Market bashing puts global players on the wrong track
Marxian eschatology lingers in the tendency to blame markets and capitalism. It's wrong. Here's why.
Stemming from religion and philosophy, the apocalyptic visions of history made their way into the realm of polity through Marxian theory. Under capitalism, the interplay of market forces was expected to accentuate social antagonisms, the concentration of capital and the recurrence of economic crises to such a point that the whole system was doomed to collapse.
A “final crisis” would pave the way for the advent of an egalitarian, communist society. In the transition phase between the capitalist inferno and the communist paradise, the State would take over from the market the control of the economy. Thus spoke Karl Marx.
History decided otherwise. It was not capitalism but the communist utopia, and the socialist State, which fell apart like a house of cards. At the same time, globalization has unambiguously brought out the potential of market competition both to even out the international distribution of economic power and to reduce world poverty in a manner never envisioned by the Cassandras of capitalism.
And yet, the three essential ingredients of Marx’s failed prophecy – doomsday mongering, market bashing and State worshiping – have intriguingly outlived that prophecy and pervade international policy-making in current times.
We see it, to begin with, in the work of international bureaucracies on global warming. There we have a catastrophe announced: Human life is said to be in peril. With the market in the role of culprit, industrial activity, driven by the lure of profit, is wrecking the environment. And the State is the solution: Draconian carbon restrictions need to be enforced if we want to bequeath a liveable environment to future generations.
Never mind if scientific authorities and economists retort that global warming is not necessarily man-made and may be due to cyclical solar activity; that carbon restrictions would not do the trick; that no matter how many resolutions are adopted in international forums, governments would never implement restrictions that would sink the competitiveness of their industries. Conventional wisdom remains deaf to these objections; and to make their case prevail, the custodians of the temple have gone as far as tinkering with data and thwarting the publication of contrarians’ studies in peer reviews – hence Climategate.
A similar pattern can be found in the handling of financial crises.
Take the subprimes. There, too, we had a disaster announced: The crisis could provoke nothing less than the collapse of the entire banking system. And the market was the culprit: The financial deregulation at the end of the 20th century cleared the way for the unbridled misbehaviour of banks. And the State was the salvation: Stimulus packages, government bailouts of distressed banks and a more stringent regulation of the financial sector were alleged to be the sole means of getting us out of the mess.
Never mind if, after hundreds of billions of dollars of taxpayers’ money spent in stimulus packages, US unemployment remains at unusual highs; if the expectation of being bailed out encourages imprudence in banks’ investment choices; if the origin of the crisis should be located, not in deregulation, but in State interventionism: Jimmy Carter’s Community Reinvestment Act, Bill Clinton’s push for banks to lend to subprime clients and Alan Greenspan’s low interest rate policy were all at the core of the crisis.
Conventional wisdom remains deaf to these objections; and to make their case prevail, the custodians of the temple overestimated the scope of the systemic risk and the need for government intervention – as a study commissioned by the Federal Reserve Bank of Minneapolis contends.
Cue the Greek crisis.
Once again we have a catastrophe on the horizon: default on Greek sovereign debt would have a devastating domino effect on the whole Eurozone. With the market playing the bad cop, driven by the profit motive, banks imposed excessively high interest rates on Greece’s sovereign bonds and, moreover, advised the government of that country on how to do creative accounting so as to qualify for eurozone membership. And the State is cast as good cop one more time: Both European governments and the European Central Bank need to rescue Greece – with taxpayers’ money of course – so as to prevent default.
Never mind if the exposure of major European banks to Greece’s sovereign debt is not substantial enough to fatally endanger the European banking sector; if, given the chaotic state of Greece’s finances, banks had no other alternative than to request an interest rate premium to lend to that country; if, with sovereign debt at around 150 percent of the country’s GDP and climbing, default is just a matter of time; if Europe’s taxpayers will hardly ever get their money back.
Conventional wisdom remains deaf to these objections; and to make their case prevail, the custodians of the temple do not hesitate to advance conspiracy theories that put the blame for Greece’s predicament, not on a profligate management of public finances and a bloated Welfare State, but on foreign speculators and international rating agencies.
The problem is, doomsday mongering or market bashing and State worshiping is not an innocuous policy. It carries a cost as it diverts attention, policy priorities and resources away from efficient solutions.
In the case of global warming, the cost is represented by the stubbornness in advocating unviable carbon restrictions instead of inducing the market and scientific innovation to eventually correct global warming through techniques and devices grouped under the name of geo-engineering.
As regards financial crises, the market has a couple of solutions at its disposal. They are called bankruptcy and default. And both have proven their efficacy. Two examples. Bankruptcy succeeded in the case of CIT: A bailout of $2.3bn couldn’t prevent that bank from finally filing for bankruptcy in November 2009, which enabled it to attract fresh bank funding and come to life again.
Default, in turn, gave Argentina the opportunity to restructure its debt in 2002; the country has now renewed itself with sustained economic growth despite a government that is not a model of efficient management to say the least.
It is high time for major global players and international bureaucracies to cut ties with the relics of Marxian eschatology and let the market exert – without counterproductive State interference – its salutary influence on economic activity.
Fabio Rafael Fiallo is a writer and a retired UN official. His latest publication, “Ternes Eclats” (“Dimmed Lights”), Paris, presents a critique of multilateral diplomacy, including of the anti-Israel bias that prevails in a number of international forums.
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