LONDON – It is said by some that history unfolds in decades-long waves or swings of the pendulum, each phase tending to counter or reverse the philosophies, beliefs and fashions of the previous one. If that is so then the political and economic history of the last 60 years or so at first glance fits the theory rather well.
There can be no doubt that round about 1970 the world began to get tired of the dominant and powerful state, which seemed to have reached its limits, and started looking to markets and capitalism as the way forward.
That was then. But 40 years or so later, market capitalism, too, reached its limits, boiling over into world financial chaos around 2010.
Since 2010, there has been a distinct drift back to state solutions and state intervention in many countries, with talk of market failure and demands that inherently unstable markets, turbo-boosted by the digital revolution, should be constrained. The claim is that the inequalities of unrestrained market capitalism are unacceptable and the globalizing of markets and finance deemed increasingly unfair. People seek protection from dangerous global forces that they do not understand or welcome.
All this is music to the political left, with demands for prices to be capped and businesses to be curbed. Even the doctrines of Karl Marx, long thought to be discredited, now receive a new airing — although oddly it is just this changed sentiment which brought U.S. President Donald Trump to power and has reinforced the angry populist mood on the right as well.
But whether from left or right, establishments and elites that seemed to do so comfortably well during the past age of global markets are now under attack. Demands for new types of leadership and a return to strong government intervention and protection can be heard all round.
For example, in the United Kingdom this reaction can be seen in the popular rejection of the notion of “austerity,” which was being depicted as bearing down unfairly on public services — the very opposite of the doctrine of 40 years ago, in the time of Prime Minister Margaret Thatcher, when swelling and inefficient public services, and the high taxes that went with them, were seen as the enemy of growth and prosperity for all. Now the call is for raising taxes, not lowering them, to feed public programs, public workers’ pay and public infrastructure investment.
But before one assumes that this swing of events and opinion conforms neatly with the theory, there are just one or two aspects that complicate the picture and do not fit at all.
The first is that this is largely a Western-centered way of looking at things, springing from centuries-old ideological debates between capitalism and socialism, state power and market power, government and the individual. Asian economic progress seems largely unaffected by this ideological divide that has so consumed Western political discussion.
In particular, China appears to defy the left-right analysis by combining heavy central power with enormous market-driven growth and enterprise, per-capita income having risen from $780 in 1997 to $8,000 or more today. It could all come unstuck but so far it seems to show that there is no pendulum swing one way or the other, just a straight-line growth of a hyper-mixed economic system, the only ideology being that political democracy is to be avoided at all costs, however much capitalism is allowed to reign. From the Western point of view this is like the puzzle of the bumblebee, whose wings are far too small to enable it to fly, yet it does, and very well, too. Facts and theory simply do not work together.
In a completely different way, Japan, the other great Pacific industrial power, seems to get along well without the ideological contortions that so preoccupy the West. A subtle mixture of state power and private enterprise neatly bypasses the whole debate. So there, too, one finds not much evidence of an anti-market reaction and a counter-revolution against the capitalist system.
But then there is an even bigger historical factor which nullifies the simple vision of history as a left-right-left pendulum swing — namely evolution itself. In cerebral terms the human race (or most of it) has been getting smarter over millions of years and there is no reason to believe that the process has stopped. So even if disillusion has set in with markets and even if more state planning and state solutions are demanded there is every hope that this time round they can be smarter than before.
What killed off faith in state action in the 20th century was its sheer cumbersome inefficiency, with the over-centralized Soviet Union collapsing under its own weight and rigid bureaucracy everywhere killing off innovation and progress. If we are to have a new era of more state intervention and more limited market power, then it is reasonable to hope that it can be a lot cleverer, less concentrated and harmonize more closely with the decentralizing and flexible tendencies that the digital age permits and encourages.
There is one further major reason why any return to the big government, or to undue central control of the economy, whether of financial policy, industrial strategy or bureaucratic administration by state, should be approached with extreme caution.
In the age of increasingly frequent cyber-attacks and hacking assaults it is the centralized systems which are the most vulnerable. Whether it is a state health service, state welfare programs or big monopoly state utilities such as for water or electricity, or even just city-wide traffic control, the bigger the core system the juicier the target for the cyberattackers to knock out, bringing chaos and social breakdown faster than any other kind of attack (except perhaps a nuclear missile).
That should be food for thought for would-be planners and tidy-minded bureaucrats, itching to get back to big government and control of messy and volatile market forces. The pendulum of fashion and theory may be swinging, but let’s hope the swing is small and brings with it some wiser handling this time — as well as better learning from the colossal failures of the past.
David Howell is a Conservative politician, journalist and economic consultant. He is chairman of the House of Lords International Relations.