Overview

Episode Title: Responding to the Global Crisis & Climate Change Mitigation and Development – UNCTAD Trade and Development Report Launch
Date: September 1, 2009
Host: Ken Shadlen (Development Studies Institute, LSE)
Main Speakers:

• Heiner Flassbeck (Chief Author, UNCTAD Trade and Development Report)
• Radhika Desai (Professor, University of Manitoba; Visiting Fellow, LSE)
• Dr. Robert Faulkner (Senior Lecturer, LSE International Relations)

Main Theme:
The panel discusses the findings and arguments of the 2009 UNCTAD Trade and Development Report, focusing on the causes of the global financial crisis, failures in the global economic system, the links to climate change, and proposals for systemic reform.

Key Discussion Points & Insights

1. Causes and Dynamics of the Financial Crisis

Speaker: Heiner Flassbeck
Timestamps: 02:06 – 49:20

• Global Economy and Lack of Critical Analysis

  • The 2008 crisis is the “biggest crisis in 80 years.”
  • Noted the strange lack of deep critical analysis by major institutions and policymakers. The IMF report, for example, failed to ask “what went wrong?” even six months after the Lehman Brothers collapse.

• Financial System: The ‘Global Casino’

  • Argues the crisis resulted from a vast speculative sector – multiple “casinos” outside the real economy (banks, commodities, currencies, etc.).
  • High expectations for returns (e.g., 25%) were unrealistic and fueled reckless risk-taking.
  • The analogy: “If we all go out tonight to a casino expecting 25% returns... any bank would throw us out. But this is exactly what happened.” (08:35)

• Speculation, Bubbles, and Debt

  • Financial speculation kept prices of assets and commodities artificially high, analogous to Ponzi schemes, until reality forced a crash.
  • Emphasizes that the real crisis was “betting and gambling with debt,” not productive investment.
  • The chain reaction: collapse in asset prices, debt deflation (Irving Fisher’s concept), leading to widespread bankruptcies and government bailouts.

• Failure of Financial Markets to ‘Get Prices Right’

  • Currencies, commodities, and asset prices moved in unison due to speculative herding, not economic fundamentals.
  • “The financial markets do not get the prices right. When you leave the financial markets to determine the most important price... speculation is driving currencies for years in the wrong direction.” (31:30)
  • Highly critical of the Washington Consensus and the belief that “leaving prices to the market” is efficient.

2. Critique of Policy Responses and Economic Orthodoxy

• The Political Response: Incomplete and Inadequate

  • Initial government measures (bailouts, public debt) followed a Keynesian logic, but the political will to confront systemic issues did not materialize.
  • “At that point, exactly, the political solution stopped. We have not seen any attempt to settle the systemic problem.” (23:27)

• Regulation and Superficial Fixes

  • Derides the G20’s creation of the Financial Stability Board as a recycled, ineffective gesture: “The Financial Stability Forum... was invented with the only target to detract attention away from the real problems...” (40:41)
  • Advocates for separating speculation from productive investment and implementing meaningful regulation.

• Need for Strong Government Intervention

  • Calls for governments to actively guide and intervene in financial and commodity markets, especially in fossil fuel pricing to address climate change.
  • Argues against the myth of “natural preferences” and the alleged “cost” of government-driven change.

3. Trade, Monetary Systems, and Global Imbalances

• Currency Misalignment and Systemic Risks

  • Excessive capital inflows led to overvalued currencies (e.g., Iceland, Hungary), exposing countries to collapse when the flows reversed.
  • Critiques the asymmetric burden on deficit countries under the dollar-centered system and calls for a more neutral, multilateral currency solution based on Keynesian logic.

• Proposed Solutions

  • A new global monetary system not dominated by a single country’s currency.
  • Capital controls and currency management to avoid destructive speculation and ensure fair adjustment between surplus and deficit nations.

4. Linking Financial Crisis to Climate Change

Speaker: Heiner Flassbeck & Dr. Robert Faulkner
Timestamps: 49:20 – 76:09

• Systemic Links

  • Both crises stem from failures to “get prices right”—risk in finance, resource use in climate.
  • Solutions require government-set price paths for crucial markets (esp. fossil fuels), not relying on free market adjustments alone.

• Flassbeck’s View on Climate Economics

  • Challenges the economic orthodoxy that combating climate change must carry a ‘cost’: "When society decides it wants to go into a future with less risk concerning climate change, it can do so anytime. There's no cost involved, because it changes the preferences." (48:10)
  • Reframes market “preference” as socially constructed, often by corporate advertising or government policy.

