The “ism” enthusiasts are out in force again. These are the analysts and commentators who see everything in strictly ideological terms of socialism versus capitalism, more state control versus less state control. Just now they are all convinced that the pendulum is swinging toward state control, that free-market capitalism is discredited and that a new era of state socialistic dominance is being ushered in by the global financial breakdown.
For those who think this way it is proof enough that giant banks are being bailed out by governments round the world, that General Motors is nearly bankrupt, that Wall Street is in disarray, and industries are queuing up for state help and subsidies to see them through the credit starvation and the world recession.
The name of the great Cambridge economist John Maynard Keynes is much invoked in support of this theory, as being, so it is claimed, the chief advocate of more state spending to revive demand and counteract the collapse of private and individual consumption.
In reality, of course, it was World War II rather than Keynesian economics that lifted the global economy out of its 1930s slump, and Keynes himself was far from being a socialist, believing in a rather limited and wise state authority acting only as a temporary stabilizer until the spirit of free enterprise could be resurrected.
But there are two even more fundamental flaws in this whole way of looking at current events.
The first is to believe that these “isms” or systems of left and rightwing ideology are still somehow in conflict. Except in the communist countries, where the state tried to take over everything, with disastrous results, in most other countries in the 20th century mixed systems prevailed — for the very good reason that nothing else worked. Once the war was over, where obviously the state took the lead, most countries returned, in varying styles, to the natural pattern of individual wealth creation and enterprise, regulated within a collective framework and supported by tax-financed public services.
Even at the height of 20th century socialism, the market and private enterprise continued, and even at the height of later 20th century capitalism, the state remained large and influential. For example, at the peak of the era of Thatcherite reform in Britain, the welfare state remained intact and government spending still took well over a third of the national product, far more than Japan or the United States.
In short, the collective state and the private sector always act in a kind of symbiosis. That is the natural pattern of affairs to which things always return after being wrenched away to one extreme or the other.
But the much bigger flaw in the fashionable argument that the state is back in the driving seat is the failure to grasp how the very concept of “the state” has changed and how this makes invalid all analogies with the arguments about “state versus individual” of the last 100 years or so.
Today’s nation state administration is a much feebler, less competent and more confused machine than the overbearing apparatus of state that confronted theorists in the 1930s. Thanks to the information revolution today’s state has become far more of a reactive service-provider than the tyrannous monopolist of power it once was.
With a quarter of the world’s population now plugged into the Net, not even the most dictatorial regime can afford for long to ignore interactive pressures or dismiss demands for better services of all kinds, more care and protection from every kind of threat, man-made and natural, greater sensitivity and brisker general performance.
So the problems of governance have magnified twice over. The state has fewer tools of power and yet is expected to perform more efficiently than ever and deliver more results than ever.
It is expected to anticipate tsunami and earthquakes, which it fails to do. It is expected to counter terrorist outrages — which in Mumbai it notably failed to do a few days ago, and as, of course, in the case of 9/11. It is expected to curb crime, which keeps on rising. It is expected to regulate financial markets, which it has failed quite patently to do. It is expected to rescue and even run the banking system, which it is totally unqualified to do, and probably incapable of doing.
Even more demandingly, governments are expected to lift the world out of poverty, which they have failed utterly to achieve.
Not only have rivers of financial aid directed into Africa left that continent in as turbulent and distressed state as ever, as witnessed by the present appalling suffering and bloodshed in the Congo, in Zimbabwe, in Somalia and elsewhere. But even on their own home ground and in their own backyard, the governments of many richer countries have been unable to eradicate serious poverty or deliver full employment. For example no less than 31 percent of Americans are estimated to be living below the poverty level.
So there is no certain cure to be found for all the world’s ills in either more state control and intervention or less. Nor is the pendulum swinging from one “ism” to another. The weakened and over-loaded state and the innovative but unstable free-market private sector are going to need each other more than ever, like two convalescents leaning on each other.
The need is not to spend time proclaiming the superiority of one system over the other but to work out better ways for the two to address the ferocious new challenges which it is clear that neither the state alone, nor free enterprise alone, can handle.
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