The global crisis (GFC) that began in late 2008 posed the biggest threat to economic prosperity since the Great Depression. Millions lost their jobs, homes and substantial portions of their wealth. In the aftermath, many countries have struggled to rebuild. The afflicted nations are far from the economic peaks they enjoyed prior to the GFC, and it will likely be several years before their unemployment rates are close to those of pre-crisis levels.
While a wide range of policies have been put in place to stabilize the world economy, achieving sustained growth will be difficult for crisis countries until they can get their domestic economies in order. They will need to reform their banking and corporate governance systems, reduce household debt, and cut budget deficits that have fueled the yen’s decline. Such changes will be more politically and socially disruptive than cutting interest rates, lowering money supply and overvaluing currency exchange rates that were the core responses to previous crises.
The GFC has also revealed the limits of traditional governmental authority. In the past, a crisis could be confined within the borders of a single country, where citizens viewed their government as both responsible for the problem and capable of solving it. In contrast, global crises require regulatory efforts that extend beyond a nation’s borders and call for nonhierarchical collaboration with institutions outside the nation-state (Findlay 2013). These new conditions challenge people’s perceptions of institutional legitimacy and make it harder to follow government guidelines when those guidelines are at odds or in conflict (e.g., populist EU governments advocating anti-immigration policies against EU immigration directives).