It’s the End of the World as We Know It

By Risto E. J. Penttilä
Director of the Finnish Business and Policy Forum EVA

This article was published on NORDICUM 1/2009

An American rock band called R.E.M. had a big hit in the late 1980s. I remember the song very well because I was finishing my doctoral dissertation in the UK at the time. The song was called ‘It’s the End of the World as We Know It’. The lyrics seemed to describe what would happen if I did not finish my thesis on time.

Over the past few months the song has been ringing in my head. And for a good reason, I might add. Most of the things I took for granted about global capitalism have been proved wrong. Here is a quick list of half a dozen myths that have been busted by the global economic meltdown.

Myth number one: ‘Countries cannot go bankrupt’. If countries cannot go belly up, what exactly happened to Iceland? The island collapsed like Enron. Not the first thing one would have expected from the land of fire and ice.

Myth number two: ‘The West knows best’. Ten years ago there was a financial crisis in Asia. At the time Western countries lectured emerging countries about good housekeeping. Now, the Asians have been politely quiet. Yet, everyone knows that there is no going back to a world where the West calls the shots and the rest follow.

Myth number three: ‘Keynes is dead’. John Maynard Keynes is alleged to have responded to a critic: “When the facts change, I change my mind. What do you do, Sir?” The facts have certainly changed. Only a few years ago, no reputable economist would have defended Keynesian economics. Now, every economist is preaching Keynesianism and every government is practicing it.

Myth number four: ‘America and Europe are growing apart’. Just a few years ago, pundits were predicting a long and painful divorce for Europe and America. It was not only the unpopularity of George W. Bush that was driving old friends apart. The values and the interests of the Old and the New Continent were no longer compatible. Or so they said. Look at the world now. Europeans love President Obama and President Obama loves Europe. It is a marriage made in heaven.

Myth number five: “Innovation is good”. Finland, together with plenty of other countries, has bet her future on innovation. Well, what was behind the subprime crisis? You know it! Financial innovation! No longer can we think that innovation is always a good thing.

Myth number six: “Russia is bound to become rich.” Six months ago, Russia had two credible alternatives. Either it would become filthy rich or just rich. Now, Russian oligarchs are running for cover because they cannot re-finance their loans. The state coffers still have plenty of money but nobody has heard President Medvedev claim that this crisis is not going to hit Russia.

There are many more. How about this one: “Anglo-Saxon capitalism is the model for the world”? Or this one: “Deregulation brings prosperity”. I could go on but you get my point. The crisis is truly transformational. But is the change for good?

The R.E.M. song had an optimistic slant to it. They sang: “it is the end of the world as we know it – but I feel fine.” For some reason, I do not feel like joining R.E.M. in the refrain. My own version of the lyrics goes: “It is the end of the world as we know it – and I feel rotten.”