August 2010

A Review of John Gray's False Dawn

John Gray’s popular critique of globalization and laissez-faire capitalism, False Dawn*, was originally published in 1998. It has enjoyed a resurgence as a “prophetic” account of our current global economic problems, but I think the book is better viewed as an incomplete analysis, and one that is riven with contradictions and equivocations.

Gray’s clearest and most consistent argument is that capitalism, and especially the sort of global laissez-faire capitalism promoted by the United States (i.e. the so-called “Washington consensus”) is not a natural state of being, and did not evolve naturally. On the contrary, laissez-faire capitalism is a politically constructed product, quite unnatural in most human societies and rarely long-lasting. Thus, the free market “that developed in Britain in the mid-nineteenth century did not occur by chance. Nor, contrary to the mythic history propagated by the New Right, did it emerge from a long process of unplanned evolution. It was an artefact of power and statecraft” (p.7). The system was contingent on an extensive and efficient colonial system, a government-led enclosure movement that enshrined private property, and a long-standing (but relatively unique) culture of individualism. On top of these elements, the British government engineered a laissez-faire economy through a number of extraordinary government measures: “The removal of agricultural protection and the establishment of free trade, the reform of the poor laws with the aim of constraining the poor to take work, and the removal of any remaining controls on wages were the three decisive steps in the construction of the free market in mid-nineteenth-century Britain” (p. 11). Indeed, only in mid-nineteenth century Britain, and in Anglo-American countries since the 1980’s, has laissez-faire capitalism been sustained in any meaningful manner. Gray concludes that the promotion of laissez-faire capitalism - an Enlightenment “universal civilization”, according to Gray – is as utopic as Soviet Bolshevism. The promoters of “neo-conservative” capitalism [now called neoliberal] are “as much captivated by the illusion that the historic sources of human conflict can be transcended as the most vulgar Marxist” (p. 102).

So what form of global economic system is likely to develop in the near future? According to Gray, it will be an eclectic mixture of different forms of capitalism, forms which respect local cultures and traditions, and which meet the primary needs of social cohesion and a baseline level of sustenance. Gray believes that the most successful economies will be the mixed economies in Asia. [Can Germany emerge as a successful and pragmatic member of the global economy? His answer (in Chp. 4) is a tortuous yes and no.] Though Gray wants to avoid generalizations about Asiatic economies, he nevertheless generalizes about Asiatic economies: “One of the appeals of ‘Asian values’ is that by adopting a thoroughly instrumental view of economic life they avoid the western obsessions that make economic policy an arena of doctrinal conflict” (p. 192). In comparison to Asian pragmatism, ideologically narrow laissez-faire economies are at a disadvantage: “In the contest between the American free market and the guided capitalisms of East Asia it is the free market that belongs to the past” (p. 131). The United States will continue to advocate for the Washington consensus, but its long-term prospects are dim. Indeed, evidence “of the superior economic growth, savings rates, educational standards and family stability of countries that have repudiated the American model will be repressed, denied and resisted indefatigably. To admit this evidence would be to confront the social costs of the American free market” (p. 131). America, in other words, will retard the successful acceptance of a framework “in which governments can protect what is distinctive and valuable in their economic cultures” (p. 204). Because of this, Gray is enormously pessimistic about the future of the global economy.

There are two profound problems with Gray’s analysis. The first is that inequality is only briefly discussed (see pp. 32, 108 and 114 ff.). For Gray, inequality is a social problem that leads to legitimacy issues for Western governments. Yet, as we’ve seen from the analyses of David Harvey, inequality is more than merely a political steering problem. Inequality is at the core of the housing bubble and the exotic debt instruments that have been used to create demand where real wealth does not exist. The wealth and income inequalities within states, and the growing trade imbalances between states, are simply not a major part of Gray's Tory worldview. In this manner, Gray’s book is not prophetic as one reviewer has stated.

The second major problem with Gray’s book is that he has two meanings of “anarchic” economies. The first meaning is clear enough: laissez-faire capitalism is enormously destructive of both political intervention (via Keynesianism and social democracy) and traditional social structures (so revered by conservatives). There is no longer any job security when global capital and trade flow freely across borders. And, ironically, the” free market seems set to achieve what socialism was never able to accomplish – a euthanasia of bourgeois life” (p. 72). In addition to social destruction, laissez-faire capitalism hollows out “the business corporation as a social institution” (ibid). Pensions and other long-term guarantees are no longer the responsibility of corporations, and the prospect of a life-long career seems an archaic relic. Finally, the ascendancy of financial capitalism in the West has meant that the “inherent instability of anarchic [emphasis added] global markets has been enhanced by the growth of an enormous, highly leveraged virtual economy in which currencies are traded for short-term profits” (ibid). In short, the laissez-faire project of reducing all relationships to self-interested monetary transactions seems at hand.

