Analysis

Decade After Lehman Fall, Political Risk Remains High

The key question is whether the instability will begin to tail off if economic growth continues in the years ahead

Protestors hold signs behind Richard Fuld, Chairman and Chief Executive of Lehman Brothers Holdings, as he takes his seat to testify at a House Oversight and Government Reform Committee hearing on the causes and effects of the Lehman Brothers bankruptcy.
REUTERS/Jonathan Erns/Files

This Saturday marks the 10th anniversary of the height of the international financial crisis, considered by many economists to have been the worst since the Great Depression of the 1930s. A decade on from September 15, 2008, which saw the collapse of Lehman Brothers and the global financial system teetering on the precipice, the fallout has been profound, and not just economically.

The last decade has also witnessed significant international political turbulence, manifested in the rise of anti-establishment populists riding an anti-globalization mood across much of the world.

This may have reached its apotheosis in 2016 with the election of Donald Trump and the United Kingdom voting to leave the European Union. What was so striking about both these events was that two of the countries previously known for their political stability and as the traditional rule-makers of the international order, made the world a much more uncertain place.

However, while 2016 may prove to be a defining year for historians, significant political volatility has actually been a feature of international politics for much of the post-crisis period.

This had been predicted, to some degree, as early as February 2009 when then-U.S. Director of National Intelligence Adm. Dennis Blair asserted that “the primary U.S. security concern is now the destabilizing global political fallout” of the financial crisis, and then-Secretary of State Hillary Clinton argued that “this economic crisis, left unresolved ... will upend governments, [and] it will unfortunately breed instability.”

One of the interesting features of the political turmoil since then is that it has impacted emerging and developed markets alike. Most eye-catching have been the political revolutions, popular uprisings and protests in emerging markets.

This includes the so-called Arab Spring, which began in Tunisia and subsequently spread to include revolutionary changes of power in Egypt and Libya; the transfer of power in Yemen; and the demonstrations and uprisings in countries as disparate as Algeria, Bahrain, Jordan, Morocco and Oman. There was also the Ukrainian revolution of 2014, which resulted in the ousting of pro-Moscow President Victor Yanukovych; the Brazilian demonstrations of 2013, the largest in the country for some two decades; and the 2011 Azerbaijani protests against the government.

Developed countries have also taken a political hit, too. In Europe, for instance, millions have taken to the streets and administrations in more than half of the 27 EU states fell or were voted out of office from spring 2010 to 2012 alone. Within the core Eurozone, 11 of 14 governments collapsed or lost elections during those same two years.

To be sure, this broad range of instability has diverse origins, with economic issues not the only driver. Unrest in the Arab world stemmed from deep-seated political and socioeconomic discontent that predates the financial crisis. Post-2008, however, factors including liquidity crunches, increased food prices and unemployment spikes have exacerbated these longer-standing grievances.

In Europe, meanwhile, the role of economic downturn and austerity was central to unrest in numerous countries, especially those most impacted by the Eurozone crisis. Even here, though, unrest has tapped into pre-existing disquiet with established political parties, hence the meteoric rise of new groups like Syriza in Greece.

Nevertheless, this disparate range of political disruption across the world has reportedly been described as “a revolutionary wave, like 1848” by Sir Nigel Inkster, former director of operations for the U.K. Secret Intelligence Service. Others have compared the situation to the years 1914, 1968 and 1989.

Whatever the validity of these historical analogies, it is clear that there are some genuinely new factors to the post-2008 period. This includes the disruptive role of social media and other technologies.

There remains debate about how instrumental social media have been in fomenting political instability. However, whether one sees it as an essential component that translated discontent into concrete action, or has accentuated what was already inevitable, indisputably it has played a mobilizing role that may only grow as technology advances.

Going forward, a key question is whether political instability will now tail off, especially if economic growth sustains itself in much of the world in coming years.

While this is possible, the consequences of the financial crisis may endure for many, especially the young. In Europe, for instance, Angela Merkel had spoken of her fears of a “lost generation” with youth unemployment spiking above 50% in Greece and Spain. This puts many at risk of long-term damage to earnings potential and job prospects, fueling discontent that may well continue to fuel protest.

Secondly, the political salience of economic inequality has also grown in many countries. Both the populist right, and left, have capitalized on this factor as shown by Trump’s 2016 win, and the 2018 landslide victory of Andres Manuel Lopez Obrador in Mexico, with both victories framed as part of the anti-globalization backlash.

On the 10th anniversary of the crisis, a significant prospect of political volatility therefore remains across the world. While circumstances will vary from country to country, future political instability will potentially be fueled not just by economic inequality and legacies of the financial crisis such as higher youth unemployment, but also longer-standing political and socioeconomic discontent to which social media are giving fresh impetus.

Andrew Hammond is an associate at LSE IDEAS at the London School of Economics.