Warning signs which cannot be ignored

Date: 04/06/1998

The EU and its allies are wrong to confuse the process of globalisation with the spread of a one-size-fits-all capitalist market, says John Gray, who argues that using free trade as a tool to change economic traditions threatens social peace

CONFUSING the process of globalisation with the imposition throughout the world of a single type of free market capitalism is not only an error, but a dangerous error.

Imposing a crude model of economic efficiency on all world economies and neglecting the social costs is a recipe for a political backlash.

The unintended consequences of many existing policies, such as the Multilateral Agreement on Investment (MAI) or excessive market harmonisation within the EU, could be the re-emergence of the very classical protectionism they seek to prevent.

The growth of the far right in many European countries is a warning sign which should be taken seriously by liberal parties, whether they be of the left or the right. It is a warning sign that the relentless pursuit of economic efficiency without regard to enduring human needs and social cohesion produces recurrences of atavism.

It is not going too far to say that in some European countries there is now a palpable risk that the classically flawed political responses to economic insecurity that we saw in the Thirties, such as scapegoating foreigners and minorities and growing hostility to concepts of freedom, could be reproduced in a different form now.

Of course, unlike the Thirties, there are practically speaking no totalitarian regimes in the world and few mass movements, since we live in a period of mass political demobilisation.

Yet, like the Thirties, anti-liberal parties, which had been on the margins excluded from the mainstream of political life, are starting to set the parameters within which the mainstream parties frame policy. We are not far from that situation in Austria or even in France, where the centre right is unravelling, and recent statements from the Bavarian Christian Social Union (CSU) suggest that even in Germany, mainstream politicians are trying to appease the far right.

This is a dangerous and combustible brew for European countries.

Of all the factors which contribute to this, none is more important than mass unemployment. If it were to be the case, and let us hope that it is not, that the first few years of the euro saw a further increase in joblessness, there would be a serious risk that European institutions would become identified by significant sections of the electorate with mass unemployment.

This would compromise the capacity of European institutions to respond to shocks.

A wooden, one-eyed insistence on the simple Atlantic pieties of free market economic philosophy is a poor basis of thought with which to confront the risks of a Europe in which the radical right is back on the march.

These policy errors are rooted in a misunderstanding of the process of globalisation. Today, the term is used to mean what has happened over the past decade: the spread of free markets and the world-wide deregulation of trade and mobility of capital.

Some like to think that the catalyst for this was the fall of the Berlin Wall or the adoption by Deng Xiaoping of market reforms in China or policies of liberalisation applied in western countries.

But, for me, none of these explanations gets to the root of globalisation, which is the spread of industrial production from its heartlands in north-western Europe, North America and Australasia throughout the world.

The underlying historical process of globalisation goes back centuries and it represents the world-wide diffusion of new technologies. Globalisation and a global free market are separate phenomena. The global free market is merely one way of creating globalisation and probably quite a short-lived one at that.

A global free market, modelled on 19th century England and the Anglo-Saxon countries in the 1980s, carries with it important social costs and less stability than conventional opinion perceives. Free markets are not self-regulating. They need management, not only to limit their impact on cohesion but also because speculative bubbles can develop followed by devastating crashes.

Rather than confusing globalisation with a single form of capitalism, we should recognise that it requires a regime under which different types of capitalism can coexist harmoniously to mutual profit.

However, that means a shift in the dominant economic philosophy which many transnational organisations implement.

They see economic reform as always tending to replicate the same practices and institutions throughout the world. That is Utopia. It will always come up against the fact that different capitalisms represent different historical conditions and circumstances today.

This is a legitimate criticism of the International Monetary Fund. The IMF seems to have broadly the same solution to what appear to be radically different economic problems, which reflect the specific histories and circumstances of particular peoples, governments and capitalisms.

There have surely been enough policy disasters by now, and sufficient examples of such universal prescriptions failing to meet the specific needs of reform in particular contexts, for us to be sceptical of this approach.

In Indonesia, it is argued that IMF prescriptions for greater accountability and openness in both the government and the economy were benign since they dislodged an oppressive tyranny.

It is true that the Suharto regime was opaque and oppressive, but it is also true that the incomplete transition which has occurred took place at the cost of economic ruin for much of the population, a fact which will make the task of any successor regime enormously more difficult.

The misreading of our contemporary circumstances is exemplified by Francis Fukuyama in his famous essay The End of History. He concludes from the fact that the conflict between two Enlightenment western ideologies, Liberalism and Marxism, has ended, so history has ended.

In fact, the ending of the bipolar world has not in any sense been followed by global tranquillisation.

On the contrary, the classical origins of war and competition, which had always been there even during the Cold War, have re-emerged very palpably and painfully in the form of conflicts over territory, ethnicity, religion and the control of natural resources. If anything, we have seen a return to history.

Fukuyama also assumed that legitimate regimes all over the world would be exemplars of a single 'democratic capitalism'. But there are several capitalisms and, under the impact of globalising competition, they are all mutating. In many cases, globalisation is producing not democracy but weak or collapsed states or semi-criminalised regimes.

It is a great error to imagine that the spread of democracy over the past nine years is irreversible. People said that about its spread before the First World War, about Communism after the Second World War and about the expansion of Fascism between the wars. All those predictions turned out to be erroneous.

Within the EU itself, attempts to construct a single type of market economy across the continent is a hubristic goal. It either cannot be achieved or the costs of achieving it are higher than is commonly imagined.

The European institutions presuppose that a single model of economic activity is appropriate within all the EU member states but, even as it stands now, the Union is exceedingly diverse.

It encompasses the UK, which has long had an individualistic and outward-looking capitalism reinforced by 18 years of neo-liberal policies, along with the German Rhine model which, though reforming itself slowly, is still not converging with Anglo-Saxon capitalism, and Italian capitalism which, in the strong role it assigns family firms, is more like the Chinese variant than the Dutch, German or British models.

For these reasons, I plead for a different economic model, one which accepts globalisation, is not Luddite and does not share the approach of some Greens, but which seeks to make globalisation work for human emancipation and well-being.

The framework for achieving this should be plural, embody different cultural traditions and capitalisms and, above all, should not be confused with the Utopian project of constructing a universal free market.

John Gray is Professor of European Thought at the London School of Economics. He has recently published "False Dawn", a critique of globalisation.

Author says the EU and its allies are wrong to confuse the process of globalisation with the spread of one-size-fits-all capitalist market. Using free trade as a tool to change economic traditions threatens social piece.