On the other hand, Gray also uses “anarchic” to refer to a period of globalization when the laissez-faire experiment has failed: “Every economy is being transformed as technologies are imitated, absorbed and adapted. No country can insulate itself from this wave of creative destruction. And the result is not a universal free market but an anarchy [emphases added] of sovereign states, rival capitalisms and stateless zones” (p. 194). Technological interdependence, environmental degradation and resource scarcity will render the current set of national and international institutions powerless to stop increased strategic conflict.

It’s unclear whether Gray is aware of the two meanings of anarchy, but he occasionally offers a synthesis: “Worldwide mobility of capital and production triggers a ‘race to the bottom’, in which more humane capitalist economies are compelled to deregulate and trim back taxes and welfare provision. In this new rivalry all the varieties of capitalism that competed during the post-war period are mutating and metamorphosing” (p. 218). Gray appears to be arguing that laissez-faire capitalism causes its successor (post- laissez-faire capitalism). This might actually make sense, but the transition is never fully explained, and it does not reflect his other argument that the Asian and German economies will resist laissez-faire capitalism. To the extent that they are successful in resisting the transformative nature of capitalism, then neither form of anarchy appears inevitable. Of course, it could be that the second meaning - of technology and resource-driven global anarchy - is really just moving the laissez-faire project to its most extreme form. The two anarchies are not conceptually distinct nor successive stages; they are part of the same process. In his original conclusion, Gray seems to be pointing that way, even if it contradicts his earlier discussions:

“The spread of new technologies throughout the world [Gray’s second form of global anarchy] is not working to advance human freedom. Instead it has resulted in the emancipation of market forces from social and political control [laissez-faire capitalism]. By allowing that freedom to world markets we ensure that the age of globalization will be remembered as another turn in the history of servitude.” (p. 208)

This confusion and equivocation is seen throughout the book, and particularly in its conclusions. To be sure, Gray’s book does have some strong elements. The arguments about the artificiality of market capitalism and America’s fateful intransigence are consistent and well argued. Nevertheless, the inconsistencies betray his argument. Does laissez-faire capitalism cause or succumb to a new form of global anarchy? Are they really the same thing? Will the Asian economies resist the demands of laissez-faire capitalism? Gray believes they will, but Asia (as Gray admits) seems weakened compared to the West after 1997. And, finally, if the Asian countries do resist laissez-faire capitalism, isn’t their pragmatism likely to overcome global anarchy? If so, Gray’s Hobbesian pessimism may derive from the wrong problems.

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*Gray, John. False Dawn, 2009 Edition ed. London: Granta, 2009. Print.

Wooing Business Leaders Is Futile for New Dems: A Response

With a few corrections, the following is my contribution to the conversation arising from an article in The Tyee by Will McMartin:

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Well done, Will! Another strong empirical analysis, in a manner almost non-existent in the "A" section of our corporate newspapers.

While giving up on appeals to the business sector might appear reasonable (assuming Shepard is representative of the business class), giving up on talking about the economy is not. The average citizen, not the business class, needs to hear from the NDP leadership that the party is serious about the economy, and will not cede this issue to the BC Liberals due to indifference. They need to know that the NDP has answers for the bumper-sticker accusations against previous NDP governments. And, they need to know that the NDP has a legitimate set of economic policies, where "competition" and "productivity" are not dirty words.

For example, instead of beating the social welfare and environment angles to death (issues where the NDP already has favourable ratings), talk about new things like tax breaks to encourage worker ownership. Say yes to an ownership and enterprise culture, but one where workers are encouraged to gradually assume collective ownership and responsibility for businesses. Social democratic yes, but still recognizing the realities of the market.

Is Carole James up for this? Unlikely. Despite her avowed interest in going in a new direction, she is too conservative: stick to the tried and true, belabor the obvious.

Measuring our Debt

One of the most important but confusing economic benchmarks is the level of debt carried by a nation. Is it in constant or inflated dollars? How do we account for population growth and inflation? Adding to the complexity is the different levels of government in a country like Canada. Probably the best way of measuring debt is as a percentage of gross national product. In an indirect way, it accommodates natural growth (like population and inflation), the health of our economy, and the capacity to carry debt at any given time.

The following are two interesting graphs that help explain Canada's debt, as reported by The Globe and Mail on Aug. 3, 2010:

One interesting thing to note from the second graph is that Canada's total debt load looks as bad as the United States. In a certain sense it's true; debt is debt, after all, and all citizens must eventually pay up. But constitutionally speaking, Canada's federal government is not responsible for provincial debt, while most of the 50 states in the United States cannot run long-term deficits. So, the American federal government owns most of America's debt, while Canada's federal government is, as of 2006, only responsible for 63% of Canada's overall government debt. Our federal government, in other words, doesn't have the same debt burden as the American national government, or even the British government (given its unitary structure). Of course, the current federal government in Canada is also benefiting from Paul Martin's reign as Finance Minister during which he passed "the buck (but not the bucks) on to lower levels of government".