Introduction

In September 2008, the world witnessed an unprecedented assault on the financial structure that the West had taken for granted for the previous fifty years. Shockwave after shockwave battered the system. Every day seemed to bring a new calamity. In just three weeks, Lehman Brothers, a stalwart of the US banking system, collapsed; the prime US mortgage lenders, Fannie Mae and Freddie Mac, had to be nationalized; AIG, the world’s largest insurer, was brought to its knees and its very existence called into question (the company would receive a hefty US $85bn life-line from the American government to keep it afloat). And, in Britain, the bailout of banking giants Lloyds TSB and the Royal Bank of Scotland was running well above US $1.4tn (£850bn) in 2009. Through it all, trillions were wiped off stock exchanges from New York, to London, to Reykjavík, and most places in between, placing millions of people’s pensions and savings in jeopardy.

But however extraordinary and cataclysmic these events were, How the West was Lost is not about the immediate whys and wherefores of this shattering and unexpected financial disaster. It is undeniable that the crash overwhelmed the world but just like a tsunami that appears seemingly out of nowhere and leaves death and destruction in its wake, the events of 2008 were the inevitable consequence of fault lines and shifts in economic tectonic plates that lay undetected under the seemingly calm financial waters upon which Western economies had sailed smoothly for the last half-century.

However, unlike the plates beneath the sea, had these economic faults been detected and dealt with, the financial crisis of 2008 might never have happened; certainly not to the degree and with the ferocity with which it did occur. The collapse was the culmination of a catalogue of policy errors and mistakes that had been gathering momentum over the last fifty years, erupting into the worst financial crisis since the Great Depression. Extraordinarily now, as if blind to the real causes of the turmoil of 2008, many governments have kept these fl awed policies in place.

But there is a bigger story to be told. It is a mistake to view what happened as an isolated and relatively contained episode. In fact, what happened in 2008 marked yet another step in a fundamental transition from one economic power to another; from the West, to the Rising Rest.

For many a political scientist, this shift has troubling hegemonic consequences. To them, whether we live in a uni-polar world (for example, where the US dominates), a bi-polar world of, say, the Cold War era, or a multi-polar world governed by a multiplicity of states with differing political ideologies, is a matter of supreme importance.

But viewed through the narrow utilitarian prism of an economist, what matters most is economic prosperity (for the West, coupled with freedoms), rather than who ultimately rules the world. Economics and economists are guilty of viewing the world, economies and countries as if on a league table with only one winner, although it is undeniable that it is the global financier who decides who wields military and political might.

Should it really matter if some other country is richer and more militarily powerful? Who cares whether a country has economic supremacy, as long as your country is prosperous and can manage its own internal affairs? For example, the societies of Denmark, Sweden and Norway, each economically advanced, seem to have no qualms about who rules the world as long as they are left alone to be prosperous and peaceful, though their attitude might well change were whoever held the purse strings to start to curb their freedoms and encroach upon their way of life. But until that happens, whether the global financier is China, Russia or America seems, for them, largely irrelevant.

Obviously, the political–economic dichotomy is a false one. In reality, politics and economics are bound together, and even inextricably linked. That noted, however, in How the West was Lost I will focus on the economic shifts and how they are certain to transform the world in which we and future generations will live. Time is running out. Unless the West adopts radical solutions, many of them offered in this book, and adopts them quickly, it will be too late. Not because China will necessarily become so much richer, but rather because of America’s own folly in policymaking. How did the West give its undeniable lead away?