A Critique of Gordon Brown's Beyond the Crash: Overcoming the First Crisis of Globalisation
Gordon Brown was the Prime Minister of Great Britain from 2007 to 2010, coinciding with the initial years of what is now called The Great Recession. He has written a memoir that sets out his economic policies during that crisis and his thinking about what is needed by way of international cooperation to pull the world out of its funk. In this article, we describe the content of his book, Beyond the Crash, and critique what he tells us about both the policies and the aspirations. Our conclusion will be that although Brown shows himself to be a thoroughly decent man, his actions and prescriptions for the future fall far short of what was and is needed.
Key Words: Gordon Brown; The Great Recession; Bank recapitalization; Global economic cooperation; Proposals for economic recovery; Needed financial reforms; Knowledge-intensive industries.
As Britain's Prime Minister and leader of the Labour Party from 2007 to 2010, Gordon Brown was one of those who played a central role in confronting the world financial crisis, the high point of which occurred precisely during those years. Beyond the Crash (Free Press, 2010) is "a first-hand account... of how choices (and mistakes) were made," but its main thrust, as the title suggests, looks beyond the immediate crisis to consider how best the world can rebuild. This is an important book which readers will find easily readable, since it is neither technical nor overwrought. This is not to say that readers do not need to approach it with a critical eye, since there are fundamental points to be made by way of critique.
Although the crisis was global in impact, its origins were in the United States. Brown has no interest in pointing a finger of blame, but his narrative does mention, as so many books now have, the ingredients that produced the catastrophe: the credit expansion and consequent real estate bubble, the proliferation of subprime home mortgages, the bundling of those mortgages into complex and opaque securities that were given Triple A ratings and sold to investors throughout the world as what eventually proved to be a pool of unknowable toxicity, the extraordinary amounts of leverage leading to serious undercapitalization and extreme risk, the rise of an unregulated "shadow banking system" that kept this off the books of ordinary banks, the granting of excessive compensation that absorbed much of the institutions' needed capital - and other derelictions too numerous to mention. We know, too, of course, that there was a failure of regulation resulting from a number of factors, one of which was the then-prevalence of the theory that "rational markets" are selfregulating, and another of which is that the regulators in the bureaucracies seldom have the talent needed to stay ahead of those they seek to monitor.
Brown doesn't make a point of it, but the result of its American origins was that Brown's efforts to contain the crisis were necessarily secondary to those attempted by monetary authorities in the United States. In common with Henry Paulson, the U.S. Treasury Secretary, and Ben Bernanke, the chairman of the U.S. Federal Reserve, Brown addressed the beginnings of the crisis by saving one large, "systemically vital" bank at a time, as each, in turn, came under distress. From his distance across the water, he didn't particularly have occasion to consider the suggestions of those who wanted, instead, to strike at the origins of the crisis by refinancing the mortgages and thereby curing the securities of their toxicity; that was something that had to be done, if at all, in the United States, not by the British. (If he had been aware of the recommendations that some commentators were putting forward for such a remedy in the United States, it would have been appropriate for him to press his American counterparts to consider it. That was an opportunity lost, to be sure; but Brown is hardly to be faulted for it, since "the ball wasn't in his court" on that matter. …