To be fair, it was not as if Americans had been oblivious to the need for regulatory development. But the legislators were still learning the lessons of the previous crisis, rather than the one that was developing. The Sarbanes Oxley Act, passed in 1999, was intended to remedy the corporate governance deficiencies that had contributed to the demise of Enron and WorldCom. It did nothing about the looming tsunami of toxic debt. Meanwhile, the British Government was doing little to restrain an exuberant financial sector. Indeed, Britain had long prided itself on its ''light touch'' regulation of financial services, which was believed to be a factor in the pre-eminence of the City of London as a financial centre. It soon became apparent that, like their US counterparts, British banks had entered enthusiastically into the sub-prime market, and now had billions of pounds of rapidly devaluing assets on their books. Prime Minister Gordon Brown and his Government had little choice but to bail them out, using taxpayer-guaranteed credit to reinforce their balance sheets and to guarantee inter-bank lending.

The point about regulation is that, in a high-risk global economy, virtue is no saviour. As the financial crisis turned into a global recession, the two countries that were hardest hit were Germany and Japan. Both had relatively regulated financial sectors, but both were also major exporters of production goods used by manufacturers in other countries. As the recession began to bite, the first thing many of their customers did was to cancel orders for new plant and equipment. As advanced countries with highly-developed infrastructure, there was not much point in governments attempting to boost demand by investing in still more roads, bridges and terminals. And stimulus packages aimed largely at consumers were unlikely to have much effect when so many people feared for their jobs.

From the point of view of political economy, then, Australia's seeming immunity from the worst of these problems (at least so far) relates more to our position as a supplier of resources to the ever-resilient Chinese, than it does to any particular cleverness on our part. Even our very low public debt (which gave the Rudd Government room to spend massively to boost consumer demand and to keep people in jobs) has come at the cost of much-needed public investment. It is ironic that it takes a global financial crisis to loosen the purse-strings, however temporarily.

Ultimately, the world will haul itself out of the current trough, and growth will resume until the next crisis. As more and more countries enter the global economy (even Myanmar and North Korea have their external links), the system as a whole tends to become less predictable and more unstable. This is because no one country is large enough (or even willing enough) to act as global economic stabiliser. The Americans abandoned that role when they went off the gold standard in 1974, ushering in the prolonged period of stagflation that bedevilled economies during the 1980s (and may yet recur).

There is further cause for concern, because the large economies that are now emerging as global players Brazil, Russia, India, and China have little hesitation in using state power in the service of economic ends (and vice versa). ''So what else is new?'' you may ask. Well, nothing every country that has successfully industrialised has used public policy to underpin production. It is just that, with China in particular, we have a non-democratic nation with an enormous population, where no real distinction is made between state power and the economy. Australians are now starting to learn this, with the detention of Stern Hu and others, but the effects of China's way of doing business are felt far more broadly.

The Americans have long complained about the artificially low value of China's currency, which makes Chinese exports cheaper and their imports dearer than would otherwise be the case. But the protests have not been completely wholehearted. For the American capitalist investing in China, the advantages of low-cost production using cheap labour and the latest machinery have proved irresistible. The real losers are the ex-working class of the United States, now permanently unemployed, and we have come full circle now a tempting target for the manufacturers of exotic credit instruments.

We might also spare a thought for the ordinary people of China, the real producers of that country's amazing economic growth, who are shunted back to their villages when the factories shut down, and even when times are good, work in cities so polluted they are a health hazard in themselves. With no effective representation of their interests to force the state to spend on pollution control, and rampant corruption throughout, it is likely that China's growth will short-change many of the people of the People's Republic for some time to come.

Jenny Stewart is professor of public policy in the University of NSW, at the Australian Defence Force Academy.