The last time a global depression originated in the United States, the impact was devastating not only for the world economy but for world politics as well. The Great Depression set the stage for a shift away from strict monetarism and laissez-faire policies toward Keynesian demand management.
More important, for many it delegitimized the capitalist system itself, paving the way for the rise of radical and antiliberal movements around the world. This time around, there has been no violent rejection of capitalism, even in the developing world. In early , at the height of the global financial panic, China and Russia, two formerly noncapitalist states, made it clear to their domestic and foreign investors that they had no intention of abandoning the capitalist model.
No leader of a major developing country has backed away from his or her commitmentto free trade or the global capitalist system. Instead, the established Western democracies are the ones that have highlighted the risks of relying too much on market-led globalization and called for greater regulation of global finance.
Why has the reaction in developing countries been so much less extreme after this crisis than it was after the Great Depression? For one, they blame the United States for it. Few developing countries consider themselves to have fully adopted that model. Indeed,for years before the crisis, they had been distancing themselves from it.
The financial crises of the late s in East Asia and Latin America discredited many of the ideas associated with the so-called Washington consensus, particularly that of unalloyed reliance on foreign capital.
