Akio Okawara

Executive Director
Sumitomo Shoji Research Institute, Inc.

A year after global financial markets were struck by the US subprime lending crisis, the situation took another turn for the worse on September 15 with the failure of Lehman Brothers. The picture failed to brighten in October; on the contrary, the new month brought a daily succession of big stories further shaking the financial world. With fears of a simultaneous global recession on the rise, stock markets around the world continued to plunge. The course of events is giving growing credence to the view that we are experiencing a “once in a century” crisis.

The financial crisis that started in the United States has now spread across the globe, and efforts to deal with it are being complicated by the change that has occurred in the global balance of power. The end of the Cold War brought a period of unipolar US domination, but more recently the prestige of the United States has been declining because of various factors, such as the relative decline of the US economy, the weakening of confidence in the dollar, the rise of the newly emerging countries (in political and security affairs as well as on the economic front), Russia's renewed power, and cooperation among anti-US countries like Iran and Venezuela. Observing this course of developments, people like Richard Haass, president of the US Council on Foreign Relations, suggest that the world has become not multipolar but “nonpolar.” And it is under this nonpolar order that we must try to deal with the current financial crisis.

Within the United States, the administration of President George W. Bush is increasingly taking on lameduck status, with key members already gone or in the process of leaving. This has exacerbated the crisis. A new president will be elected on November 4, but he will not take office until next January 20. And it ordinarily takes a new administration about half a year to get its people settled in important posts. Washington can be expected to take some emergency measures in response to the crisis, but the US system of governance itself is being tested. Whoever becomes president, the power of the Congress is certain to increase, as symbolized by the September 29 House of Representatives vote to reject the administration's economic stabilization bill, and so we can expect to see greater uncertainty in the area of government policy. Meanwhile, the decline in America's international prestige seems unlikely to stop, and we need to be ready for continuation of a nonpolar order, which is liable to delay the process of dealing with various problems around the world.

We are now seeing the pendulum swinging back from the private sector to the public sector, as indicated by such phenomena as the rise of resource nationalism and the strengthening of government controls over financial institutions. For business corporations this means an environment of stricter regulation and heightened compliance risks. For both governments and businesses, good governance will be all the more important in the period ahead.