• Faulkner’s Analysis

  • Praises the report for integrating financial and climate crises, highlighting both as failures of market pricing and governance.
  • Draws distinction in political dynamics: finance reform is concentrated among major economies, while climate change involves numerous stakeholders (developing countries, industries, consumers).
  • Warns that financial constraints and international politics limit policy effectiveness, especially for the global South.

5. Respondent Perspectives

Radhika Desai (49:38 – 64:43):

• Commends the TDR’s critique of neoliberalism and financialization, linking the current crisis to the dominance of the dollar and capital flows.
• Emphasizes the Keynesian inspiration behind proposals for a new global currency and monetary system.
• Critiques insufficient stimulus and the IMF’s ongoing austerity emphasis during a recession.
• “The dollar’s world role has made its own independent contribution to financialization, to the crisis, and therefore it's important to do away with it. We need a global monetary system...” (61:20)
• Argues for a balanced system, not dominated by any state, where both deficit and surplus countries bear adjustment responsibilities.

Robert Faulkner (64:45 – 76:09):

• Highlights the report’s linking of financial and climate crises, both rooted in market and governance failures.
• Stresses differences: financial crises are faster and affect fewer actors; climate change is long-term, implicates global stakeholders.
• Recognizes the challenge of engaging developing countries in climate mitigation, whose “policy space” is being further constrained by the financial crisis and shifts in international diplomacy.

Memorable Quotes & Notable Moments

• Heiner Flassbeck:

  • “What really has happened is that we have built a big, big casino outside the real economy.” (09:30)
  • “Casinos are not productive. Casinos do not produce a return on investment. For some, yes, but not for all.” (10:13)
  • “You cannot defeat the increase in global temperature if you’re not willing, or you’re not able, or a combination of both, to move the price of fossil fuels upwards...” (44:25)
  • “Betting is always a zero sum game. And if the betters are bailed out by government, it's clearly a negative sum game for society.” (42:30)
  • “The Financial Stability Forum was invented with the only target to detract attention away from the real problems..." (40:41)

• Radhika Desai:

  • “UNCTAD... has fearlessly pointed to the real causes of the crisis, including when it involves pointing the finger at powerful countries and institutions.” (51:04)
  • “Free markets are not good. Financial sectors do not allocate capital efficiently but encourage speculation.” (54:19)
  • “We need a system that does not give us one country, the reserve currency country... the right to run unlimited trade deficit, which is basically a right to collect tribute from the rest of the world.” (62:00)
  • “...the possibility of creating such a [Keynesian] system is more propitious today than it ever was.” (64:29)

• Robert Faulkner:

  • “Both the financial and climate area, we fail to produce the kind of policies... to tame market forces when they go out of bounds.” (66:50)
  • “There are a lot of veto players in the room, many more so perhaps, than in the financial crisis, and they are very powerful indeed.” (71:50)
  • “...the current confluence of two crises will reduce [developing countries’] opportunities for a few years to go.” (75:40)

Noteworthy Timestamps

• Overview and Introduction: 00:00 – 02:06
• Heiner Flassbeck Main Presentation: 02:06 – 49:20
• Radhika Desai Commentary: 49:38 – 64:43
• Robert Faulkner Commentary: 64:45 – 76:09
• Audience Q&A & Responses: 76:09 – 87:44

Concluding Remarks

This lecture presents a sweeping indictment of recent global economic trends, the failures of financial markets and policymakers, and provides a trenchant critique of neoliberal orthodoxies. The panel not only diagnoses deep systemic problems in the financial and monetary system—highlighted by the 2008 crash—but links them conceptually (and strategically) to the global challenge of climate change mitigation.

The podcast is rich in critical insights, bold policy recommendations (e.g., a new global currency, active government price management), and a consistent thread: markets—if left to their own devices and dominated by speculative, short-term interests—cannot deliver stability, fairness, or sustainability. Governments and international institutions must thus embrace far more proactive, interventionist roles to address global crises.

For Further Exploration

• [38:00] – Data and examples of price correlations across markets during/after the crisis
• [44:25] – On climate change policy and price-setting for fossil fuels
• [53:55] – Desai on the failings of neoliberalism and proposal of a global currency
• [66:50] – Faulkner: Systemic governance failures and political obstacles to reform

Summary prepared by the LSE Film and Audio Team Podcast Summarizer.