As the carnage in global stock markets continues, it is tempting to want to revert to the lessons of history as a source of potential salvation. Many financial prognosticators are indeed trying to make sense of this latest emerging global market crash, saying that because the markets behaved a certain way in the past, they will be doing something similar now. Yet, for a variety of reasons, that is a less and less compelling point of view.
We know that the dynamics governing the global economy have changed substantially over the past 20 years. America is no longer the engine of global growth, the developed world no longer consumes the majority of the world's raw commodities, and there is a single global marketplace. Even before China has officially assumed the mantle of being the world's largest economy, the world is treating China as if it were -- and justifiably so.
Many are pointing to China as the epicenter of carnage, but in doing so, they are missing some important considerations. While China may be the poster child and most visible manifestation of some of the structural defects in the global economy, it is merely a symptom, rather than the cause.
China certainly didn't invent greed, lax risk management, inadequate regulatory enforcement, and short memories -- all of which precipitated the Great Recession, which of course originated in America. The basic ingredients that got the world into trouble in 2008 remain at play. Greed certainly hasn't disappeared and, as is abundantly clear, people still have short memories. Although risk management procedures and regulatory enforcement mechanisms have definitely improved around the world, the propensity to water them down has gained momentum as time has passed -- no more so than in the United States.
China also didn't create global supply chains, electronic money flows, and instant communication, which have accentuated the speed with which markets can rise and heightened our collective vulnerability to economic downturns. China became the 'drug' that the world's 'addicts' (commodity producers, goods importers, and seekers of cheap labor) needed. The world happily accepted China's invitation, and it is now quick to point the finger at their own creation.
Global investors and lenders have learned relatively little since 2008, creating more bubbles, ignoring more warning signs, and, until recently, continuing to party like it's 1999. The chickens are coming home to roost. Then, as now, we are our own worst enemy, with all pieces of the puzzle playing their predefined role.
The bankers remain greedy, lobbyists continue to find ways to water down rules that restrict the freedom of movement of their constituents, and risk managers have been busy trying to figure out how they can remain in compliance at the very edge of new rules. Voters around the world also continue to elect lawmakers who have a vested interest in perpetuating the system. The result is a global polity that is rotten to the core. Is it any wonder we're in the mess we're in?
If the Great Recession wasn't enough to change the hearts and minds of the bankers, legislators, lobbyists and voters, what would be? We bear collective responsibility for perpetuating a terribly broken system. Each actor has played its part to keep the system operating in this way. The ripple effects of America's Great Recession had a similar impact on the world as China's stock market crash is having today, for similar structural reasons.
Since the market is clearly not self-regulating, even greater restrictions should be put in place regarding how investors may invest and lenders may lend. Regulators need to do a better job of enforcement, risk managers must focus on managing risk rather than skirting rules, and since greed is part of the human condition, we should all do something to remember the lessons of the past. Pointing the finger at China won't achieve that, any more than blaming America did in 2008.
*Daniel Wagner is CEO of Country Risk Solutions and author of the book "Managing Country Risk".