For more than two decades, the world's economic growth and development was largely fuelled by globalisation-the opening up of financial and product markets, and the emergence of economies such as China, India and Brazil. This process was hit by an earthquake with the global financial crisis of 2008, an event which some have dubbed the “first crisis of globalisation”.
The crisis revealed serious fissures in the globalising economy-including a failure of international governance and regulation to keep up with a world changed utterly. As livelihoods collapsed, public trust wavered and people cried out for new, more secure management of their economies. The OECD supported these calls, and in 2009 warned against going back to business as usual. Now, changes are afoot.
It will be some time before new systems of governance are fully in place, but clues to their political direction are already clear. Look, for instance, at the G20 group, which brings developed countries and emerging economies around the same table, effectively superseding the role of the G8.
The financial crisis revealed failures of governance elsewhere, most notably in financial regulation, and within banks and financial institutions. Buoyed by the belief that they had effectively conquered risk, banks loaded up on lending, and shareholders and boards failed-or were perhaps unable-to understand the implications. After all, what government, or indeed individual, did not believe they too should benefit from the boom, whether by investing in new services or buying a new home? Everyone knows the answer to that now, as taxpayers in many OECD countries will be paying the price for this recklessness and lack of vigilance for years to come. Regulators should have known better, but in many countries they too were blinded by the promising light of financial innovation. When the truth dawned as the crisis finally hit, the resulting collapse in trust between financial institutions paralysed lending to businesses, consumers and public authorities, deepening the ensuing recession. Only a massive joint effort by the world's governments through the G20 averted a complete collapse and possible depression.
The impact of the crisis has spurred governments and regulators into action for the long term too . Nationally and internationally, new financial regulations are being designed and implemented, although clearly more needs to be done , as banking conditions across the OECD area remain fragile . Other lessons of governance have also been drawn , leading to a new determination to tackle tax evasion and to stamp out corruption , led in no small way by OECD initiatives . The need for such actions is clear. The cost of fighting one crisis has left governments hard pressed to manage their economies and ill-equipped to fight another crisis : financial regulation needs to work and put banks on a firmer footing; activities like tax evasion and bribery, which deprive governments of tax revenues, warp economic activity , and fuel inequality and underdevelopment , need to be eradicated. For the sake of keeping the trust of voters, governments also need to be able to reassure citizens that their affairs are in safe hands. They know that trust and good governance are essential for our economies to move forward . Failure to restore them could fuel a crisis even more serious than the one we've just been through.