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End of Globalisation?
By Michael Cebon | October 22, 2008
I thought it would be great to start off this blog with a discussion about whether the current financial crisis means that we’re seeing the end of globalisation, or at least of neoliberalism – the economic philosophy which has driven economic globalisation for the last 30-odd years.
Back in 2005, Canadian intellectual John Ralston Saul published a fantastic, prescient book called “the Collapse of Globalism” (you can read an article by Saul from Harpers magazine summarising his book here or hear an interview with Saul about the book here (mp3)).
Saul’s essential argument was that over the previous three decades, an ideology had developed which argued that business and the “free market” could run society much better than governments could, and that if governments simply got out of the way – by deregulating the economy, privatising government services and liberalising trade – everyone would benefit (as in “a rising tide lifts all boats”). Of course the argument went that this model was best not only for the rich West, but would apply equally well across the world – hence “economic globalisation”. The result would be that nation-states would eventually basically disappear, leaving the running of the world to the agents of the free market, multinational corporations.
With the help of Thatcher, Reagan, and Australia’s own Paul Keating, this ideology (often called “neoliberalism” or “economic liberalism”) was clearly ascendant across the West during the 1980s and 1990s. Saul argued that by 2005 it was clear that the ideology had failed, that markets weren’t solving the problems they were claimed to, and that governments were clearly reasserting themselves, despite all the claims that they were just about to disappear.
At the time it was published I thought it was a great argument, if a little bit hopeful about how quickly globalism/neoliberalism/corporatist capitalism was falling apart. But in the last couple of weeks – spurred by the collapse of various US financial institutions and the subsequent credit crisis, which may turn out to be a full-on global economic crisis – commentators across the world have been revisiting Saul’s ideas.
For instance, Australian economist John Quiggin writes that:
the whole free-market ideology variously referred to as economic rationalism, neoliberalism or the Washington Consensus, is in serious trouble, at least as regards the role of financial markets. The central element of financial neoliberalism is the claim that modern global financial markets can do a much better job of managing risks than can national governments. Given the array of sophisticated financial products available to individuals and households, for example, it is assumed to be much better to rely on markets to provide retirement income than on public pension schemes.
The neoliberal view is the polar opposite of the Keynesian social democratic view, informed by the experience of the Great Depression. In this view, not only are governments the ultimate risk managers, but financial markets are part of the problem not part of the solution. While being necessary to mobilise private investment in a mixed economy, financial markets are seen, in the Keynesian view, as being inherently prone to destabilising speculation, which can induce large-scale macroeconomic failures.
The events of the last few weeks represent a striking failure of the neoliberal position. . . . as time passes, it will become steadily more evident that the day of neoliberalism is done.
In the UK, the Guardian’s Madeline Bunting wrote a couple of weeks ago that:
We are now learning what countries across the developing world have experienced over three decades: unstable and inequitable neoliberal economics leads to unacceptable levels of social disruption and hardship that can only be contained by brutal repression. Add that to the two other central charges against deregulated capitalism: first, it may create wealth but it does not distribute it effectively; and second, that it takes no account of what it cannot commodify – neither the social relationships of family and community nor the environment, which are vital to human wellbeing, and indeed to the functioning of the market itself. Ultimately, neoliberal capitalism is self-destructive.
We are now witnessing the collapse of this absurd economic orthodoxy that has dominated politics for nearly 30 years.
While it’s obviously incredibly difficult to predict the future, it’s clear that this crisis has dealt a fatal blow to an ideology that says: the problems in the world are caused by governments intervening in the efficient functioning of the market, and what is needed is for governments to deregulate and let the “free market” do its work. For the next few decades at least, the “2008 crisis” will be the easy rebuttal for this argument. The crisis has also seen the practical return of governments across the world as the most powerful actors in their national economic systems after many years of talk about how corporations are now bigger and more powerful than governments.
But at the same time, university economics departments and government bureaucracies are still full of people who have been schooled in nothing but the neoliberal orthodoxy, and who will continue to teach and advise the same – though now clearly failed – set of prescriptions in every area from trade policy to health or transport policy. While neoliberalism has clearly failed, there will be a lot more work convincing governments why this means it should no longer be applied, and advocating hard for alternatives.
Topics: Global Economics | 3 Comments »
October 22nd, 2008 at 5:20 pm
I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.
November 3rd, 2008 at 2:31 pm
Yeah. good work Mike. Sooner or later our crazy practice of externalising the risks to people ‘out there’ in the peripheral economies had to come back to haunt us.
Madeleine Bunting sums up this well.
Yet economic rationalism is hard to overcome when people most severely affected are far away and decisionmakers can dismiss them. Our economic system is a cost externalising machine: the vulnerable will again lose out before the reckless feel the pinch… How to bring the afflicted face to face with their afflictors?
November 5th, 2008 at 5:47 am
After underpinning the international political economy for decades, the flaws and failings of neoliberalism are exposed as a deep and festering wound that no one can ignore. Yet the powerful beneficiaries of an ideology long promulgated against strong evidence to the contrary as irrefutable economic science by global institutions, top universities, think tanks and the media – all backed by transnational corporations with more wealth and clout than many nations – are using their considerable resources to revive the ailing patient. The end is not yet nigh. Clearly, however, as Americans line up to vote in unprecedented numbers and the world views the outcome in hopeful expectation, the time is ripe for what Naomi Klein is calling a progressive shock doctrine. Although we should not expect a counter-movement to flow top-down from a Democratic administration and presidency of Obama, whose top campaign contributor purportedly is Goldman Sachs and who has given little indication of significantly reducing the obscenely bloated military-industrial complex or veering too far from the neoliberal status quo, the campaign has energized progressives worldwide. The onus is on all of us who seek a better, more equitable and saner world to ensure that the strong momentum of grassroots efforts for change continues.