After the meltdown, what's next?

While some observers are still waiting to see the effect of American government bailout plan, Fukuyama has gone further and voiced out the potential damage of this unprecedented financial turmoil to America's brand, or, soft power. 

In this lengthy essay, Fukuyama outlines the historical contour that has shaped the current financial situation and its impact on America's image. He argues that two central ideas that America have exported to the rest of the world, namely, deregulation with small government, the so-called Reaganism, and shaping prosperous international order by promoting liberal democracy, will be discredited further after this financial turmoil. 

Is Washington concensus dying altogether? In a dialectic way, yes and no. The American model might be improved from now on if its problems can be clearly identified and solved. After all, the Reaganism/Thatcherism that adopted small government, low tax and light regulations as the governance rules has witnessed three decades economic growth, and the emergence of the information and biotech industry as a new driving force behind the development. 

The problem, however, as Fukuyama argues, lies in elevating such a pragmatic approach to the problems of large welfare states into 'an unimpeachable ideology', that is, tax cuts would be self-financing and financial markets could be self-regulating. The faith in these two principles in the context of the globalization has resulted in America's ever expanding deficit and wild innovations of all sorts of derivatives that no one outside of Wall Street can really understand. The life of the rich and powerful is simply beyond the grasp of general people, as the article laments that no writer has ever chronicled the excess of the 21 century in the financial world.

Lack of transparency and too few regulations in the financial sector will only damage trust, 'which can only flourish if governments ensure they are transparent and constrained in the risks they can take with other people's money'. Perhaps, it's time to review his book Trust - the Social Virtues and the Creation of Prosperity once more. 

Anyway, the effect is accumulative, and actually warning signs appeared as early as the Asian financial crisis in 1997 and 1998. However, the policy to a large extent hasn't been changed, and the reason in Fukuyama's argument is the apolitical nature of less-educated working class in US, which is different from their European counterparts, that there is no relatively firm political stand among American workers means they can easily swing either left or right. Since the economic problems were still not so obvious at the moment that George W. Bush won the election, cultural issues and later on war-on-terror rhetoric plays upper hand.  Thanks to the financial crisis, this time it seems that the tide would finally be turned into the direction favourable to the Democrats.   

Internationally, American image has been tarnished a lot because of Iraq war, Guantanamo and Abu Ghraib scandal, Fukuyama has endorsed Obama as a better choice to undertake the task to rebrand America because he seems to be pragmatic and less burdened with the past. In his opinion, America will eventually restore its influence, but whether or not American model will be attractive again depends on how flexible and adaptive it will become to solve the problems in reality. 

Still, it's a view being confined in the national interest mindset. It certainly has the merit of being historically clear. Another side of the story would be complimentary, as Will Hutton appeals for a more idealistic solution in this article, that 'it's time to build a new one based on fairness instead of naked greed.' 

Sounds familiar? On such a difficult and fundamental issue, French pundits are quite straight forward. The battle for a new model of society has begun, as this essay from Le Monde argues. In a structuralist's way, European countries in general, US and China represent three typical models of society. European social democratic model has been characterized by the social market economy and the state welfare system. Because of extremely heavy tax burden to redistribute social wealth (averagely 42% of GDP comparing 28% in Japan, 23% in US and 20% in developing countries), it's running out of steam to maintain national competitive edge in the 21st century. 

This is the backdrop that the right wing in European countries is coming back, which is in contrast with the situation in US. However, the left wing social foundation in Europe is still quite solid that the progressive values such as equality, solidarity and the fight against injustice are still held dearly by a lot of citizens, thus shaping a formidable political force that which is quite different from American ideologically swing working class identified by Fukuyama. 

The change of liberal laissez faire model would be in US after this financial crisis, as more government regulations and nationalizations are on agenda. Meanwhile, China is also trying its best to adapt to the new situation because it's been coupled for a quite long time with US. The financial crisis will either accelerate its decoupling process or enhance its coupling process with US, while it is facing challenges of wealth redistribution to construct a fairer welfare system within its own territory. 

Other than reshaping development models, a new model of global governance is also needed. We have entered a highly dynamic and uncertain time, multi-polar and more interdependent of course, but if it will be a kind of three-legged stool system, as Parag Khanna envisions in this essay remains to be seen.