the whole world blow up.”
“That’s what frightens people,” he told Agence France-Presse. “We don’t know what the second-order effects will be.” – Rappler.com