Global Economy

[acharya]

Economic orthodoxy was built on superstition

Madeleine Bunting

There is no alternative, went the mantra. Now this corrupt mythology lies in tatters, the crisis of conviction is profound.

Over morning newspapers with BBC radio in my ear, I eye my garden nervously. If I ripped up the roses and the lavender, how many rows of potatoes could I fit in? Enough to feed a family? Is this madness or not? And why is it that I no longer trust the economists and policymakers to give me a straight answer to that question?

There is a strange air of suspense. Everyone agrees that things could get grim, but what does that mean? Grim, as in a bit of nasty unemployment, or grim, as in total economic breakdown with queues for soup kitchens and millions living off their allotments? If the latter sounds fanciful, there are countries like Argentina and Russia who can tell you from bitter recent experience what happens when economies collapse.

Gordon Brown, fearful of “self-fulfilling prophecies,” instead offers a tinny upbeat message. Everyone knows now that it is all about confidence: will savers panic and move their money to Ireland, crippling British banks? The circumspection of the wise men becomes sinister. On BBC radio’s morning Today programme, presenter John Humphrys pressed Richard Lambert, director general of the Confederation of British Industry, for his forecast. Mr. Lambert hesitated, replying with, “my hope is ....” “No, no,” interrupted Mr. Humphrys, “what is your forecast?” There was another hesitation before Mr. Lambert nervously “forecast” a grim 18 months before life resumed as normal. It sounded like a hope. No one has any idea what is going to happen.

No sooner do economists or government ministers make a pronouncement using words such as “impossibility,” “unlikely” or “never,” than they are having to eat them. If these are uncharted waters then perhaps we are at the moment when the tsunami is visible on the horizon, and the tide has suddenly retreated, and fish are stranded, gasping for oxygen all over the beach. But don’t get too bogged down in seed catalogues (and forget trying to get your head around collateralised debt obligations — even the Financial Times’ banking correspondents admit it is “fiendishly complicated”), the average citizen has a far more important plot to unravel: how did we get in this mess, and how do we make sure it doesn’t happen again?

Answering these two questions does not require a crash course in high finance and economics, because this crisis is as much about politics and ideology as anything. If you’re pressed for time, the reading list can be very short. Key is Karl Polanyi’s The Great Transformation, published in 1944, an economic history which sets out to explain 1929, the Great Depression and the rise of fascism. Polanyi’s book came out the same year as another influential Austrian economist, Friedrich Hayek, brought out the central text of neoliberalism, The Road to Serfdom.

Hayek became the founding father of a model of economic management which has brought us to the current crisis; Polanyi, with extraordinary prescience, warned that the crisis would come; he rejected the idea that the market is a “self-regulating” mechanism which can correct itself. There is no “invisible hand” such as the neoliberals maintain, so there is nothing inevitable or “natural” about the way markets work: they are always shaped by political decisions.

At the time Polanyi was writing, there were many who agreed with him that free-market capitalism was chronically and destructively unstable, with terrible political consequences. But in the 1970s and 1980s, Hayek’s neoliberalism began to take hold on the U.S. ruling elite, Margaret Thatcher was recruited — and in due course Tony Blair and Gordon Brown. “Roll back the state, leave the economy to run itself” has held sway ever since. As Ann Pettifor points out on her website, debtonation.org, Alan Greenspan wrote enthusiastically in August that “the past decade has seen mounting global forces (the international version of Adam Smith’s invisible hand) quietly displacing government control of economic affairs.” He blithely continued that the greatest danger facing the economy was that “some governments, bedevilled by emerging inflationary forces, will endeavour to reassert their grip on economic affairs.” Last week, Greenspan did a gigantic volte-face as he pleaded for government to do just that — reassert its grip in the form of the bail-out.
Self-destructive

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. Its triumphalist arrogance, its insistence on orthodoxy, has been comparable to Soviet communism in its scale. For two decades, we’ve been told “Tina” — “There is no alternative.”

Economists talk of trust, belief, faith; we now understand that all along neoliberal capitalism was a form of mythology. That’s why the triumphalism was necessary — you could not afford to have anyone challenge the system or we might all realise we were gawping at the emperor’s nakedness. Rowan Williams, the leading English churchman, was right to quote Marx, that “unbridled capitalism becomes a kind of mythology, ascribing reality, power and agency to things that have no life in themselves.” Richard Dawkins should be critiquing this superstitious belief system.

Fortunately, Thomas Frank did so in his brilliant book, One Market Under God (2001). This is the second book on the reading list, because it explains how neoliberalism entrenched its triumphalism into the political system of the U.S.; how it marginalised and delegitimised all challenge and established hegemony in the so-called free world.

Now, as it all totters, we can take stock. We can ask how and why the critique — of which Frank was a part and Polanyi the bible — which was emerging in the late 1990s was crippled. The anti-globalisation movement argued that neoliberal capitalism was unjust, unstable and destructive to human and environmental wellbeing. Sounds sensible now, but at the time it mysteriously got smeared by association with anarchists with a penchant for smashing Starbucks’ windows. The broad network of social grassroots movements — U.S. unions, Mexican peasants, Indian farmers — were misnamed, misunderstood, ridiculed and ignored. There is no alternative, the politicians intoned mantra-like.

Then 9/11 and for the next seven years a sideshow was offered as a distraction with caricature villains and thriller drama. While eyes were on the absurd charade of the “threat of Islamist terrorism to western civilisation,” the real doomsday scenario that poses a far greater threat to western civilisation (whatever that is) was gathering pace right next to Ground Zero, in Wall Street.

As in all mythologies, the only option, according to Timothy Garton Ash (not noted for his religious faith) in the London-based Guardian recently, is to pray. What makes me frightened is that this is a corrupt mythology which, like that of the Aztecs, may require a lot of human sacrifice. — © Guardian Newspapers Limited, 2008